Court Rules that Irrevocable Trust is a Marital Asset

This week the discussion will follow up from last week, when we discussed that a wife that had given real estate property to family members so it wouldn’t be considered part of a marital estate. This week we are going to talk about an irrevocable trust and whether or not the trust is a part of their marital estate.

This is a case from the Massachusetts Appellate Court, in the case held in Pfannenstiehl, in which the husband was ordered to pay 60% of his share of his trust to his ex-wife. In August, 2015, The Massachusetts appeals court held that the husband’s interest in a irrevocable trust was considered an asset. The court concluded that the husband and wife had a vested interest.

This case could have a significant impact on the way in which estate planning is done by lawyers in Massachusetts and other states related to inherited property and asset protection. The trust was set up by the father for the benefit of the of the husband and his siblings as well as their children. In the trust, the document contains language which obligated the trustee to make payments of income or distributions for the benefit, support, for health, maintenance, welfare and education of the children.

Between 2008 and 2010, the trustees made monetary payments from the trust to the husband totaling over $800,000. The husband-and-wife relied on this trust to support their lifestyle and also care for their children, both of the minor children in this case had special needs.

The husband contended and relied on that he did not have an enforceable right; because, the trustees could refuse any action. The trustees did in fact refuse to make distributions to him as to the trust agreement. The appellate court agreed with the trial court and decided that the husband’s interest in the trust was a marital asset. The court further added that the trustees had my payments to the beneficiaries including his children for comfort, support, health, welfare and education. Thus, the court relied heavily on the fact that the trustee had been making distributions today and has been for the children since 2004. The court agreed that the irrevocable trust was a marital asset.

The court in their analysis and opinion relied heavily on the fact that the trust distributions were “a woven and considered a fabric of the marriage”, which held the family unit together. The court rejected the husband’s argument that the trust was not his and a part of the marital estate.

While this is not an Alabama case, it is significant and should be important to discuss if you are contemplating divorce. If you are receiving income from a trust from your parents or grandparents, it is best consider the implications of your marital assets before you file a divorce case.

You need to consult with an attorney about trust assets. After reviewing this case, I don’t reach the same conclusion that the appellate court did. I find it quite confusing that a court would overrule the intent of a trust for the benefit of the beneficiaries. The trust should not be considered part of a marital estate. The purpose of the trust was for the husband and his children not his wife. I believe the court could’ve come to a better conclusion to carve out a way to benefit the children from the trust.

Categories: