INTERESTS IN TRUSTS AS PROPERTY IN DISSOLUTION OF MARRIAGE: IDENTIFICATION AND VALUATION

Real Property, Probate and Trust Journal, Spring 2005 by Chorney, Marc A

D. In re Marriage of Beadle

Other state courts have considered trusts in which a spouse's equitable interest has been vested but is subject to defeasance by reason of a power of appointment. In re Marriage of Beadle33 concerned a trust similar in design to the Balanson B trust, except husband's mother held a special testamentary power of appointment exercisable in favor of descendants. The trial court held that the remainder interest, though initially vested, no longer was vested by virtue of the mother's execution of a codicil to her will that would have defeated husband's interest.34 The Montana Supreme Court affirmed, but instead reasoned that husband's remainder could not be vested until the power holder's death. In the author's opinion, this logic is flawed and a consequence of attempting to reconcile the law of future interests with equitable property divisions. A more logical rationale is that, vested or not, some interests are simply too uncertain to constitute property.

E. Massachusetts Law

In S.L. v. R.L.,35 the court considered whether five trusts would be included in the marital estate for property division purposes.36 One of the trusts was a marital trust in which wife's mother held a general power of appointment exercisable by will. The court held that the trust should not have been included in the marital estate because wife's remainder interest was "susceptible of complete divestment upon the wife's mother's exercise of the power."37 Under this logic, whether the power was general or special and whether the trust was or was not a marital trust is irrelevant.

The court reached an opposite conclusion as to wife's interests in the other trusts, one of which was almost identical in design to the Balanson B trust. The distinction drawn by the court was that wife's interest in the nonmarital trusts "[was] subject only to her surviving her [then living] mother, a condition [that Massachusetts precedent] considered not to bar inclusion within the marital estate."38

Similarly, in D.L. v. G.L.,39 the marital estate did not include husband's vested remainder interest in a trust, subject to divestment, because the interest "was susceptible of complete divestment upon the [husband's father's] exercise"40 of a testamentary special power of appointment, and as a consequence, "the equivalent of an expectancy under a will."41 Husband's grandmother created a trust that would be distributed to the husband and others upon the death of the father in default of the exercise of the power of appointment. Until final distribution, the trustee had the power to spray distributions of income and principal among a broad class of trust beneficiaries.

F. Is Balanson II a Bright Line Test?

If Balanson II is the bright line test that vested remainders, though subject to divestment, constitute property, unexpected and unusual results likely will follow.42 A different interpretation, however, is possible. Balanson II may, and in this author's opinion should be, interpreted as a more limited holding. The vested remainder interest in the B trust, which was subject only to conditions of survivorship and the invasion of trust principal for the care and maintenance of the beneficiary with the then current interest, constituted property under the facts and circumstances of that case. Under this interpretation, the type, number, and extent of the contingencies, both under the instrument and under the facts and circumstances of each case could result in a determination that the interest, even though vested, is too susceptible to complete divestment to constitute property (whether by reason of a power of appointment, trustee power, or the needs of the current beneficiaries). If this more limited interpretation is correct, the corollary is that not every vested remainder interest in a trust is property for purposes of C.R.S.A. Section 14-10-113.