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

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

This suggested facts and circumstances approach will require the trial court to consider the contingencies to which interests in trusts are subject and the facts and circumstances surrounding the trust and its beneficiaries. At some point, a court appropriately may say the contingencies render the interest too uncertain, remote, or speculative to constitute property. The court then could avoid the issues and difficulties that otherwise would ensue when quantifying those contingencies and predicting the likelihood of an exercise of powers. Balanson II then would be viewed as a marker on one end of the spectrum. Vesting would not serve as a talisman and to the extent this bright line rule now exists, it would be dimmed. More than one court has said that "the concept of vesting should probably find no significant place in the developing law of equitable distribution."43

G. In re Marriage of Jones and In re Marriage of Rosenblum

In arriving at its decision in Balanson II, the court distinguished its prior decision in In re Marriage of Jones.44 In Jones wife became a beneficiary of a trust created by the mother's will during the marriage. A bank and wife's father, as trustees, "had [the] uncontrolled discretion to distribute income and principal from the trust to [the father], the wife, or to the wife's descendants for expenses that the trustees determined to be necessary for their 'health, welfare, comfort, support, maintenance and education.'"45 The trust was to terminate upon the death of both the wife's father and wife, at which time the trust assets were to be distributed to wife's descendants and if there were no descendants, to the mother's heirs.

Husband argued that the trust was the separate property of his wife and that the increase in the value of the trust principal was marital property. The court held that wife's rights in the trusts were "merely an expectancy and [did] not rise to the level of property."46

The court provided three distinct and inconsistent rationales for its holding. First, the trust was "completely discretionary"47 and wife "could not force the trustee to pay income or principal unless she could establish fraud or abuse."48 This rationale raises the question of whether the result would differ if the trustee were required to distribute the trust property for wife's reasonable needs. Second, the court stated that the interest in the trust was "not assignable and [could not] be reached by [the beneficiary's] creditors."49 Spendthrift provisions typically are included in trust instruments, and the existence of those provisions has been irrelevant in the analysis of whether beneficial interests in trusts constitute property.50 If the result turns on whether a trust instrument contains a spendthrift clause, very few trusts would be included in the pool of divisible assets. Third, the court distinguished "a discretionary trust from those trusts that grant the beneficiary some future, vested benefit not within the discretion of the trustee to withhold, but whose value may be uncertain at the dissolution of the marriage."51 The distinction drawn by the court does not, in the author's opinion, require that vested beneficial interests necessarily constitute property.52