Massachusetts estate planners enjoyed a collective sigh of relief as the Supreme Judicial Court (SJC) agreed to further appellate review of the Pfannenstiehl’s plight to determine whether the husband’s interest in his family’s trust should be divisible as a marital asset during divorce. The SJC issued an opinion that such a trust should not be divided as part of the marital property. [SJC-12031]
When the Pfannenstiehls appeared in case law three years ago, the MA Appeals Court had upheld the Probate and Family Court’s determination that the husband’s one-eleventh fractional beneficial interest in his family’s trust balance (there were 11 living beneficiaries at the time) was a marital asset, with 60% of his one-eleventh share to be paid to the wife as part of the property division in their divorce. The class of trust beneficiaries was open to include any future descendants of the donor, but the lower court used the existing number of beneficiaries to calculate the value as the husband’s present interest.
The estate planning community was roiling in confusion, since the Pfannenstiehl family trust had elements that estate planners regularly rely upon for the protection of their clients’ assets: completely discretionary distributions, a spendthrift clause, and co-trustees, including one disinterested trustee. Estate planners were scratching their heads and regrouping at the drawing board. Wasn’t the point of establishing this type of trust to prevent exactly the scenario that occurred? Shouldn’t the trust protect the family’s assets from creditors and transfers outside of the family blood line during a beneficiary’s divorce? If not, what’s the point of creating a trust at all? The bullet-proof language had suddenly been pierced and in that moment all similar trusts were potentially at risk.
So imagine the relief brought by the SJC’s opinion, restoring established expectations to the world of trust provisions. It should be noted that the specific facts in Pfannenstiehl relating to the trust distributions and the particular terms of the trust factored into the SJC’s decision. The conclusion is not that trusts are globally excluded from consideration as marital property during a divorce, but that with the right facts and circumstances, they still can be.
*Beth Aarons is a Mediator and Collaborative Law attorney who runs her own practice in Newton and is of counsel to Skylark Law & Mediation, P.C. Beth's practice includes family law mediation, collaborative divorce representation, and estate planning, trusts and probate practice. Click here to learn more about Beth or here to schedule an appointment with Beth.