In a recent Massachusetts case, Pfannenstiehl v. Pfannenstiehl, (Mass. App. Ct., Nos. 13-P-906, 13-P-686 & 13-P-1385, August 27, 2015), the court determined that an ex-wife did have access to a trust created by the husband’s father (the “Father”) for purposes of dividing assets in a divorce. Similar to a Florida case, Berlinger v. Cassleberry, 133 So.3d 961 (2d Dist. Ct. App. Fl 2014), where the ex-spouse was also successful in accessing funds in a discretionary trust, Pfannenstiehl points out other factors to consider.
In Pfannenstiehl, Father created a trust for the benefit of his son (the “Husband”) and son’s siblings. The trust contained a spendthrift provision which stated that “[n]either the principal nor income of any trust created hereunder shall be subject to alienation, …by the person for whom the same is intended, nor to … garnishment or other seizure under any legal, equitable or other process.”
The trust provided that the trustee had discretion over the distributions to the beneficiaries to provide for the “comfortable support, health, maintenance, welfare and education of each or all members…” During the years Husband and wife were married, Husband received trust distributions of approximately $800,000. After the filing for the divorce, the trustee did not pay Husband any distributions.
Husband argued that the spendthrift provision prevented the trust principal and income from being part of the property considered in the divorce proceedings. The trial court and the appellate court determined that “the mere statement of a spendthrift provision in a trust does not render distributions from a trust… immune to inclusion in the marital estate…” (emphasis added).
The court also determined that the distribution standard, discretionary distributions for “comfortable support, health, maintenance, welfare and education” gave Husband a right to trust distributions. Thus, Husband’s interest in the trust was subject to equitable distribution.
Under Florida law, based on the Berlinger case, a court would likely permit access to the trust under the same facts as Pfannenstiehl. Until Florida legislation clarifies the access to a purely discretionary trust for a spouse, if you want to protect your assets to the maximum extent possible, have independent trustees, include a spendthrift provision which applies to not only creditors but also to spouses and make the trust purely discretionary (not the standard of “health, education, maintenance and support”).