A recent matrimonial case points out the difficulties of when one party to a divorce is the beneficiary of one or more trusts.
In Tannen v Tannen, a recent published case from the Appellate Division, the wife was the beneficiary of a trust established by her parents. She was the sole beneficiary and was also one of the trustees along with her parents. The standard for distributions, by the terms of the trust, was for the best interests of the wife’s “health, support, maintenance, education and general welfare.” The trust was of the “discretionary” type, that is, under the terms thereof, the trustees had “sole discretion” over distributions of both income and principal, and they should make their determinations after considerations of the wife’s other financial resources, but “without regard to the duty of any person to support” her. The trust also included a “spendthrift” provision which prohibited the wife, as beneficiary, from assigning, selling, encumbering, or in other ways “alienating” income or principal distribution without the written consent of the trustees. At the time of trial, the corpus of the trust included cash and securities, investment real estate, the home in which the parties and the children lived. The trust paid for the property taxes on the home, half of the cost of a housekeeper, and various capital improvements. The trust also paid for the children’s private school tuition, but on at least one occasion, the wife’s father refused her request for distribution for a vacation trip. Without there being delineation in the body of the opinion, it nonetheless appears that income generated by the trust may have significantly exceeded these disbursements on an annual basis.
At the trial judge’s direction, the trust was named as a party to the litigation and participated at trial.Continue Reading To Trust or Not