trust shieldHi there,

I continue to be amazed by the distinguished group of divorce and probate lawyers I have the privilege to work with at Burns & Levinson. Today’s decision on Pfannenstiehl v. Pfannenstiehl, a case which will guide family financial planning across the country, is a credit to their hard work and dedication. We’re proud to bring you part two of this story which our contributor Tiffany Bentley brought to our attention back in April. This case was deemed “unwinnable” by many, so it is hugely important to our client as well as a celebrated achievement for our team.

Best,
Nancy


Almost exactly four months ago, I blogged with great pride about the compelling arguments from my colleague, Bob O’Regan, to the Supreme Judicial Court in the matter of Pfannenstiehl v. Pfannenstiehl. Today, I blog with even greater pride about the SJC’s unanimous decision in our client’s favor.

In Pfannenstiehl, initially both the Trial Court and the Appeals Court went to great lengths to ensure that the wife would benefit from an irrevocable trust established by her (now former) husband’s father. The husband had no access to or control over the trust. Assets and income were held for the benefit of the children, grandchildren, and more remote descendants of the husband’s father; 11 beneficiaries in total at the time of trial. Distributions to any one or more of the beneficiaries could be made only in the discretion of the trustees. Still, the Trial Court determined, and the Appeals Court affirmed, that the husband’s interest in the trust was subject to valuation and division as a marital asset. The Trial Court further determined, and the Appeals Court affirmed, that the wife was entitled to receive 60% of the value of the husband’s interest. The husband was ordered to make 24 monthly payments of $48,699.77 to the wife to buy out her share. Keep in mind that the husband had no right to access or demand funds from the trust itself to make these payments.

In seeking further appellate review at the Supreme Judicial Court, the husband made three primary arguments in opposition to the lower courts’ rulings. The SJC adopted each such argument in its opinion:

  1. The trust authorized distributions in the trustees’ sole discretion, so the husband had no control over whether or when he would receive distributions. The husband was eligible to receive distributions, but had no present or enforceable right to receive any specific dollar amount at any particular time. Therefore, the husband’s interest in the trust was not sufficiently certain to be included as an asset in the equitable distribution of the marital estate.
  1. The class of trust beneficiaries remained “open.” The birth or adoption of additional children, grandchildren and more remote descendants, could increase the number of beneficiaries at any time. Therefore, the lower courts erred in concluding that the husband had a one-eleventh interest the trust for valuation purposes.
  1. The trust included “spendthrift” language prohibiting creditors or assignees from reaching a beneficiary’s interest in the trust. There was no way for the husband to compel distributions from the trustees to provide funds to his wife, who was not a beneficiary.

The wife argued that the trust’s “ascertainable standard” language rendered the husband’s interest sufficiently certain to be included in the marital estate. Legalese explanation: “ascertainable standard” language requires a trustee to make distributions as needed for a beneficiary’s health, education, support or maintenance. The SJC disagreed with the wife’s argument, holding that the husband’s interest remained “speculative” despite the ascertainable standard. As a result, it could not be reached, valued and divided as a marital asset. The SJC remanded the matter for further consideration by the Trial Court. The lower court may permissibly consider the husband’s interest in the trust as a potential future opportunity for the husband to acquire assets. This could perhaps justify a disproportionate award of the remaining marital property to the wife. She cannot be awarded a share of the trust itself.

Pfannenstiehl is now the definitive law on the inclusion or exclusion of trust interests in divorce proceedings. In addition to controlling the outcome of future cases in Massachusetts, this will provide guidance in each of the 35+ states that use an equitable distribution statute similar to our statute.

Hope this helps!
Tiffany

For more information, read Burns & Levinson’s official press release on Pfannenstiehl v. Pfannenstiehl.