Trust Assets and Divorce: The Latest News

This article was published in the September 6, 2017 issue of Steve Leimberg’s Estate Planning Newsletter and provides a discussion on the Ferri vs. Powell case and trusts and divorce. The Connecticut Supreme Court found that trust assets were moved out of reach of a divorcing wife through a ‘decanting process,’ but would be considered for alimony purposes. While about half the states provide statutory authority to decant, most states require that notice be given to beneficiaries. Including decanting provisions in trust instruments may help maximize flexibility without having to rely on state default law.

In this case, the husband was the beneficiary of a trust (the 1983 Trust) created by his father under which he had the right to receive the trust assets at certain ages. The trust was valued between $69 – $98 million. The trustees, who were concerned the divorcing wife would reach the trust assets, transferred the assets to a new trust (the 2011 Trust) without the knowledge or consent of the husband. At the time of the creation of the 2011 trust, the husband had a right to request 75% of the 1983 trust, and during the course of the legal proceedings, his right matured to 100%. The 2011 trust extinguished the husband’s power to request trust assets at stated ages, making distributions solely discretionary with the trustees. The process of transferring the original trust assets to a new trust with different terms is known as decanting.

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