Is a trust a “mere expectancy” as it pertains to classification of potential property interests as marital or nonmarital? If an interest is sufficiently certain and concrete, it is marital property subject to equitable distribution between divorcing litigants. If the interest is a mere expectancy, it is too uncertain, speculative and remote to include in the divisible marital estate.
Expectancies are not sufficiently certain to classify them as marital property
The question of whether an asset is a mere expectancy applies to a variety of property types. For example, we have previously discussed whether particular kinds of potential or difficult-to-define interests like retirement plans, pensions, degrees and licenses, unvested stock options and executive perks are sufficiently concrete that including them as marital property with tangible value would be fair – or are they mere expectancies?
The Connecticut Supreme Court quoted a Tennessee case defining expectancy as the “bare hope of succession to the property … Such a hope is inchoate. It has no attribute of property, and the interest to which it relates is at the time nonexistent and may never exist.” See Krause v. Krause, 174 Conn. 361 (1978). Put another way, is an interest contingent on a particular future event occurring that is uncertain enough that the potential property interest is only an expectancy?
Giving a divorce litigant as part of their property distribution an “asset” without sufficient certainty that it will eventually vest in the interested spouse would certainly be unfair. The spouse with that property on their side of the ledger may never receive it. An expectancy is not part of the presently available property subject to equitable distribution. See Rubin v. Rubin, 204 Conn. 224 (1987).
Applying a complex analysis to a complicated trust
When is a trust interest sufficiently concrete enough that it is reasonable to call it marital property in divorce? At a basic level, a trust is a legal vehicle a person can create to hold money, property or other assets for distribution to a beneficiary or multiple beneficiaries. A named trustee, who is a person or entity named to control and distribute the trust assets to the beneficiary, must follow the directions and standards for distribution that the creator (settlor or grantor) established in the trust instrument.
A person may create a trust to keep assets out of the reach of someone – creditors, a spouse or child, a vulnerable or incompetent person, children or grandchildren, a loved one with an addiction or who makes unwise financial decisions are examples. The trust settlor may want the trustee to use the corpus (trust assets) to support or care for a person, or to dole out assets to a beneficiary in small amounts over time. Other reasons to use a trust may include charitable giving, tax planning or protection of a disabled loved one’s eligibility for public benefits.
Or to shield assets from availability to their spouse in divorce.
The types of and purposes for trusts as well as the kinds of powers, discretion granted and limits placed on trustees are endless. Against this backdrop, if a divorcing litigant has an interest in a trust, when is that interest sufficiently certain to be marital property rather than a mere expectancy? This interest could be in the trust assets, in an income stream from the trust or in both.
Factors relevant to whether a trust is a marital asset
Courts analyze trusts in this context to determine whether a litigant has any access to or control over trust assets:
- Is the litigant a beneficiary who can request distributions or who is scheduled to receive distributions or trust income? Or does the trustee have complete power to make these decisions subjectively at their discretion? Are the trust instructions unlikely to cause the trustee to make a distribution to the litigant?
- Is the litigant the sole beneficiary or are there multiple? Or is the litigant’s interest contingent on another event such as surviving another person?
- Does the beneficiary have the power to redirect trust distributions to their children instead of taking ownership themselves?
- What is the history of distributions or trust income and has it benefited a spouse?
- Who is the trust settlor? Was it a third-party as part of their estate plan or was it a spouse trying to make assets unreachable from the other spouse? (See a recent article in Family Lawyer Magazine for more on this.)
- What is the nature of the trust assets and where did they come from?
- What is the relationship between the trustee and the beneficiary spouse? Is there space between the trustee and the divorce litigants?
Takeaways
Divorces involving complex, valuable trusts are often intricately complicated factually and legally. An experienced Connecticut family lawyer can carefully review a trust instrument to understand whether either litigant has a sufficiently concrete ownership interest in the corpus or in any income stream from the trust. The answer to this question may significantly affect the financial worth of the marital property subject to equitable distribution. Legal counsel is important whether the litigant is a potential trust beneficiary or the other spouse questioning trust asset ownership.
