INTERESTS IN TRUSTS AS PROPERTY IN DISSOLUTION OF MARRIAGE: IDENTIFICATION AND VALUATION

In In re Marriage of Von Ofenheim,117 the court of appeals accepted the trial court's calculation of the present value of husband's interests in three trusts and wife's award of the marital assets was determined to be a sum secured by husband's interest in the trusts.118 The award was to be paid on the date one of the trusts was to terminate, with interest to accrue until payment.119

The Montana Supreme Court in Buxbaum v. Buxbaum120 reviewed the valuation of a trust beneficiary's vested remainder interest subject to defeasance by a power of invasion for the benefit of the beneficiary's living mother. After first concluding that the remainder interest should be included in the marital estate, the court affirmed the trial court's valuation of the remainder using the undiscounted appraised value of the trust assets. Rejecting the beneficiary spouse's contention that the discounted present value of the interest be used, the court reasoned that the current value of the remainder interest was used as collateral by a corporation of which the trust was a thirty-five percent shareholder.121

In Fox v. Fox,122 the Supreme Court of North Dakota considered the value of wife's interest in an irrevocable life insurance trust that held life insurance policies insuring husband's life. The policies had a cash value of $290,000, and wife was the trustee of the trust. Wife was entitled to all the trust income from its inception and after husband's death. Wife, during any calendar year, also could withdraw the greater of $5,000 or five percent of the trust principal. In determining the value of wife's interest in the trust, the trial court agreed with the approach propounded by wife's expert, who provided several different scenarios.123

The expert calculated the value of wife's interest in the following manner:

1. The cash values of the life insurance policies were determined.

2. A payment stream of the income until husband's projected date of death was calculated using an assumed interest rate.124

3. The trust income for wife's remaining life expectancy after the husband's projected date of death was calculated in addition to the greater of $5,000 or five percent of the trust principal per year.

4. The sum of the income and withdrawn principal was discounted to its present value.125

The North Dakota Supreme Court upheld the trial court's determination as being within the range of its discretion.126

In Fox the income beneficiary's interest was valued for purposes of a property division.127 It appears, however, that the analysis would have been applicable for the valuation of the remainder interest in the irrevocable life insurance trust. If the court sought a valuation of the remainder interest, the interest would have been the current value of the trust assets reduced by the present value of the income beneficiary's interest.

As mentioned, the trust reviewed in Fox was an irrevocable life insurance trust.128 Irrevocable life insurance trusts are common estate planning devices that are used to make life insurance policy proceeds available to an insured's family without subjecting the proceeds to estate tax at the deaths of the insured or the insured's spouse. With the frequent use of irrevocable life insurance trusts, courts likely will encounter them in identifying and valuing interests in trusts.