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INTERESTS IN TRUSTS AS PROPERTY IN DISSOLUTION OF MARRIAGE: IDENTIFICATION AND VALUATION
Real Property, Probate and Trust Journal, Spring 2005 by Chorney, Marc A
In Trowbridge v. Trowbridge,129 husband was entitled to a future distribution of a remainder interest that was subject to husband's mother's income interest, her right to withdraw $5,000 of trust principal in any year, and her right to receive additional amounts of principal as the bank trustee "deem[ed] necessary or advisable for certain purposes."130 The Wisconsin Supreme Court approved the trial court's decision to award wife thirty percent of whatever accrued to husband.131 The court further stated that the trial court
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could properly order [husband] to transfer to [wife] or her heirs, legatees, or assigns, 30 per cent of any funds received by [husband] from the trust and could contain other provisions to make that one effective, such as retaining jurisdiction for the purpose of enforcement, enjoining [husband] from attempting to transfer or surrender his interest, or otherwise act to prejudice [wife's] rights, and imposing a lien upon the assets now assigned to [husband] as security for the transfer of 30 per cent of the trust proceeds.132
In Zuger v. Zuger,133 husband's deceased father created a testamentary trust that was valued at $936,000 at the time of trial. The surviving spouse, husband's mother, possessed a mandatory income interest during her life and a right to withdraw the greater of $5,000 or five percent of the trust principal each calendar year on a noncumulative basis. At the mother's death, the principal was to be distributed equally between husband and his three siblings. Because the principal could be invaded, the trial court concluded that an award to wife of a specific dollar amount would be speculative, and instead ordered that wife receive one-half of husband's share when it became available to him. The North Dakota Supreme Court upheld the percentage and the method of distribution.134
Notably, husband's interest in the trust in Zuger could have been quantified easily by making a present value calculation.135 Although the approach in Zuger eased the burden of the trial court by eliminating complex analysis, this author believes that courts should rely on such an approach only as a last resort. Otherwise the risk that the divorced spouses, trustees, and other trust beneficiaries will become entangled in controversies regarding the administration of trusts and the exercise of powers and discretions is significant. A court may be tempted to use a method that avoids the current valuation of an interest in a trust, such as when the parties provide little evidence to establish a value; but the failure to quantify an award raises the risk of continuing financial and emotional entanglement of ex-spouses and their families.
V. ESTATE AND GIFT TAX VALUATION OF TEMPORAL INTERESTS
Determining the value of a future interest in a trust on the basis of relevant facts and circumstances may require consideration of matters such as the health of beneficiaries, the specific assets held in trust, the past performance of trust investments, the projections for future performance, the prior trust distributions, the identity of the trustees, and a number of other subjective factors. To avoid a facts and circumstances analysis, Congress mandated the use of actuarial valuation tables for certain tax purposes.136
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