An important recent case in Massachusetts has planning implications for married couples, especially when there is inherited property.
The divorce of Jones v. Jones was filed in 2019. Inherited property and gifted property was a significant issue in the divorce. The wife’s mother had set up an irrevocable trust for the benefit of her daughter and had supported the couple financially throughout the marriage. The judge in the case deemed that the trust should be treated as marital property. The wife disagreed on the grounds that the interest in the trust was too speculative to be defined as such. In September 2023, the Massachusetts Appeals Court decided that the trust could be considered marital property.
The wife argued that she had not received any distributions from the trust and she would not receive the trust assets in full until her mother’s death. Yet the appeals court found that the existence of the trust was “woven into the fabric of the marriage,” as the family’s financial decisions had been made under the assumption that the funds from the trust would be available to the wife at some point in the future. The family had enjoyed a standard of living that would not have been attainable without gifts from the mother throughout the marriage and the expectation of money held in trust for the wife.
The irrevocable trust was created in Michigan and was controlled by an independent trustee who had discretionary powers to make or withhold distributions to the wife during her mother’s lifetime. The wife argued that this meant the trust should not be considered a marital asset. The court, on the other hand, found that the trustee did not have the power to ultimately divest the wife of her interest in the trust, and hence the wife’s interest was “fixed and enforceable.”
Key to the court’s decision was the fact that the wife was the sole beneficiary of the trust. Another critical factor was that the wife also had power of appointment over the trust assets.
An important takeaway from the decision is that careful planning in one situation can backfire in another.
The mother’s planning served her daughter very well in the absence of divorce. The wife was set to benefit from the trust and the existence of the trust provided financial security within the marriage. The wife maintained her interest in the trust, and the court did not order the wife to give assets in the trust to the husband. The wife, however, was required to pay substantial funds to equalize the marital settlement in the divorce.
Divorce is not something anyone wants to anticipate, but when inherited property is involved, caution is advised. Jones v. Jones serves as an important lesson to include provisions for what can go wrong. One particular lesson that can be drawn from this case, is that caution is warranted when a child is the sole beneficiary of a trust.
Fortunately, there is a range of proactive estate planning decisions that can be taken by parents concerned for their children’s financial security. For example, trust terms could stipulate that trust interests should be conditioned on a prenup to separate marital property from inherited property. Careful drafting of an estate plan and any trusts can avert many situations that children may face when circumstances change.
If you are a parent who plans to support your child throughout their lifetime and to bequeath assets after your death, careful planning can bring peace of mind.
Please contact Robert Arone at rarone@oarlawyers.com, Julia Abbott at jabbott@oarlawyers.com, or any of our experienced Massachusetts estate planning attorneys below to learn more about how we can support your plans for your legacy and to make sure those plans take into account recent aspects of Jones v. Jones.
