What Happens To Trust Assets If Your Children Get Divorced?
By: Morris Law Group - November 28, 2014
Most trusts contain language that is intended to protect assets held in trust from creditors of the beneficiaries. Attorneys call these provisions "spendthrift clauses." A typical spendthrift clause will state that trust assets cannot be used to satisfy obligations owed by the beneficiary.
In 1985, the Florida Supreme Court decided Bacardi v. White. In that case, the Court held that spendthrift clauses do not protect trust assets from alimony payments owed to the former spouse of a beneficiary. In other words, if you set up a trust and a beneficiary of the trust gets divorced from her or his spouse, it will take more than a spendthrift clause to protect the trust assets from domestic support obligations.
Luckily, the Court in Bacardi also decided that if trust distributions are to be made solely in the discretion of an independent trustee, then courts cannot force a distribution. So assets held inside a discretionary trust (i.e. a trust were distributions are only made in an independent trustee's discretion) are technically safe from the claims of former spouses. However, to the extent that distributions were actually made, the Bacardi decision allowed such distributions to be attached by the former spouse.
In short, it became very difficult, if not impossible, to shield trust assets from the claims for spousal support after 1985.
Then, in 2006 Florida's Trust Code was revised. On its face, the revision seemed to suggest that distributions from a discretionary trust could not be garnished, even for spousal support or alimony purposes. Specifically, Florida Statutes section 736.0504 stated that a creditor of a beneficiary may not "attach or otherwise reach the interest, if any, which the beneficiary might have as a result of the trustee's authority to make discretionary distributions."
What does this mean for you? Well, if you have a significant estate and you're concerned about your children (or other beneficiaries) having access to trust funds while protecting those assets from claims for alimony, you need to plan for more than just a Florida trust. Other states like Nevada, Delaware, and South Dakota provide specific protection for trust assets against claims for spousal support. At this time, it is unclear if a Florida court would respect such a trust formed in another state. If you desire a greater level of protection, you may consider forming the trust for your beneficiaries in an offshore jurisdiction, as the Florida court would not control the Trustee of the trust, since the offshore trustee won't be under the jurisdiction or otherwise required to comply with a court order. That is a very strong form of asset protection and can result in better security for the beneficiary.
Our firm has vast experience with forming and assisting with the administration of such trusts. Please contact our office for more information
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