(Forbes) - Jones v. Jones, No. 21-P-655, 2023 WL 5729650 (Mass. App. Ct. Sept. 6, 2023) is a recent case that has implications for estate planning and asset protection planning.
In this case the wife and the husband were married in Michigan in August 1998 and had two children together. They did not execute either a prenuptial or postnuptial agreement to govern the disposition of their property in the event of death or divorce. During the marriage, the wife's mother made significant financial gifts to the family, which enabled the wife and the husband to maintain a lifestyle beyond what their incomes could support. Among other gifts, the wife's mother settled and funded an irrevocable trust, of which the wife is the sole beneficiary. The irrevocable trust is governed by Michigan law, which the Massachusetts Appeals Court reviewed in determining the nature of the wife's interest in the Trust at the time of the divorce, but the divorce was under Massachusetts Law for determination of what was, or was not, a marital asset.
The wife argued that, due to the discretionary powers of the Trustee in making or withholding distributions, the Trust was not a marital asset. Both the Probate and Family Court and the Appeals Court disagreed, finding that the wife's interest was fixed and vested notwithstanding that the Trustee could, potentially, postpone the mandatory outright distribution. The Appeals Court held that, while the wife's outright distribution could be postponed under certain circumstances, the Trustee could not divest the wife of her interest, and thus the interest was sufficiently fixed and vested to constitute a marital asset. The Appeals Court thus affirmed the Probate Court's decision to divide the marital estate equally, including the wife's trust interest in the overall value but assigning that interest to her and requiring her to make equalization payments to the husband over time from other assets that were assigned to her. This case has implications for both estate and asset protection planning.
The implications for Estate Planning:
This case highlights the importance of having a prenuptial or postnuptial agreement in place that clearly outlines which assets are considered separate property and which are considered marital property. It is also important that the Trust was for the sole benefit of the wife, whereas if there had been other beneficiaries, the result might have been different.
Implications for Asset Protection Planning:
This case underscores the importance of having a solid asset protection plan in place to protect assets from potential creditors or legal judgments. One strategy for protecting assets is to transfer them to an irrevocable trust, which can shield them from creditors and legal judgments, but this may require a change in those trusts to include multiple beneficiaries.
Even though the Jones v. Jones case applies only to Massachusetts, it serves as a reminder of the importance of careful estate planning and asset protection planning to ensure that assets are protected and distributed according to the owner's wishes. It is important to work with an experienced attorney who can help develop a comprehensive plan that considers all relevant factors and legal considerations.
By Matthew Erskine
September 18, 2023
