August 24, 2011
Should the terms of an irrevocable trust be altered simply because the beneficiary of the trust is getting divorced? In
Chapman v. Chapman, ___ N.E.2d (Ind. Ct. App. 2011), Cause No. 02A03-1012-TR-624, the Court of Appeals said, "No," it was foreseeable that the beneficiary could divorce, so the trust could not be altered as a result of that divorce.
less..
A husband and wife created an irrevocable trust, which provided that the assets should be distributed to their son, Stephen, on his 55th birthday. When the trust was created, Stephen was engaged to Carrie and they married about a month later. Eventually, however, Carrie filed a petition for dissolution of that marriage.
After Carrie petitioned for divorce, the trustees filed a petition to reform the trust, seeking to delay distribution of the assets to Stephen for six months. The goal of his petition was to delay the distribution until after the dissolution was finalized. Carrie intervened and opposed the motion. The trial court granted the petition to reform the trust, based on a clause that allowed for reformation in the event of an "unforeseeable" event, and Carrie appealed.
On appeal, the Court held that the trial court erred when reforming the trust.
Here, the trial court interpreted the Trust and found that the dissolution filed by Carrie was a per se unforeseen circumstance that impaired the intent and purposes of the Trust and warranted modification by the trial court to delay distribution of assets to Stephen until the dissolution and any appeal of it is final. We find this is not in line with the Trust's own terms, Sections 24.4 and 26 of the Indiana Trust Code, and the history behind those provisions. We therefore hold that the trial court erred when it concluded that Trustees were not required to establish that the dissolution was an "unforeseeable" event.
This error mattered because the trustees failed to prove that the dissolution at the time of the distribution was unforeseen. Thus, the trust should not be reformed and the distribution should not be delayed.
This should act as a warning to lawyers who are drafting irrevocable trusts. Make sure to think about events that may happen in the future that could affect the trust, so that the trust will truly reflect the intent of those who established it. And remember ... divorce is foreseeable.
Lesson:
It is foreseeable that the beneficiary of a trust may divorce and this should be taken into account when the trust is drafted.
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