As many Floridians may know, the use of trusts as part of an estate planning process has become more common in recent years. While there are many advantages to the use of trusts, the law regarding them can be more complex and harder for individuals to understand than some other estate planning vehicles. A recent state court decision has given a little clarity to one aspect of discretionary trust disbursement.
One reason some people use a trust to pass wealth to heirs, is to protect the assets in the trust from the heir's creditors. When a trust is "discretionary," it means the trustee makes disbursements to the beneficiary at the trustee's discretion, or, in other words, when the trustee feels it is prudent to do so while still protecting the trust assets. Prior to the end of November, however, Florida law was a bit unclear as to whether a disbursement from a discretionary trust could be subject to garnishment by an ex-spouse who had court ordered spousal or child support. A prior Florida Supreme Court decision seemed to say that a continuing garnishment could be placed on disbursements of discretionary trusts, however, a section of the Florida Statutes, when read a certain way, seemed to indicate that this would not be allowed.
The Florida 2nd District Court of Appeals (2nd DCA) decided a case in late November that may help clarify this situation. The case involved an ex-wife with an order of permanent alimony and an ex-husband who was receiving disbursements from discretionary trusts, but had voluntarily stopped making alimony payments. The wife asked for a writ of garnishment, and the husband argued Florida law prohibited such an action. The 2nd DCA decided that the statute in question did not expressly forbid the writ of garnishment, and therefore the disbursements to the husband could be garnished.
As can be seen, the law regarding the administration of trusts can be complicated. Unforeseen consequences can occur if one is not sufficiently knowledgeable about the way statutes and case law interact to create the set of rules that will be followed. Because of this, anyone considering using a trust fr estate planning purposes should ensure that he or she has explored all the potential legal benefits and dangers that may be encountered in the future.
Source: wealthmamagement.com, "Update: Are Trust Funds Safe From Claims For Alimony or Child Support?," Barry A. Nelson, Dec. 9, 2013