Chapter 2 - § 2.2 • INTEREST MUST BE POSSESSORY

• Jurisdiction: Colorado

§ 2.2 • INTEREST MUST BE POSSESSORY

Some courts have held that an interest in trust does not constitute property for purposes of a property division until the interest becomes possessory. In Solomon v. Solomon,³⁸ the wife's father created an irrevocable trust for the wife and her three sisters. The wife was entitled to one-fourth of the trust income. The wife could withdraw a small amount of principal before age 35. At age 35, the wife could withdraw one-half of the principal, and at age 40, she could withdraw all of the principal. The wife held a power of appointment exercisable by will over the portion of the trust that she was "entitled to withdraw at the time of her death, with the remainder to pass to her issue, or if none, to the trusts of her three sisters."³⁹ At issue was the increase in the value of the trust and the extent to which the increase constituted marital property subject to the court's dispositional power.

The Supreme Court of Pennsylvania held that the wife's interest in the trust "amounted to a mere expectancy as it was contingent upon her attaining age thirty-five" and that "any increase in value of [the] trust prior to [the wife's] acquiring any right to possession and control of the principal cannot be included as marital property."⁴⁰ The wife did not withdraw the one-half interest in the principal at age 35, and the increase in the value of the one-half interest in the principal subsequent to her 35th birthday was deemed to be marital property.⁴¹

The Wyoming Supreme Court in Storm v. Storm⁴² reviewed a testamentary trust that held ranch property. "[I]ncome from the ranch [was] to be paid to [the husband] and his sister for a period of ten years from the date of their father's death. At the end of ten years, . . . the ranch was to be set over to [the husband] and his sister 'or the survivor of them' in equal undivided interests — or one-half to each."⁴³ The court noted that the husband's share would not come into being unless he was living at the end of the 10-year period. The Wyoming Supreme Court referred to the interest in the trust as "the inheritance"⁴⁴ and a "prospective expectancy of an estate."⁴⁵ The court held that the interest was not subject to division.

In another relatively early case, the Supreme Court of Indiana, in Loeb v. Loeb,⁴⁶ held that a "vested remainder interest subject to complete defeasance"⁴⁷ should not have been included in the pool of divisible assets. The husband's mother created an irrevocable trust...