Chapter 4 - § 4.2 • OTHER JURISDICTIONS

• Jurisdiction: Colorado

§ 4.2 • OTHER JURISDICTIONS

Other states have addressed valuation and division of interests in trusts. The methods have been diverse, and in some instances not well reasoned. The following discussion provides a sample of methods employed in various jurisdictions.

In the Kansas case of McCain v. McCain,²⁴ the husband possessed remainder interests in two tracts of farmland subject to life estates of one aunt for one tract and another aunt for the second tract. The court valued the husband's remainder interest as it would have been valued for federal estate tax purposes.²⁵

In the Oregon case of In re Marriage of Von Ofenheim,²⁶ the husband was a beneficiary of three trusts. His remainder interest in one trust was to become possessory if he survived his 74-year-old mother, who held a mandatory income interest and a right to withdraw 5 percent of the trust principal per year. The two other trusts were to be distributed to the husband at a date certain. The trial court valued the trust interests using the current value of the trust assets, and the Oregon Court of Appeals affirmed. No reduction in value was attributed to the fact that the husband's interests would not become possessory until events and dates in the future. The wife's award of her share of the trust interests was determined to be a sum secured by the husband's interest in the trusts.²⁷ The award was in the form of a judgment against the husband to be paid on the date one of the trusts was to terminate, with interest to accrue until payment.²⁸

In In re Marriage of Van Riesen & Cross,²⁹ also decided by the Oregon Court of Appeals, the wife was a remainder beneficiary of a trust created by her deceased father. The wife's living stepmother was apparently entitled to distributions for support during her lifetime, with the balance of the trust remaining at the death of the stepmother to be distributed to the wife and her siblings. The husband was awarded 20 percent of the wife's share of the trust to be paid within 30 days of the wife's receiving her share.³⁰

The Montana Supreme Court in Buxbaum v. Buxbaum³¹ reviewed the valuation of a trust beneficiary's "vested" remainder interest subject to defeasance by a power of invasion for the benefit of the beneficiary's living mother. After first concluding that the remainder interest should be included in the marital estate, the court affirmed the trial court's valuation of the remainder using the undiscounted appraised value of the trust assets. In rejecting the beneficiary spouse's contention that the discounted present value of the interest should be used, the court reasoned that the current value of the remainder interest was used as collateral by a corporation of which the trust was a 35 percent shareholder.³²

In Fox v. Fox,³³ the Supreme Court of North Dakota considered the value of the wife's interest in an irrevocable life insurance trust that held life insurance policies insuring the husband's life. The policies had combined cash values of $290,000, and the wife was the trustee of the trust. The wife was entitled to all the trust income from its inception and after the husband's death. The wife, during any calendar year, also could withdraw the greater of $5,000 or five percent of the trust principal. In determining the value of the wife's interest in the trust, the trial court agreed with the approach propounded by the wife's expert, who provided several different scenarios.³⁴

The wife's expert calculated the value of the wife's interest in the following manner:

1) The cash values of the life insurance policies were determined;³⁵
2) A payment stream of the income until the husband's projected date of death was calculated using an assumed interest rate;
3) The trust income for the wife's remaining life expectancy after the husband's projected date of death was calculated in addition to the greater of $5,000 or 5 percent of the trust principal per year; and
4) The sum of the income and withdrawn principal was discounted to its present value.³⁶

The North Dakota Supreme Court upheld the trial court's determination as being within the range of its discretion.³⁷

In Fox, the income beneficiary's interest was valued for purposes of a property division.³⁸ It appears that the analysis would also have been applicable for the valuation of the remainder interest in the trust. If the North Dakota court was instead valuing the remainder interest, it would seem that the remainder interest would have been the current value of the trust assets reduced by the present value of the income beneficiary's interest.

As mentioned, the trust reviewed in Fox was an irrevocable life insurance trust.³⁹ Irrevocable life insurance trusts are common estate planning devices that are typically used to make life insurance policy proceeds available to an insured's family without subjecting the proceeds to estate tax at the deaths of the insured or the insured's spouse. Because irrevocable life insurance trusts are frequently utilized, courts likely will encounter them in identifying and valuing interests in trusts.

In Trowbridge v. Trowbridge,⁴⁰ the husband was entitled to a future distribution of a remainder interest that was subject to the...