Thanks to generosity of Leimberg Information Services, we are pleased to provide to you a recently published article on LISI, where nationally renowned estate and asset protection attorney, Steve Oshins, and CPA, Bob Keebler, report on a new Florida case determining whether an alimony creditor can access distributions from Florida discretionary trusts.
“The uniqueness of this case is that writs of garnishment were applied to discretionary trusts. This violates the general rule that discretionary trusts are protected from all classes of creditors and support trusts (which must rely on their spendthrift provision for protection) are protected from all creditors except for certain classes of exception creditors as determined by case law or by judicial determination on a state-by-state basis.
The State of Florida has a history of desiring to protect former spouses. A very well-known case, Bacardi v. White, 463 So. 2d 218 (1985), which was decided many years prior to the Florida Trust Code’s enactment, issued a garnishment order with respect to a support trust. Although the Bacardi case dealt with a support trust that relied on its spendthrift provision for protection, the court specifically addressed whether a discretionary disbursement is subject to a writ of garnishment and concluded that “if the trustee exercises its discretion and makes a disbursement, that disbursement may be subject to the writ of garnishment.” Although that comment was irrelevant to the Bacardi decision, it seems that the State of Florida is following that with the enactment of the Florida Trust Code and its interpretation of the applicable provisions.”
EXECUTIVE SUMMARY:
On Nov. 27, 2013, the Second District Court of Appeal of Florida issued its decision in Berlinger v. Casselberry, Case No. 2D12-6470 (Fla. 2d DCA Nov. 27, 2013) in which the Florida Court for the first time interpreted certain statutory provisions in the relatively new Florida Trust Code with respect to the extent in which a beneficiary’s former spouse can access trust assets to satisfy unpaid alimony payments. The Court held that Florida Statutes §736.0503(3) allows the Court to order a writ of garnishment against a Florida discretionary trust, thereby enabling a beneficiary’s former spouse to access distributions as they are made from the trust.
This is a devastating development when a trust created by a parent or grandparent for the benefit of a loved one would be exposed to post-divorce claims of a spouse.
FACTS:
After thirty years of marriage, Bruce Berlinger and Roberta Sue Casselberry divorced in 2007. Pursuant to a marital settlement agreement ratified by the court and incorporated into the final judgment of dissolution, Berlinger agreed to pay Casselberry $16,000 a month in permanent alimony. Thereafter, Berlinger and his current wife enjoyed a substantial lifestyle sustained through payments made to Berlinger directly or on his behalf by multiple discretionary trusts. Although he continued to live on the substantial proceeds of the trusts, Berlinger voluntarily stopped paying alimony in May 2011.
Unbeknownst to Casselberry, Berlinger executed deeds on July 21, 2011, conveying his two-third interest in his real property, including his residence (the Banyon Property), into a never-before-disclosed trust, the Schweiker-Berlinger Irrevocable Life Insurance Trust. Berlinger reported his two-third interest in the Banyon Property to be worth $1,386,000. Berlinger never amended or supplemented his financial disclosures to reveal the real property transfer or the existence of the Schweiker-Berlinger Irrevocable Life Insurance Trust. To the contrary, Berlinger gave a deposition eight days after he executed the deeds and set up the new trust and swore that there were no life insurance trusts and that he was no longer the trustee for any of the family trusts. However, Casselberry’s discovery efforts revealed this new trust.
Berlinger was provided a Visa card from the then corporate co-trustee of the discretionary trusts to use for paying expenses not directly paid by the trusts. The trusts paid the Visa credit card bills, including expenses for travel, entertainment, clothing, medical expenses, grooming, gifts, and Berlinger’s current wife’s credit card bills.
Casselberry filed a motion for writ of garnishment against the trustee of the trusts seeking to attach the present and future distributions made to or for the benefit of Berlinger from any trust. Casselberry alleged that traditional methods of enforcing alimony were insufficient. Berlinger asserted that the trusts were discretionary and opined that the applicable trust statute, section 736.0504, prohibited any creditor, including Casselberry, from attaching any distributions paid on behalf or for the benefit of Berlinger.
Additional evidence adduced at the hearing revealed that Berlinger and his current wife continued to live on the Banyon Property and that the mortgage loan for the property remained in Berlinger’s name. Neither Berlinger nor his wife were employed and neither of them intended to look for work. All of their expenses were paid by the trusts.
On November 27, 2012, the trial court entered orders granting Casselberry’s motion for continuing writs of garnishment. These were “continuing” writs of garnishment because writs of garnishment had previously been granted at a different hearing.
The order on the continuing writs provided that all distributions made directly or indirectly to, on behalf of, or for the benefit of Berlinger by the trustees of all of the trusts would be made payable to Casselberry unless, at the time of any future distributions, there was no alimony or alimony arrears owed. Further, the order provided that if the trustee wished to make distributions to Berlinger beyond the amount of the then outstanding amount of alimony, the trustee must seek court approval before doing so to ensure that there remained sufficient assets in the trust to secure the continued payment of alimony.
COMMENT:
The uniqueness of this case is that writs of garnishment were applied to discretionary trusts. This violates the general rule that discretionary trusts are protected from all classes of creditors and support trusts (which must rely on their spendthrift provision for protection) are protected from all creditors except for certain classes of exception creditors as determined by case law or by judicial determination on a state-by-state basis.
The State of Florida has a history of desiring to protect former spouses. A very well-known case, Bacardi v. White, 463 So. 2d 218 (1985), which was decided many years prior to the Florida Trust Code’s enactment, issued a garnishment order with respect to a support trust. Although the Bacardi case dealt with a support trust that relied on its spendthrift provision for protection, the court specifically addressed whether a discretionary disbursement is subject to a writ of garnishment and concluded that “if the trustee exercises its discretion and makes a disbursement, that disbursement may be subject to the writ of garnishment.” Although that comment was irrelevant to the Bacardi decision, it seems that the State of Florida is following that with the enactment of the Florida Trust Code and its interpretation of the applicable provisions.
Florida Trust Code Statute
The Court used Florida Statutes §736.0503(3) as authority to grant the writ of garnishment. The entirety of Florida Statutes §736.0503 reads as follows:
736.0503 Exceptions to spendthrift provision.—
- As used in this section, the term “child” includes any person for whom an order or judgment for child support has been entered in this or any other state.
- To the extent provided in subsection (3), a spendthrift provision is unenforceable against:
- A beneficiary’s child, spouse, or former spouse who has a judgment or court order against the beneficiary for support or maintenance.
- A judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust.
- A claim of this state or the United States to the extent a law of this state or a federal law so provides.
- Except as otherwise provided in this subsection and in s. 736.0504, a claimant against which a spendthrift provision may not be enforced may obtain from a court, or pursuant to the Uniform Interstate Family Support Act, an order attaching present or future distributions to or for the benefit of the beneficiary. The court may limit the award to such relief as is appropriate under the circumstances. Notwithstanding this subsection, the remedies provided in this subsection apply to a claim by a beneficiary’s child, spouse, former spouse, or a judgment creditor described in paragraph (2)(a) or paragraph (2)(b) only as a last resort upon an initial showing that traditional methods of enforcing the claim are insufficient.
Last Resort?
Florida Statutes §736.0503(3) allows this remedy “only as a last resort upon an initial showing that traditional methods of enforcing the claim are insufficient.”
The Berlinger facts indicate that Mr. Berlinger went out of his way to try to evade paying the alimony, even to the point where he transferred away significant assets and failed to update his financial statements, not to mention failing to disclose material items at his deposition. The unanswered question is how the Florida courts will stretch the term, “last resort.” Does “last resort” mean that the party isn’t making payments and there’s a trust for that beneficiary with plenty of assets? Or does “last resort” only come into play when the party is being deceptive and does not fall into the category of a person who, for no fault of his or her own, cannot make the payments? Only time will tell as new case law develops.
Strategies to Avoid this Result
Based on how Florida is handling this issue, the careful estate planning professional will:
- Avoid using Florida law for any irrevocable trust where the expectation is that the trust assets shall be protected from family claims against a beneficiary of the trust. Prior to selecting a different jurisdiction, check that state’s statutes to make sure there is no similar statute.
- Include a provision in the trust agreement allowing the trustee or trust protector to change jurisdictions. Change jurisdictions well in advance of any problems.
- Give an independent party, such as the beneficiary’s close friend, the power to add and remove beneficiaries, including the ability to remove that beneficiary and add that beneficiary’s spouse. This strategic maneuver will allow the beneficiary to live through his or her spouse when faced with a creditor issue.
TECHNICAL EDITOR: DUNCAN OSBORNE
CITE AS:
LISI Asset Protection Planning Newsletter #232 (December 16, 2013) at http://www.leimbergservices.com Copyright 2013 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.
CITES: Berlinger v. Casselberry, Case No. 2D12-6470 (Fla. 2d DCA Nov. 27, 2013); Bacardi v. White, 463 So. 2d 218 (1985); Florida Statutes §736.0503; See also Barry A. Nelson, “Are Trust Funds Safe From Claims for Alimony or Child Support?,” Wealthmanagement.com (Dec. 6, 2013) at http://wealthmanagement.com/estate-planning/are-trust-funds-safe-claims-alimony-or-child-support-0