COA affirms wife’s interests in family trusts are ‘speculative’

An Indiana trial court correctly determined that a woman’s interests in discretionary family trusts are too remote and speculative to be included in the marital pot as part of her dissolution proceedings, the Indiana Court of Appeals ruled Thursday.

During her marriage to Joseph Harrison, Terry Royal Harrison’s father established six irrevocable family trusts that made distribution discretionary at the hands of Royal Harrison and her sisters, who could approve distributions by a majority vote. Each of the sisters took a $50,000 distribution in 2013, 2014 and 2015.

In 2015, Joseph Harrison filed for divorce, then subsequently petitioned for his wife’s interests in the trusts to be counted as marital assets. Royal Harrison filed a response in which she claimed the trusts could not be considered part of the estate because they were subject to discretionary distributions, so they were “too remote” to be considered assets.

The Vanderburgh Superior Court denied the husband’s petition, agreeing with Royal Harrison that her interests were “too remote and speculative for the inclusion of any trusts as marital property… .”

Joseph Harrison then filed an interlocutory appeal in Joseph H. Harrison, Jr. v. Terry Royal Harrison, 82A01-1611-DR-2699, arguing the trial court abused its discretion. But the Indiana Court of Appeals disagreed, with Judge Rudolph Pyle writing Thursday that under the terms of the trust, Royal Harrison would take nothing from the trusts if she died before her parents. Thus, the trusts “are subject to a complete defeasance,” Pyle said, drawing on precedent from Loeb v. Loeb, 261 Ind. 193, 301 N.E.2d 349 (1973) and Fiste v. Fiste, 627 N.E.2d 1368, 1372 (Ind. Ct. App. 1994).

“In addition, during her lifetime, Wife will receive nothing unless a majority of the co-trustees elect to make a disbursement,” Pyle continued. “The Royal Family Trusts do not require them to do so. As in Loeb and Fiste, Wife’s interests in the Royal Family Trusts are too remote.”

In a footnote to the unanimous opinion, Pyle further rejected Harrison’s argument that his wife’s receipt of distributions in 2013, 2014 and 2015 should be included in the marital pot.

“Instead, we find instructive the Supreme Court of Colorado’s determination that the ‘fact that some income has been distributed to the wife, at the sole discretion of the (co)-trustees, (does not) change the nature of the underlying trust,’” he wrote, quoting In re Marriage of Jones, 812 P.2d 1152, 1156 (Colo. 1991).