Divorce at Altitude: A Podcast on Colorado Family Law

Future Contingent Beneficiary Interests in a Trust | Episode 92

March 14, 2022 Ryan Kalamaya & Amy Goscha Season 1 Episode 92
Divorce at Altitude: A Podcast on Colorado Family Law
Future Contingent Beneficiary Interests in a Trust | Episode 92
Show Notes Transcript

Aspen divorce lawyer Ryan Kalamaya explains future contingent beneficial interests in a trust and how they are addressed in a Colorado divorce.

What happens if there is an interest in something like a marital trust or another kind of trust based on a future contingency?

 3 Different Methods

  • Deferred distribution
    • 60/40%
  • Separate property for gift or inheritance
  • Post-decree appreciation?
    • Taxes?
    • CPA or arbitration
  • Reserved jurisdiction
       Marital trust
       Estate taxes or other 
       Post-decree appreciation
       Arbitration
  • Net present value
       Discount for the risk of forfeiture
       IRM Mohrlang

 Experts

  • Valuation experts
  •  Estate experts - is it even property?

Related episodes 

  •   Episode #17 - Expert Witnesses
  •   Episode # 56 - Property Division
  •   Episode #58 - Marital and Separate Property
  •   Episode # 86 - Trusts

Ryan Kalamaya (1s):
Welcome to Divorce at Altitude, a podcast on Colorado family law. I'm Ryan Kalamaya each week, along with my business partner and cohost Amy Gosha or an Expert, we discuss a particular topic related divorce or co parenting in Colorado. In addition, we have created a short series of lessons that will take you through the legal process of divorce and answer your questions from simple to complex divorce. Isn't easy. The end of a marriage, especially when children are involved, brings a great deal of loss and change. We hope these practical tips and insights will help you On your journey to a new and better life.

Ryan Kalamaya (42s):
This how to episode on Future Contingent, Beneficiary Interests in a Trust and how they can be addressed in Colorado divorce. Now, instead of me just spitting out legal gobbledygook, like Future Contingent, Beneficiary Interests, I'm going to be relying on my favorite two people. You guessed it, Eric and Melanie Wolfe. If you're unfamiliar with Eric and Melanie Wolfe's divorce story, you can listen to Eric's story at episode one, or you can listen to episode 74, Melanie, Wolf's a story. You can also find them by searching their respective names and my last name online, and you'll be able to find them on our website. So Eric and Melanie are in the middle of their divorce.

Ryan Kalamaya (1m 22s):
Eric is really close with his father and his father's name is Gary Gary Wolf. Now Gary and Eric's mother have gone through a divorce on their own, which is fairly common. And Gary has remarried to a woman that will name Patty Patty Wolf. So Eric is telling his dad all about his divorce and because of the stress and uncertainty, Gary unfortunately passes away in the middle of the divorce. Now Gary has quite a lot of money and he has provided for Eric in two different ways. He has left Eric a trust interest that Eric is going to inherit immediately, and it will be for $5 million. But Gary also wants to provide for his second wife, Eric stepmother, Patty, and once Patty passes away, then Eric will inherit some additional money.

Ryan Kalamaya (2m 11s):
And that the way that Gary provides for Patty is called a Marital trust. There could also be another example where Eric might be the beneficiary of some sort of trust interest in which it's dependent on somebody else passing away in the future. And in essence, it's based on a future contingency. So how do you address that in a Colorado divorce? Well, there's three different methods and they're mostly borrowed from how cases in Colorado have addressed pensions or retirement interests. And if you want, you can go back and listen to another episode on qualified retirement accounts that we have in our, how to series.

Ryan Kalamaya (2m 51s):
But in general, what we have is deferred distribution, reserved jurisdiction, and the third method net present value. So I'm going to go back to defer distribution. So in that circumstance, the court could look at the Marital trust that Eric is a beneficiary of, and he could, he or she, the judge could say, well, once Patty dies, then I'm going to split it 60 40 for Eric and Melanie. And it's going to be based on whenever she passes away, you're going to address different issues, such as the separate and marital portion of that Marital trust. You also are going to have to navigate, and the Jessica have to navigate post decree appreciation.

Ryan Kalamaya (3m 33s):
There's other issues such as taxes and CPA, and one issue that you could resolve or resort to in resolving the dispute between Eric Melanie is they could agree to have a CPA or to arbitration on what happens in that deferred distribution. It's fairly unlikely that a court is going to use a deferred distribution when a Future Contingent Beneficiary Interests in a Trust is involved. Well, what about the second method, which is reserved jurisdiction? Could the Corp at some point say, well, I don't know when Patty is going to pass away and I am going to just carve that issue out. And once Patty does die, I'll address that at a later point.

Ryan Kalamaya (4m 15s):
And the simple answer is that the court is authorized, but there is case law that supports using a net present value, but parties in settlement could certainly agree to address that. And there might be some re compelling intrusive issues as to why they might do that. And they could have a disagreement on the Estate taxes. The estate tax could vary and often varies from, you know, political regime to political regime. There also might be a risk that Eric never actually inherits that money. And so the parties, Eric and Melanie could agree to arbitration, or they could agree to reserve jurisdiction and address it once Eric inherits the money once Patty dies, but you then can address post to create a appreciation because generally speaking, that's going to be Separate property, but there's a whole host of reasons why parties may agree to just preserve jurisdiction.

Ryan Kalamaya (5m 10s):
What about the net present value? That's the most common method that is employed and that's pursuant to a case in your marriage of Mohrlang. And what's going to happen is a valuation expert is going to come in and is going to rely on various assumption. And it's often going to be on an actuarial table. So how long is it going to be before Patty is likely going to pass away? You also have to deal with what the future returns are going to be on that property that Patty has suffice it to say involves a lot of complexities. So whenever these Future Contingent Beneficiary Interests in a Trust are involved, you're frequently dealing with multiple experts.

Ryan Kalamaya (5m 50s):
There's a valuation expert on looking at the return of investment and discounting and other sorts of financial. There also might be Estate experts in whether or not that Marital trust or other things are or are not property. And if you want to learn more on this very complex issue, you can go back and look in, listen to episode 17, which is on Expert Witnesses. You can also find out more by episodes, 56 and 58. That's about Property Division and Marital and Separate Property. Finally, you can find out more information about trusts on a higher level in episode 86, but for now, that is what we have on Future Contingent, beneficial interests.

Ryan Kalamaya (6m 33s):
And I'll remind you that this is only educational in nature. And if you're dealing with anything related to a trust, you need to go see an attorney because it's going to be a lot more complicated than you probably think. Thanks for listening or watching this short lesson on the Divorce at Altitude podcast. If you found this helpful, please leave a review or share with a friend. It does help for others that are going through or thinking about a divorce in Colorado. If you want to find out more information, please visit Kalamaya dot law or Divorce at Altitude dot com. That's K a L a M a Y a.law. Remember, this is educational information.

0 (7m 13s):
It's not intended to be legal advice. Please consult with an attorney about particulars of your case. We're happy to answer questions. Feel free to give us a call at nine seven three one five two three six five.