Protecting a Beneficiary's Inheritance from Divorce in Alabama

Protecting a Beneficiary's Inheritance from Divorce: Some Paths Forward in Spite of Legal Uncertainty

By Zach Anderson, Owner, Valley Estate & Elder Law

Much has been written about the “greatest generational wealth transfer in history”, as America’s “baby boomer” generation is set to pass along over $68 trillion in the near future. But little has been written about protecting it. Every day, the thought-to-be generational wealth of unwitting Americans is taken by the divorcing spouse of one of their children or beneficiaries With an American divorce rate upwards of 50%, estate planning attorneys should take note of this tremendous opportunity to add value to their clients by making sure that this does not happen.

Unfortunately, attorneys often fall short in this regard, as many attorneys often either (1) fail to even broach the concept of asset protection with their clients or (2) advise clients that simply placing assets into an irrevocable trust for the benefit of a descendant (or other beneficiary) renders those assets unreachable by a divorcing spouse under Alabama’s spendthrift trust laws. This is not necessarily true. However, clients can achieve divorce protection for a beneficiary with a properly- designed comprehensive estate plan.

Alabama's Spendthrift Trust Laws: Solid Protection from Creditors

A spendthrift trust is a type of trust that is unreachable by creditors of a beneficiary.* In other words, a person or entity who obtains a judgment from winning a lawsuit against a beneficiary of a trust cannot obtain the assets of the trust to satisfy the judgment against the beneficiary. Creating a spendthrift trust is simple. Alabama law provides that if a trust includes language purporting to make the trust a spendthrift trust, then the trust is a spendthrift trust. Estate planning practitioners largely consider spendthrift trusts to be one of the most important fundamental tools of protecting assets, particularly after the death of person or people who create a trust (called “Settles”).

Dicker, Jessica, Strategies to Navage the 558 Trillion Great Wealth Transfer, According to Top-Ranked Ado October 17, 2022, CNC https://www.cnb.com/2022/10/17/how-to-navigate-the-great-wealth-transfer-according
-top-advisors.textBaby%20boomers%20are%20ef%20also%20roducing%20the%20x%20
Id
Marriage and Divorce, Centers for Diseme Control and Prevention, https://www.cdc.gov/nchs/stats/marriage-
divorce hom
See Ale Code 619-3B-501
Id at &
19-3B-502)
See Lesser, Lutrey, Pasques & Howe, LLP; A Spend Trust: An Essential Estate Planning Tool April 29, 2021; https://www.liphlegal.com blog/2021/04/a-spend-out-an-essential-tool-in-estate-planning: Koenig, Dong How Spend Trots can Proiect your Wealth & Family, Union Bank & Trust April 19, 2021, https://www.bt.com/learning-center/blogs/how-spandrifi-trust-can-protect-your-wealth-family

As strong as the protections around spendthrift trusts are, there are exceptions to this
protection. That is, certain creditors can still reach the assets of a spendthrift trust. Two such
exception creditors to spendthrift trusts are a beneficiary’s child or spouse who has a judgment
against the beneficiary for support or maintenance.7
In fact, Alabama courts do not even consider
a spouse seeking alimony or child support a “creditor” in any sense of the word.
8 Thus, in Alabama,
a divorcing spouse seeking child support or alimony is such a “supercreditor”9
that they are not
even a creditor at all!

Dividing Assets After Divorce: The “Regularly Used for the Common Benefit” Rul

In divorce, the property of the two former spouses is divided by the trial court overseeingthe divorce proceeding.10 Alabama, being an “equitable distribution” state, as opposed to a“community property” state, requires an “equitable, fair, or just distribution of marital propertyupon termination of the marriage.”11 Trial courts have broad discretion to divide property between divorcing spouses.12

Nonetheless, Alabama law prohibits a trial court from:

[T]ak[ing] into consideration any property acquired prior to the marriage of the parties or by inheritance or gift unless the judge finds from the evidence that the property, or income produced by the property, has been used regularly for the common benefit of the parties during their marriage.13

This is the key analysis in determining whether assets left to an irrevocable trust for the benefit of a child (or other beneficiary) can be divided among divorcing spouses: whether those trust assets were used “regularly for the common benefit of the parties during their marriage.”14

See Ala. Code § 19-3B-503
See Kendrick v. Kendrick, 124 So. 2d 78, 79 (Ala. 1960) (“[t]he courts of other states have generally held that statutes
exempting property from legal process in the enforcement of a claim for debt, or debt arising from a contractual
relationship, are not applicable against a claim for alimony, since such a claim is not a debt and an award of alimony
does not create a debtor-creditor relationship.”); Mims v. Mims, 442 So. 2d 102, 103 (Ala. Civ. App. 1983), overruled
on other grounds by Ex parte Billeck, 777 So. 2d 105 (Ala. 2000 ) (citing Kendrick, 124 So. 2d 78) (“[i]n Alabama, a
former wife seeking to recover alimony is not a creditor of her former husband, the claim not being based upon a
debt”)).
Estate planning practitioners often refer to creditors who can collect on a judgment from a beneficiary’s spendthrift
trust “supercreditors.” See Trusts for Asset Protection: Watch Your Language; Carson Law Firm; Mims v. Mims, 442
So. 2d 102, 103 (Ala. Civ. App. 1983) (overruled on other grounds by Ex parte Billeck, 777 So. 2d 105 (Ala. 2000)).
Another common “supercreditor” in the estate planning world is the Internal Revenue Service.
See McCluskey v. McCluskey, 495 So. 2d 66, 67 (Ala. Civ. App. 1986) (“[T]he division of property, after
consideration of the equities and contribution by the parties is within the sound discretion of the trial court.”).
Wilkinson v. Wilkinson, 905 So. 2d 1, 9, note 2 (Ala. Civ. App 2004) (Yates, Concurring) (internal citations
omitted).
See McCluskey, 495 So. 2d at 67 (“[t]he exercise of this discretion by the trial court will not be disturbed on appeal
unless there is a palpable abuse.”).
Ala. Code § 30-2-51(a).
Id.

The Biggest Indicator: “Sporadic” vs. “Frequent” or “Periodic”

Alabama cases over the years have provided a general spectrum to help answer the question of when exactly trust assets are “used regularly for the common benefit of the parties during their marriage.”15 The Alabama Court of Civil Appeals introduced what would become this analytical framework in the 1997 case of Bushnell v. Bushnell. 16 In Bushnell, the Court considered whether a certain Merrill Lynch retirement account, which was “substantially funded by the husband’s inheritances” was “regularly used for the common benefit of the parties during their marriage.”17 While Bushnell dealt with a retirement account, and not a trust, its reasoning has become the bedrock of the analysis when dealing with trusts on this question. 18

In Bushnell, the evidence showed that the husband used the account at issue six times to pay income taxes, twice to pay for a vacation to Disney World for the family, once to repay a loan, and once to purchase a new marital residence.19 Furthermore, the husband used money from this account to make a mortgage payment on the marital residence, to buy a vacuum cleaner, a piano for the parties’ daughter, and a van for the wife.20

The Court disagreed with the husband’s characterization of these expenditures as “sporadic”, holding instead that “the evidence indicates that the account was used frequently or periodically to satisfy the needs of the family.”21 The Court also offered the following hint as to further defining when distributions from an account are “used regularly for the common benefit of the parties during their marriage”, as the Court noted that “the account need not be used daily or even weekly to be considered as ‘regularly’ used for the family’s benefit.” 22

The Bushnell Spectrum Applied to Inheritances Passed in Trust

Another set of facts in which the Alabama Court of Civil Appeals held that distributions from an account – in this case, a trust – for the benefit of the husband were “used regularly for the common benefit of the parties during the marriage”23 is seen in the 2016 case of Sullivan v.
Sullivan. 24 In this case, the husband received money from an inherited trust, which he then deposited into a jointly-held bank account he held with his wife. 25 Those funds were then used to purchase cars for the wife and the parties’ children, to pay for the parties’ children’s’ private school and college tuitions, to renovate the martial residence, and to rent a second house for the family to

Id.
Bushnell v. Bushnell, 713 So. 2d 962 (Ala. Civ. App. 1997).
Id. at 964 (citing Ala. Code § 30-2-51).
See discussion herein, infra.
Bushnell, 713 So. 2d at 962
Id
Id
Id
Ala. Code § 30-2-51
Sullivan v. Sullivan, 211 So. 3d 836 (Ala. Civ. App. 2016).
Id. at 839.

live in for at least some time.26 Without much explanation, the Court held that these facts showed that the trust assets were “used regularly for the common benefit of the parties during their marriage.”27

However, the application of those facts to the rule provided by Alabama Code § 30-2-51 is not be the most impactful holding of Sullivan. The Sullivan Court noted that the trust for the benefit of the husband at issue contained the following language:

“Except as otherwise provided by law, no power of appointment or power of withdrawal shall be subject to involuntary exercise, and no interest of any beneficiary shall be subject to anticipation, to claims for alimony or support, tovoluntarily transfer without the written consent of the Trustee, or to any involuntary transfer in any event.”28

The Court placed no weight on this language of the trust, holding instead that Alabama law clearly provides that a trial court may order that alimony may be paid from the distributions received by a beneficiary from a trust.29

The Other Side of the Spectrum: Separate, and Less than “Sporadic”

However, not all trusts are accessible by a beneficiary’s divorcing spouse. Alabama courts have determined that, in some situations, trust assets were not “used regularly for the common benefit of the parties during the marriage.” For instance, in Ratliff v. Ratliff, the Alabama Court of Civil Appeals affirmed a trial court’s decision that a trust established for the husband’s benefit—where the assets were used only once to benefit the wife—did not meet the standard of being “regularly for the common benefit of the parties during the marriage.”

Another clear, though equally significant, example of trust assets not being “used regularly for the common benefit of the parties during the marriage” appears in Swift v. Swift, a case in which the wife had inherited trust assets for her own benefit but apparently never received or requested any distributions. The Court promptly reversed the trial court’s decision that had awarded a portion of those trust assets to the husband.

Id.
Id. (citing Ala. Code § 30-2-51)
Id.
Id.
Ala. Code § 30-2-51.
The evidence showed that the only distribution made from the trust for the benefit of the husband – ever – was to
purchase a new automobile for the wife after the parties’ daughter wrecked the wife’s car. Ratliff v. Ratliff, 5 So. 3d
570, 581-82 (Ala. Civ. App. 2008).
Id. at 582 (emphasis in original) (citing Ala. Code § 30-2-51; Bushnell, 713 So. 2d 962 at 964).
Swift v. Swift, 265 So. 3d 308 (Ala. Civ. App. 2018).
Id. at 313.
Please pardon the pun
Id.

The Wild Card Factor: Control

Alabama is one of the few states that permits a beneficiary to serve as the sole trustee of their own spendthrift trust and still retain protection from creditors. Although case law discussing, applying, or even referencing Alabama spendthrift trust law in the context of divorce is limited, one particular case merits consideration.

In the 1994 decision of Brinkley v. Brinkley, while evaluating the trial court’s division of assets between divorcing spouses, the Court considered two trusts created for the benefit of the wife—each originating from one of her deceased parents. In affirming the trial court’s decision to terminate the husband’s alimony obligation, the Court emphasized that “the wife has only a life interest in the trusts and has no control over the distribution of the assets or any income from the trusts, and … she cannot withdraw any principal from either trust.”

It is uncertain whether the Court’s emphasis on the wife-beneficiary’s (1) lack of control or distribution authority and (2) lack of access to trust principal contradicts the protections afforded to a beneficiary-trustee under Ala. Code § 19-3B-504(e)—which states that creditors cannot reach distributions made by a trustee-beneficiary to themselves, so long as those distributions are governed by an ascertainable standard. More detailed facts in Brinkley would have provided helpful clarity. For example, was the wife’s inability to access principal or direct distributions the result of such an ascertainable standard? If not, could that be the reason the Court concluded she had no control over the trust’s assets (including principal)? Regrettably, readers are left to speculate about these uncertainties and how they align—or conflict—with Alabama’s spendthrift trust law. At a minimum, practitioners should be aware of this legal ambiguity.

Some Solid Guidance to an Unclear Legal Landscape

In light of this legal uncertainty, how can practitioners best protect a beneficiary’s inheritance from division in a divorce proceeding in Alabama? Even though Alabama law—and particularly its case law—presents more questions than definitive answers, practitioners can still extract valuable guidance from existing statutes and rulings, and chart a practical course toward achieving their clients’ asset protection objectives.

See Kingma, Kenneth A., A Beneficiary Serving as Trustee May Affect Asset Protection, Husch Blackwell, Vol. 38,
No. 4; https://hbfiles.blob.core.windows.net/files/8e50cdeb-15e1-4494-a5a6-e4a474450405.pdf.; Ala. Code § 19-3B504(e) (“[a] creditor may not reach the interest of a beneficiary who is also a trustee or co-trustee, or otherwise compel
a distribution, if the trustee’s discretion to make distributions for the trustee’s own benefit is limited by an ascertainable
standard.”). An “ascertainable standard” is generally defined as a standard “relating to” “health, education, support,
or maintenance.” See 26 U.S.C. § 2041(b); § 2514(c).
Brinkley v. Brinkley, 646 So. 2d 49, 51 (Ala. Civ. App. 1994).
Id.
Ala Code § 19-3B-504(e)
Interestingly, the Alabama Court of Civil Appeals noted in 2002 that Alabama’s property division statute, Alabama
Code Section § 30-2-51, is “not a model of legislative clarity.” Smith v. Smith, 836 So. 2d 893, 899 (Ala. Civ. App.
2002).

hard-earned money from a child or beneficiary’s divorcing spouse. Below are eight tools that individuals can utilize to protect an inheritance from a child or beneficiary’s divorcing spouse.

1. Require a Prenuptial or Postnuptial Agreement Before any Distributions are Made

One strategy to help ensure that a divorcing spouse cannot be awarded an inheritance left in trust for a beneficiary is to require that the beneficiary and their spouse enter into a valid prenuptial or postnuptial agreement prior to any trust distributions being made.

This is the most restrictive strategy and may not be suitable for every client. Some clients may be concerned about the potential marital strain that could result from requiring a prenuptial or postnuptial agreement, even in this specific and relatively uncommon context. However, after the client’s passing, the beneficiary may be able to attribute the requirement to their deceased parents or the estate planning attorney—since the beneficiary was not the trust’s creator—which may ease client concerns. In any case, this strategy’s pros and cons should be reviewed with each client based on their unique goals, family situation, and values.

Another complication clouds this approach. Alabama law stipulates that prenuptial and postnuptial agreements must be entered into voluntarily, without coercion or undue pressure. If a trust requires a beneficiary to sign such an agreement in order to receive a distribution, an argument could be made that the beneficiary was effectively compelled to sign, potentially jeopardizing the validity of both the agreement and the related trust provisions.

Nevertheless, before practitioners dismiss the idea of requiring a prenuptial or postnuptial agreement before making trust distributions, it is important to note that this requirement does not necessarily conflict with legal standards. In other words, it may be possible to strike a careful balance. Requiring such an agreement as a condition for distribution does not inherently mean the agreement was signed under duress. No one is being forced to sign anything. The beneficiary may choose to sign and receive distributions from the trust, or they may decline to sign and voluntarily forego such distributions.

Like many of the other strategies discussed in this article, implementing this approach involves a careful balance between the client’s goals and their willingness to accept certain risks. It also requires thoughtful and deliberate trust management and administration following the death of the trust’s creators.

Self-settled spendthrift trusts, which are trusts created for creditor protection of the creator of the trust themselves
(as opposed to creditor protection for their post-death beneficiaries) is outside the scope of this article.
See Tyler v. Tyler, 990 So. 2d 423, 430 (Ala. Civ. App. 2008).
At least one prominent estate planning scholar agrees with this line of thinking. See Oshins, Steven J., Don’t Require
a Prenup for a Trust Beneficiary to be Eligible for a Distribution!; August 1, 2022, Ultimate Estate Planner Blog for
Estate Planning Professionals; https://ultimateestateplanner.com/2022/08/01/dont-require-a-prenup-for-a-trustbeneficiary-to-be-eligible-for-a-distribution/. It is worth noting that part of this article cautions against using a
prenuptial or postnuptial agreement requirement as the sole mechanism for asset protection. This is a true but very
basic point. Other asset protection strategies are explored later in this article.

Many of the protection strategies outlined in this article require careful and prudent trust administration. While appointing a professional trustee is not always necessary to administer an irrevocable trust, any trustee serving after the death of the trust’s creator(s) would be well-advised to consult with experienced and qualified legal counsel. This ensures that the asset protection strategies envisioned and implemented by the trust’s creator(s) are executed properly and fulfill their intended objectives.

2. Limit Distributions to the Correct Ascertainable Standard

This is perhaps the most straightforward solution in light of existing legal guidance. Alabama Code Section 19-3B-504(e) clearly provides that when a beneficiary is serving as trustee, a creditor cannot reach trust assets—or the distributions made from the trust—if the trustee’s discretion to make distributions is limited to an ascertainable standard. In practical terms, this means that the beneficiary does not technically “own” the trust assets; the trust itself holds legal title. Even if the beneficiary serves as sole trustee, they do not have unrestricted access to the trust’s assets as they would with personally owned property. Instead, the trustee’s power to make distributions is constrained by an ascertainable standard, and distributions are neither mandatory, automatic, nor freely available.

Although Alabama law does not explicitly treat a divorcing spouse as a “creditor” within the meaning of this statute, structuring the trustee’s discretion—especially when the trustee is also the sole beneficiary—to conform to a recognized ascertainable standard under state and federal law is a practical and effective method of insulating trust assets. Defining the standard for distributions in terms such as “health, education, maintenance, and support” provides a flexible yet protective framework. This strategy is reinforced through the combined effect of Alabama Code Section 19-3B-504(e) and the federal provisions under 26 U.S.C. § 2041(b) and § 2514(c).

3. Engage in Active and Prudent Trust Administration

Active and thoughtful trust administration is perhaps the most underappreciated tool available to estate planners aiming to protect trust assets from a beneficiary’s divorcing spouse. While the services of a professional or corporate trustee can be advantageous due to their expertise and experience, individual trustees—including beneficiaries themselves—may still possess the competence and financial insight needed to administer the trust effectively. When such individuals act in consultation with skilled legal counsel, they can carry out a level of trust administration that fulfills both fiduciary responsibilities and asset protection objectives.

Ala. Code § 19-3B-504(e)
See Ala. Code § 19-3B-504(e) (allowing a trustee-beneficiary to distribute trust assets for their own benefit and
achieve creditor protection so long as the distributions are limited by an “ascertainable standard”; See 26 U.S.C. §
2041(b); § 2514(c) (defining an “ascertainable standard” as a standard relating to “relating to the health, education,
support, or maintenance of the decedent.”). Many estate planning experts often deliberately exclude the word
“support” from the language the IRS describes as an “ascertainable standard” for reasons outside the scope of this
article. For more information on this, consider reading the author of this article’s guide on special needs planning:
Anderson, Zach, Special Needs Planning in Alabama: A Deep Dive into Important Concepts, published December
2023; available for free at andersonprotection.com or by email at info@andersonprotection.com.

For practitioners who represent or advise beneficiaries of spendthrift trusts, sending written correspondence that outlines the terms and intent of the beneficiary’s trust is an excellent initial step. This correspondence can, among other things, clarify that the trust was specifically designed to protect the trust’s assets from creditors—including a divorcing spouse. The letter can also emphasize that, in order to fulfill these asset protection goals, the trustee (or a trustee-beneficiary) should ensure distributions are made for the trustee-beneficiary’s own benefit. For instance, the trustee might use trust funds to pay off personal student loan debt or to purchase a personal vehicle.⁴⁷ This correspondence may further advise the beneficiary to maintain separate bank accounts and detailed, accurate trust records.

4. Do Not Include a Beneficiary’s Spouse or Descendants as Beneficiaries of Their Trust

This approach is often viewed as “low-hanging fruit.” Simply omitting a beneficiary’s spouse or descendants from the list of trust beneficiaries significantly reduces the likelihood that trust assets will be deemed to have been “used for the common benefit of the parties during the marriage.” Alabama courts have indicated that certain quasi-spendthrift provisions in a trust may not be effective against claims for child support or alimony. However, including a beneficiary’s spouse or descendants as trust beneficiaries may bolster a divorcing spouse’s argument that the trust was “regularly used for the common benefit of the parties during their marriage.”

5. Allow an Independent Trustee or Trust Protector to Modify or Decant the Trust

One of the more sophisticated and effective strategies an estate planning attorney can deploy to shield trust assets from a beneficiary’s divorcing spouse is to empower an independent trustee or trust protector with the authority to (1) modify the trust, or (2) decant the trust into a new trust, subtrust, or subtrusts.

Some trusts may include provisions allowing a trust protector—whether a person, entity, or court—to amend the irrevocable trust in response to changes in the law or in the settlor’s family circumstances that may affect the settlor’s overall estate plan. An estate planning attorney focused on maximizing asset protection may consider including language authorizing the trust protector to amend the trust in a way that advances the settlor’s original intent—such as protecting assets in the event of litigation or divorce.

“Decanting,” in this context, refers to the process of transferring trust property into a different trust for the benefit of the same or other beneficiaries.For example, if a beneficiary is facing a divorce, an independent trustee or trust protector may explore decanting the assets from the current trust into a newly structured trust designed to provide enhanced protection under the circumstances.

This brings up an important point regarding access to principal. If the trustee is simply paying off a beneficiary’s
debts, a trust may not need to be used at all, since the settlors could have simply left the money to the beneficiary
outright. Thus, while active and prudent trust administration is necessary for asset protection, the overall estate plan
must be crafted around each clients’ goals, family, and assets.
Ala. Code § 30-2-51
See Sullivan v. Sullivan, 211 So. 3d 836 (Ala. Civ. App. 2016) and discussion herein supra
Ala. Code § 30-2-51
Culp, Jr., William R., Trust Decanting: An Overview and Introduction to Creative Planning Opportunities;
American Bar Association; https://www.americanbar.org/content/dam/aba/publications
/real_property_trust_and_estate_law_journal/v45/rpte-journal-v45-1-article-culp.pdf.

beneficiary into a subtrust or subtrusts for the benefit of the beneficiary’s descendants. Whenever decanting is utilized, practitioners should carefully evaluate both the scope of authority granted to the trustee in this regard and any potential tax implications,⁵² particularly if the client’s estate approaches the federal estate and gift tax exemption threshold.

6. Allow a Trustee-Beneficiary to Appoint a Co-Trustee or Resign and Appoint an Independent Trustee

Including provisions that allow a trustee—especially one who is also a beneficiary or sole beneficiary—to (1) appoint a co-trustee or (2) resign and designate an independent trustee provides essential flexibility to enhance protection from creditors, including a divorcing spouse, when necessary. For settlors aiming to maximize protection for a beneficiary in the event of divorce, such provisions are highly advisable.

The rationale behind both of these approaches is straightforward. When a beneficiary either appoints a co-trustee to serve jointly or resigns and replaces themselves with an independent trustee—such as an unrelated individual or a corporate trustee like a bank—the beneficiary’s control and access to trust assets becomes significantly limited. This reduced control strengthens the position that trust assets are not readily available to the beneficiary and therefore should not be included in the marital estate during divorce proceedings.

While this strategy may seem of limited utility in divorce situations—given that Alabama law does not classify a divorcing spouse seeking alimony or support as a “creditor,” and distributions governed by an ascertainable standard are already protected—it nonetheless holds particular significance in Alabama. This approach addresses the precise concern raised in Brinkley, where the Alabama Court of Civil Appeals gave weight to the beneficiary’s lack of control and access to the trust assets. Thus, removing the beneficiary’s control entirely reinforces the argument that the trust assets are not accessible and should remain separate from marital property, making it a compelling option for achieving divorce-related asset protection.

7. Include a Limited Power of Appointment for Descendants Only

Among the strategies discussed in this article, this is perhaps the most frequently overlooked by practitioners. A power of appointment allows a trust beneficiary to direct the disposition of their interest in the trust upon their death. Trust settlors may grant either a general power of appointment or a limited power of appointment. A general power of appointment permits the beneficiary to transfer the remainder of their trust interest to any individual or entity, whereas a limited power of appointment restricts this ability—allowing the beneficiary to direct the remainder of their interest only to certain classes of recipients

Id. at p. 16
Powers of Appointment: Adding Flexibility to an Estate Plan, JD Supra; December 8, 2020;
https://www.jdsupra.com/legalnews/powers-of-appointment-adding-75458/. This article discusses only testamentary
powers of appointment, or powers of appointment exercised only upon the death of a beneficiary of a trust. Lifetime
powers of appointment are not discussed herein.

of their interest in a trust to a specific class of persons—most commonly, the beneficiary’s descendants, spouses, charities, or a combination of these classes.

Practitioners aiming to protect a beneficiary’s inherited trust from a divorcing spouse should consider granting the beneficiary a limited power of appointment for descendants only, provided the family is not likely to be impacted by federal estate tax exposure. A beneficiary with authority solely to direct the remainder of their inheritance to descendants presents a much stronger argument that the trust assets constitute separate property rather than marital property, as the beneficiary is expressly prohibited from appointing any remaining trust assets to their spouse upon death.

Conversely, a beneficiary who retains the ability to leave the trust remainder to their spouse—whether through a general or limited power of appointment—may find it significantly more difficult to persuade a factfinder that the trust assets are separate property, given the potential for transfer to a spouse at death.

8. Include a “Statement of Intent” Section

As Sullivan illustrates, Alabama courts may elect to disregard language within a trust asserting that the trust was intended to protect assets from a divorcing spouse. Still, including such language poses no risk and may provide helpful context to support the position that the trust is not a marital asset. Notably, the Alabama Court of Civil Appeals has reiterated that division of property in divorce cases rests “within the sound discretion of the trial court,” and that such discretion “will not be disturbed on appeal unless there is palpable abuse.” Given this broad discretion, practitioners are encouraged to include all protective language reasonably available.

Conclusion

Attorneys practicing in Alabama who seek to protect assets from a beneficiary’s divorcing spouse must consider the overlap between Alabama’s spendthrift trust statutes and the state’s rules regarding property division during divorce. Estate planning attorneys in particular should recognize Alabama’s unique legal landscape and the asset protection opportunities available to shield children’s and other beneficiaries’ inheritance from future divorce proceedings. A variety of strategic tools are available to practitioners, each with distinct benefits and potential drawbacks.

A Note from the Author

Thank you for reading! If you’ve made it this far, you are clearly committed to learning more about asset protection in Alabama. I hope this article has been informative and provides meaningful insight into how Alabama law intersects with the protection of family wealth and legacy planning.

See Sullivan, 211 So. 3d 836, 839; discussion supra.
McCluskey, 495 So. 2d at 67.
The information contained in this article is for informational purposes only and does not constitute specific legal
advice given to anyone.

If you would like to learn more about how to protect your assets from creditors, please don’t hesitate to contact us at (256) 273-5109 or by email at info@thevalleyplanning.com.

The contents of this article may be shared with the author’s permission.