Colorado Case Holds That A Beneficiary’s Lifestyle Is Judged At The Time That The Settlor Dies Or When The Trust Becomes Irrevocable
Friday, December 1, 2023

In Reece Trust v. Reece, a husband created a trust for his wife, and they then began divorce proceedings. No. 22CA1393, 2023 COA 89, 2023 Colo. App. LEXIS 1456 (Colo. App. September 28, 2023). Before the divorce could become final, the husband died, and the trustee of the trust sought instruction from the court. The trust provided for HEMS standard distributions considering “my spouse’s other means of support and the standard of living enjoyed by my spouse during our marriage…” Id. The wife argued that the trustee should consider her lifestyle while she was together with her husband. The court disagreed. The court noted:

Reece argues that her standard of living should be assessed by looking solely at her finances in the three or four years before separating from Frascona. Everything after the separation, she further asserts, is irrelevant in interpreting the trust’s standard-of-living provision in article 4.3 of the will. In making this argument, Reece relies on In re Estate of McCart, 847 P.2d 184 (Colo. App. 1992), where a division of this court approved using the average of the parties’ income and expenses from the time the trust was created until the time of the settlor’s death to arrive at the standard of living. But the division didn’t hold that this is the only way to determine standard of living. And there’s no indication that there had been any change in the standard of living during the three-year period in that case.

Id. Rather, the court cited to the Restatement of Trusts and held that the wife’s standard of living should be judged at the time that the husband died (after their separation):

In resolving the appropriate measure of Reece’s standard of living, the probate court relied on section 50 of the Restatement (Third) of Trusts. A comment to that section says that “[t]he accustomed manner of living for . . . purposes [of support and maintenance] is ordinarily that enjoyed by the beneficiary at the time of the settlor’s death or at the time an irrevocable trust is created.” Restatement (Third) of Trs. § 50 cmt. d(2). And because the trust was not established — and did not become irrevocable — until Frascona’s death, the court concluded that Reece’s standard of living was her income and expenses at the time of Frascona’s death, including the period of their legal separation. We perceive no error in this analysis under these facts.

Id.

 

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