Case Summary: Ajemian v. Yahoo!, Inc.

Author:  Bradford N. VezinaMcLane Middleton

The Massachusetts Supreme Judicial Court, in the case of Ajemian v. Yahoo!, Inc., held that the Stored Communications Act (SCA), a 1986 federal law that regulates the disclosure of electronic communications, does not prohibit Yahoo!, Inc., from voluntarily disclosing the contents of a decedent’s email account to the administrators of a decedent’s estate.

The decision represents the continuation of an eight year legal dispute, initially commenced in 2009, that arose after the administrators of John Ajemian’s estate filed a complaint with the probate court requesting “unfettered” access to John’s Yahoo email account.  Yahoo refused to provide access to this account.

The Supreme Judicial Court agreed to hear the case on its own motion after the estate appealed the probate court’s award for summary judgment in favor of Yahoo.  The probate court awarded summary judgment to Yahoo on the basis that the SCA prohibited Yahoo from disclosing the contents of the account to the estate administrators.  The Supreme Judicial Court ultimately disagreed and vacated the probate court’s judgment.

The Supreme Judicial Court’s decision turned on whether the estate’s request for access to the email account fell within the “lawful consent exception” of the SCA thereby permitting Yahoo to voluntarily disclose the contents of the emails.  Rejecting the industry consensus that this lawful consent exception requires actual or express consent of a decedent, the Court held that the administrators could consent to such a disclosure on behalf of the decedent.  To interpret the SCA otherwise, the Court reasoned, would prevent personal representatives from accessing a decedent’s digital assets and thereby preempt state probate and common law.

This decision, however, has its limits.  First, the Court did not mandate Yahoo to divulge the contents of the email account; it merely permitted Yahoo to do so.  As the Court explained, the SCA “does not stand in the way” of such a disclosure.  Second, it remains to be seen whether this case will be challenged in federal court, as it is a state court’s interpretation of federal law.  Third, the case raises the question of whether online providers such as Yahoo can rely on their terms of service agreements as a basis in refusing access to (and perhaps deleting altogether) a decedent’s digital assets.  The Supreme Judicial Court did not take up this issue instead electing to remand the case to the probate court for further hearing on this issue.  Stay tuned.

TIGTA Report Recommends Improvements for Estate and Gift Tax Return Examination Process

TIGTA Report Recommends Improvements for Estate and Gift Tax Return Examination Process

Author: Patti Weisgerber, M. Robinson Tax Law

 

While much focus this fall has been on tax reform proposals and debates, it’s possible some may have missed the September 26, 2017 TIGTA[1] report proposing recommendations to tighten the estate and gift tax return examination process. The report described a very manual process for the classification, prioritization and assignment of estate and gift tax returns with a variety of problems, such as, but not limited to:

  • Minimal guidance from the Internal Revenue Manual (IRM) on the process, which translates into a lack of formal written procedures,
  • A subjective prioritization of returns by a “national gatekeeper,”
  • Illegible and incomplete classification sheets,
  • Missing documents from case files, and
  • Timeframes not followed in the examination process.

These issues raised the question of whether or not the most productive cases were being assigned for examination. Some of the issues also bring into question whether a taxpayer’s rights are at risk of being violated. For the most part, the IRS agreed with all recommendations for improvement, including an update to the IRM for more guidance on how returns are classified, prioritized and assigned for examination.

In addition to the recommendations made, the report shared some insightful statistical information about estate and gift tax examinations.

Estate and Gift Tax Examination Information: By the Numbers[2]

  • 254: The number of field examination employees assigned to the IRS Estate and Gift Tax Program (per the 2016 payroll).
  • 36,130: The number of estate tax returns, including IRS Forms 1041 and 1041-N, that were filed for calendar year 2015.
  • 238,324: The number of gift tax returns filed in that same year.
  • 3,187: For FY 2016, the number of examined estate tax returns that were closed.
    • $248,000: The average recommended additional tax per return.
    • $790,000,000: The total additional recommended estate tax for FY 2016.
  • 1,843: Also for FY 2016, the number of examined gift tax returns that were closed.
    • $164,000: The average recommended additional tax per return.
    • $303,000,000: The total additional recommended gift tax in FY 2016.
  • 289: The average number of days to complete an estate tax examination.
  • 81%: Approximately, the percent of estate and gift tax cases resulting in the IRS position being either fully or partially sustained.
  • 4.4%: Approximately, the percent of estate and gift tax cases which go to Appeals.

The full report, “Improvements Are Needed in the Estate and Gift Tax Return Examination Process,” can be found here.

[1] Treasury Inspector General for Tax Administration.

[2] All statistics are from the TIGTA analysis and/or the IRS.

CLE Program – You Can’t Take It With You: Issues With Real Estate In A Probate Estate

Please attend the BBA’s Trust & Estate’s Section’s first CLE program of the year on Thursday, November 9, from 3-5 PM. 

 We are thrilled to be hosting an expert panel consisting of Jennifer A. Maggiacomo (Norfolk Probate and Family Court), Evelyn Patsos (Probate and Family Court Administrative Office), and Elizabeth J. Young (Westcor Land Title Company), who will discuss issues that arise when an Estate owns real estate, how to navigate the Massachusetts Uniform Probate Code, and practice pointers to avoid title problems down the road. The program will include:

– How to clear title if the real estate passes to family (and is not sold right away, but may be sold at some point in the future);

– What to do if real estate is being sold from the probate estate;

– When a license to sell is required and/or desirable;

– When and how to use deeds of distribution; and

– How to convey clear title when the will devises real estate to a trust.

To sign up and for more detail, please go to the BBA’s website: https://www.bostonbar.org/membership/events/event-details?ID=25688

 

 

Republican House Tax Bill

Author:  Heather N. Harris, Day Pitney LLP

Yesterday, Republicans in the House of Representatives unveiled the “Tax Cuts and Jobs Act.” Notably, the tax reform bill:

  • Increases the basic exclusion amount for estate tax and generation-skipping transfer tax from $5,000,000 to $10,000,000 for decedent’s dying and generation-skipping transfers made after December 31, 2017 (adjusted for inflation after 2010).
  • Repeals the estate tax and generation-skipping transfer tax for decedent’s dying and generation-skipping transfers made after December 31, 2023.
  • Increases the basic exclusion amount for gift tax from $5,000,000 to $10,000,000 for gifts made after December 31, 2017 (adjusted for inflation after 2010).
  • Does not repeal the gift tax, but reduces the top rate for the gift tax to 35 percent from 40 percent for gifts made after December 31, 2023.
  • No change to the step-up in basis of an asset at death.
  • No change to treatment of retirement accounts.
  • Repeals the Alternative Minimum Tax.
  • Pass-through businesses pay a 25% tax rate, excluding some professional service partnerships such as lawyers and accountants.
  • Reduces the corporate tax rate to 20 percent from 35 percent

BBA Event Recap: How Parents Can Divorce-Proof Their Children’s Inheritance

Program Date:  Friday, September 8, 2017

Speakers: Joshua S. Miller of CIBC Atlantic Trust Private Wealth Management and Caroline Spillane Sacks of Ropes & Gray LLP

Program Chairs:  David L. Silvian of Day Pitney LLP and Heidi A. Seely of Rackemann, Sawyer & Brewster, co-Chairs of the Estate Planning Committee.

Materials:  To view the program materials, click here.

Summary of Program Topic:  The program provided an overview of considerations for an estate planner to protect a client’s assets in the event of a child’s divorce.  The panelists provided practice tips, discuss M.G.L. chapter 208 § 34 and Vaughan affidavits, and highlighted some considerations for practitioners in light of the recent SJC decisions Pfannenstiehl v. Pfannenstiehl and Ferri v. Powell-Ferri.

Probate & Family Court Pilot Program: Complex Probate Litigation

As you’ll see from the announcement below, the Probate & Family Court is soon commencing a pilot program- a dedicated session to hear complex probate litigation from the Norfolk, Middlesex, and Suffolk Divisions.

 TO PROBATE & ESTATE PRACTITIONERS OF THE NORFOLK, MIDDLESEX & SUFFOLK BAR:

 The Probate & Family Court is piloting a Fiduciary Litigation Session (FLS), to be housed in the Norfolk Division, which will hear certain contested and complex probate matters. These matters include: will or PR appointment contests; contests over the actions of an estate or trust fiduciary (guardianships are not included); removals and successor appointments; instruction and declaratory judgment actions concerning trusts and estates; validity, reformation and construction of instruments; and partition actions. The session will accept cases from the Norfolk, Suffolk and Middlesex Divisions.

Justice Elaine M. Moriarty (ret) will be hearing all cases assigned to the FLS and the session will run 3 days weekly. Judge Moriarty will be hearing cases commencing November 1, 2017.

The Probate Court will soon be issuing a Standing Order detailing this pilot session and how matters may be assigned to it. In an effort to immediately assign cases for hearing in November, if you currently have a matter which meets the specifications above, the Court will accept for consideration an Assented to Motion to Schedule Status/Case Management Conference in the FLS. Such Motion may be emailed in .pdf format to Jennifer A. Maggiacomo, Esq. at [email protected] to be acted upon by the Justice currently assigned to the matter.

BBA Event Recap: Charitable Giving Basics for Estate Planners

Program Date:  Friday, May 19, 2017

Panelists:   John A. McBrine and Aimee Fukuchi Bryant, both of Nutter McClennen & Fish LLP

Program Chairs:  Sara Goldman Curley of Nutter McClennen & Fish LLP and David L. Silvian of Day Pitney LLP, co-Chairs of the Estate Planning Committee

Materials:  To view the program materials, click here.

Summary of Program Topic:  The panelists for this program discussed the basics of advising clients interested in making charitable gifts, including a discussion of considerations when making gifts of different types of assets, either during life or at death, evaluating the use of a private foundation or a donor advised fund.  The panelists also covered an overview of deferred giving vehicles, such as charitable remainder trusts and charitable gift annuities.

 

Ferri v. Powell-Ferri: MA Supreme Judicial Court Decision Regarding Trust Decanting

Author:  Allison M. Whitmore, Morgan, Lewis & Bockius LLP

In the case of Ferri v. Powell-Ferri, the Massachusetts Supreme Judicial Court (SJC) responded to certified questions from the Connecticut Supreme Court concerning trustees’ authority to distribute (or decant) substantially all of the assets of an irrevocable trust into a new trust.  In connection with a Connecticut divorce proceeding, the Connecticut Supreme Court certified questions to the SJC about the construction of a Massachusetts trust created by the father of the trust’s beneficiary for the sole benefit of his son.

The terms of a 1983 trust authorized the Trustees to pay to or segregate irrevocably trust assets for the beneficiary. In addition, the beneficiary, at certain ages, had the right to request withdrawals up to fixed percentages of the trust assets.  At the time of the decanting, the beneficiary had the right to request a withdrawal of up to 75% of the trust property.  Without informing the beneficiary, the Trustees decanted the 1983 trust property to a new trust, under which the beneficiary could no longer exercise a withdrawal right.

Relying on Morse v. Kraft, the SJC looked to the terms of the trust instrument and other relevant evidence of the settlor’s intent when deciding whether the Trustees were authorized to decant.  The SJC found that the Trustees were granted broad discretion when making distributions to or for the benefit of the beneficiary.  The SJC also found that the beneficiary’s right to request a withdrawal of a certain percentage of the trust assets was not inconsistent with the authority to decant.  The two distribution mechanisms provided under the trust instrument were not mutually exclusive, the Trustees maintained full legal title to the trust property and they did not lose their ability to exercise their fiduciary duties over “withdrawable” trust assets.  Therefore, unless and until all of the trust assets were distributed in response to the beneficiary’s request for a withdrawal, the Trustees could exercise their powers and obligations under the trust, including the duty to decant if they deemed decanting to be in the beneficiary’s best interest.

 

 

Consolidated Matters: Hanna v. Williams, et. al. & Berkowtiz, et. al. v. Williams, et. al.

By, Glynis Ritchie, Esq. of Day Pitney LLP 

The conduct of two estate planning attorneys, in addition to a financial advisor, are under scrutiny in the consolidated matters, Hanna v. Williams, et. al., Superior Court No. 1684CV 0722 BLS 1 and Berkowtiz, et. al. v. Williams, et. al., Superior Court No. 1684CV 0724 BLS 1.  Both matters involve the same estate planning attorneys and financial advisor defendants.  In its recent memorandum and order, the Superior Court ruled on the defendants’ motions to dismiss for failure to state a claim for (i) tortious interference with an expectancy (with respect to an inheritance); (ii) violations of G.L. c. 93A, § 9; and (iii) civil conspiracy, among other claims.  The Court also addressed its jurisdiction over these probate-related matters.

The decision sets out a variety of colorful facts, alleged in the plaintiffs’ complaints and outlined in detail by the Court, calling into question the defendants’ conduct. The matters concern the execution of an estate plan by an 91-year-old client, then hospitalized, immediately prior to her death in 2013.  The 2013 estate plan consisted of a will and trust, the terms of which differed significantly from the decedent’s prior will, executed in 1961.  According to facts alleged, the new documents included provisions leaving nearly $2 million dollars to the decedent’s financial advisor; the drafting attorneys’ firm was named as trustee for resulting long-term family trusts (despite the two attorneys not having met the client prior to the signing conference). According to the plaintiffs, the attorneys and financial advisor were the only individuals present at the deathbed signing conference, and, at the time, the decedent was heavily medicated.  Upon returning to their firm, the attorneys requested an administrative assistant notarize the decedent’s signature, despite the assistant not having been present at the signing conference.  The decedent died six days after the new documents were executed; following her death, the would-be beneficiaries of the 1961 will raised alarm.

A petition for probate of the 2013 will was then filed in the Essex County Probate and Family Court.  In the following months and years, extensive litigation took place regarding the validity of the 1961 and 2013 wills.  The parties of the probate court matter eventually entered into a Compromise Agreement approved by the probate court. Pursuant to that Agreement, the beneficiaries under the 1961 will received a percentage of what they would have been entitled to under the 1961 estate plan.  The Agreement did not establish the validity of either will, but it did provide that legal fees (then totaling approximately $1,240,000) be paid by the Estate.  The would-be beneficiaries of the 1961 will, and the personal representative of the decedent’s Estate, then brought actions in Superior Court for recovery of monetary damages and legal fees.

In addressing the question of jurisdiction, the Superior Court analyzed the standard for making a claim for tortious interference with an expectancy.  The tort, which is recognized in Massachusetts, requires proof that “but for” the interference, a plaintiff would have received something (for example, additional inheritance).  A plaintiff need not prove that a particular will is invalid, but merely that the procuring of the will in question was a tortious act.  Furthermore, there may be recovery notwithstanding a prior will admitted to probate.

Defendants argued that the Superior Court lacked jurisdiction to hear such a claim because the claim was, at its heart, a will contest; will contests, the defendants furthered, are within the exclusive jurisdiction of the probate court. The Court disagreed.  It clarified that, despite defendants’ argument, this is not a will contest, but a separate tort claim.  The probate court does not have jurisdiction to decide such actions for money damages.  As such, if the Superior Court also lacked jurisdiction to hear such a matter, the plaintiffs would have no adequate remedy.  On this basis, the Court denied defendants’ motion to dismiss for lack of subject matter jurisdiction.

The Court then held that the plaintiffs alleged sufficient facts to state a claim for intentional interference.  In setting aside defendants’ argument that they knew nothing of the 1961 will (and therefore could not have intentionally denied anyone an expectancy), the Court clarified that such a claim requires only that the defendants intentionally interfere with an expectancy, not that they knew the scope or details of the expectancy in question.  A valid claim is established where there was a reasonable likelihood of expectancy, and defendants’ conduct caused the persons affected to settle a lawsuit for less than what those individuals would otherwise have received.  The facts here, the Court found, are sufficient to sustain such a claim.

The Court granted the defendants’ motion to dismiss the would-be beneficiaries’ claim of professional negligence (because the defendants owed no duty of care to the would-be heirs) but denied their motion with respect to the alleged violations of G.L. c. 93A, § 9 and civil conspiracy, among others.  In doing so, the court cleared the way for this already extensively litigated matter to continue on its path toward an ultimate resolution.