Marc J. Bloostein, Ropes & Gray LLP
In the Spring 2009 Newsletter I reported on chapter 524 of the Acts of 2008, which went into effect on April 15, 2009. That new law, called “An Act Further Regulating the Rights of Adopted Children,” changed the effective date of the current rule of construction applicable to terms like “child”, “grandchild” and “issue” in wills, trusts and similar instruments executed before August 26, 1958. The current rule of construction is found in G.L. c. 210, § 8 and presumes that adopted descendants are included in such class gifts (I will refer to this as the “Modern Rule”). The Modern Rule’s original effective date provision limited its application to instruments executed on or after August 26, 1958. The prior rule of construction, which presumed inclusion of persons adopted by the testator or settlor and presumed exclusion of persons adopted by others, continued to apply to pre-1958 instruments. Chapter 524 made the Modern Rule applicable to all instruments, whenever executed, excepting from its application only distributions under “testamentary instruments” made before May 1, 2009.
Chapter 524 came as a complete surprise to members of the trusts and estates bar, who had relied on the longstanding effective date rules in advising clients. As a result of the efforts of the Boston Bar Association, the Massachusetts Bankers Association and others, the Legislature temporarily repealed chapter 524 in the June budget bill, reinstating the old effective date rule for the period from July 1, 2009 to July 1, 2010. St. 2009, c. 27, §§ 101-102 and 159-161. The chapter 524 replacement, which will become effective July 1, 2010, reads as follows: “Section 8 of chapter 210 of the General Laws shall apply to all grants, trust settlements, entails, devises, or bequests executed at any time, but this section shall not affect distributions made before July 1, 2010 under testamentary instruments executed before September 1, 1969.” St. 2009, c. 27, § 102. (The 1969 date relates to the effective date of the current effective date provision of G.L. c. 210, § 8.)
The good news is that this development postpones application of the Modern Rule to pre-1958 instruments until next July. The bad news is that the chapter 524 replacement retains the same unclear limitation that prevents the Modern Rule from applying retroactively to distributions made before July 1, 2010 only with respect to distributions under “testamentary instruments.” This leaves open the question of whether the Modern Rule will be applied retroactively to distributions made today under pre-1958 instruments that are not “testamentary instruments.”
Generally, the word “testamentary” pertains to a will or similar document that disposes of property at a person’s death. According to Black’s Law Dictionary (6th ed. 1990), a testamentary instrument is “[a]n instrument in the nature of a will; an unprobated will; a paper writing which is of the character of a will, though not formally such, and, if allowed as a testament, will have the effect of a will upon the devolution and distribution of property.” So, the term clearly includes a will and a trust established under a will. One could argue that it includes a trust established under an inter vivos instrument that took effect at a person’s death (i.e., a revocable trust), on the theory that such an instrument is a will substitute and transfers property at death. However, it would be hard to treat a typical irrevocable inter vivos trust as a testamentary instrument. Such a trust might be established for one or more children or grandchildren, and would take effect immediately and not at the time of the settlor’s death.
If a trustee is administering a pre-1958 trust established under a will, then the chapter 524 replacement clearly does not apply the Modern Rule to any distributions made prior to July 1, 2010. If, however, a trustee is administering a pre-1958 irrevocable inter vivos trust, there is nothing in the chapter 524 replacement to suggest that the Modern Rule will not be applied retroactively to prior distributions. It would be sensible to read “testamentary instruments” very broadly, but a court cannot ignore entirely the language the Legislature chose.
Of course, it would be difficult to argue that a trustee should be responsible for making a distribution in contravention of the new effective date of the Modern Rule prior to the trustee having reasonable notice of it. So, an adopted individual who by virtue of the new effective date will become a beneficiary of an inter vivos trust would likely have a difficult time arguing come July 1, 2010 that she should have received distributions going back to the inception of the trust long before 2009. However, that same beneficiary might have a claim come July 1, 2010 with respect to distributions made today under an inter vivos trust because arguably by today a trustee should be on notice that the Modern Rule will be apply retroactively to the trust starting next July. A trustee administering a pre-1958 inter vivos trust with a potential adopted beneficiary should at least consider retaining from any current distribution sufficient assets to pay an adopted beneficiary come July 2010.
Another aspect of this legislative development relates to events that occurred between April 15 (when chapter 524 became effective) and July 1, 2009 (when that statute was repealed). The June legislation stated that the temporary repeal of chapter 524 “shall [not] affect the validity of any action taken pursuant to chapter 524 of the acts of 2008 between April 15, 2009 and [July 1, 2009].” St. 2009, c. 27, § 159. Clearly any distributions made to an adopted beneficiary under color of chapter 524 were not affected by the new law. But what if a pre-1958 trust terminated during the period and the beneficial interests vested though no distribution was made? There’s a strong case to be made that the termination date is the relevant date and the distribution should include adopted beneficiaries even if made after July 1, 2009. The answer, however, is not entirely clear from the statute. It is also possible that an adopted person who became a discretionary beneficiary of a trust on April 15, 2009 could argue that the temporary repeal deprived her of her beneficial interest in violation of her due process rights. There would not, however, be much support for such an argument as there would have been little reliance on her very short-term status as beneficiary.
There are still many questions to be answered in connection with chapter 524 and its replacement. In addition to the interpretational questions, there may well be an effort to repeal the statute, and there will likely be one or more constitutional challenges to the statute.