Posts Categorized: Massachusetts Law

Document Executions and COVID-19

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By: Jennifer Taddeo of Conn Kavanaugh Rosenthal Peisch & Ford ,Co-Chair of the BBA Trusts & Estates Communications Committee, and Abigail V. Poole of Samuel, Sayward & Baler.

The Novel Coronavirus is having a huge impact on the lives of all Massachusetts residents, and the elderly and disabled populations of the Commonwealth are especially vulnerable to delay in execution of their estate planning documents causing serious harm to their health and finances.

Under current Massachusetts law, all acknowledgments and signatures must be obtained in the physical presence of a notary public. However, protective measures being put in place to address COVID-19 will increasingly mean that individuals are unable to access a notary who is physically present. As a result, these vulnerable populations may be deprived of the ability to obtain services and complete essential legal documents necessary to protect themselves and their loved ones, especially as policies in place at skilled nursing facilities, assisted living facilities and other residential facilities are also now preventing notaries public from meeting in person with residents of these facilities.

A number of Trust and Estates attorneys in Massachusetts are working on ways to resolve these issues, including by potentially asking the Governor of the Commonwealth to sign an executive order, effective immediately, to permit notaries public who are licensed attorneys to obtain virtual acknowledgement and signatures from individuals for legal documents for a limited period of time due COVID 19. Seventeen other states already permit virtual notarization and five more have enacted virtual notarization laws that will soon take effect.

To share your thoughts on this issue, this potential solution, or any other possible approach, contact Michael Avitzur at mavitzur@bostonbar.org by March 19, 2020.

Editors’ note: The BBA will continue to watch this space and offer updates to its members. If you have information about relevant trust and estates matters or initiatives related to COVID-19, please send those to Alexa Daniel, at adaniel@bostonbar.org.

First Circuit to Hear Arguments in Question of Whether a Self-Settled Spendthrift Irrevocable Trust is Entitled To Creditor Protection After the Settlor’s Death

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By: Caitlyn Glynn of Nutter

On Thursday March 5, 2020, the Massachusetts Supreme Judicial Court will hear oral argument on the following question, certified to it by the U.S. First Circuit Court of Appeals: whether a self-settled spendthrift irrevocable trust that is governed by Massachusetts law and allowed unlimited distributions to the settlor during his lifetime protects assets in such trust from a reach and apply action by the settlor’s creditors after the settlor’s death (docket and briefs available here).  The Massachusetts Uniform Trust Code addresses what the result would be in the case of a revocable trust and in the case of an irrevocable trust before a settlor’s death; however, there appears to be no statutory authority as to the result with the facts here: an irrevocable trust after a settlor’s death.

The facts begin in Arizona with the age-old tale of neighbors suing each other, here, over shared water rights.  They then quickly turn darker and end with suicide and double homicide.

Donald and Ellen Belanger were one set of neighbors in the lawsuit who had moved to Arizona from Massachusetts.  Armand and Simonne De Prins were the other set of neighbors, who eventually prevailed on the water rights suit and obtained a monetary judgment against the Belangers. Mrs. Belanger, distressed at least in part about the loss of the lawsuit, committed suicide. 

Four weeks after his wife’s suicide, Mr. Belanger contacted his attorney and created an irrevocable trust (the “Trust”).  The Trust was a self-settled trust that named his attorney as sole trustee, named himself as sole beneficiary during life, and his daughter as sole beneficiary after his death.  The Trust also contained a spendthrift clause and stated that Mr. Belanger could not “alter, amend, revoke, or terminate” the Trust.  After signing the Trust, Mr. Belanger transferred substantially all of his assets to the Trust.  Four months after signing the Trust, Mr. Belanger shot and killed the De Prinses.  Mr. Belanger then killed himself. 

The De Prinses’ son filed a wrongful death action in Arizona against Mr. Belanger’s estate and settled the wrongful death action with the personal representative of Mr. Belanger’s estate (who was also the trustee of the Trust).  Such settlement stipulated that collection of the judgment against the estate would be exclusively against the Trust and that a reach and apply action against the Trust would be transferred to the U.S. District Court of Massachusetts, where the trustee resides.  At issue was a single claim to reach and apply the Trust’s assets to satisfy the $750,000 wrongful death judgment against Mr. Belanger’s estate. 

After cross-motions for summary judgment, the District Court entered judgment for the De Prinses’ son holding that, under Massachusetts law, a self-settled trust cannot be used to shield one’s assets from creditors, even where the trust has a spendthrift provision and the trustee had made no distributions to the settlor prior to his death.  This is the question that the Court of Appeals then looked at. 

The Court of Appeals looked to Massachusetts case law and statutory law.  MUTC § 505(a)(3) provides that “[a]fter the death of a settlor, . . . the property of a trust that was revocable at the settlor’s death shall be subject to claims of the settlor’s creditors,” even despite a spendthrift clause.  This statute and Massachusetts case law make clear that the assets of a trust that was revocable during a decedent’s life would be reachable by his creditors at death. 

MUTC § 505(a)(2) states that, “[w]ith respect to an irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be distributed to or for the settlor’s benefit.”  Thus, during Mr. Belanger’s life, a creditor could have reached all of the Trust assets, as such trust assets could have been distributed to Mr. Belanger.  The statute leaves open whether an irrevocable trust is reachable by creditors after a settlor’s death.

It will be interesting to see what the Supreme Judicial Court rules.  In either event, it will be good to have certainty on this issue.  Stay tuned to this blog for the result.

MORE THAN YOU BARGAINED FOR: POTENTIAL ETHICAL VIOLATIONS FOR SOLICITING GIFTS OR ADDITIONAL BUSINESS FROM CLIENTS

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Authors: Erin K. Higgins and Conor Slattery of Conn Kavanaugh

Estate planning attorneys strive to provide their clients with excellent service, and hope their good work will be rewarded with additional business from the client and the client’s network.  However, an estate planning attorney should ensure that the client is freely requesting those additional services, and they are not a result of any unethical solicitation by the attorney.  Additionally, an estate planning attorney should never solicit a gift from an estate planning client who is not a close family relative.

An estate planning attorney must not encourage a client to take actions that will result in additional business and the generation of substantial legal fees for the attorney, such as designating the estate planning attorney as the personal representative, trustee, or other fiduciary.  Such actions may amount to unethical solicitation.  An attorney should only agree to serve as a fiduciary at the direct request of the client.  If an attorney is designated as a fiduciary at the client’s request, the attorney may not charge his or her legal rates for purely administrative work or other non-legal work performed.  Rather, the attorney must charge a rate in line with the fair market rate for non-lawyers performing the same tasks, or face disciplinary action as happened in Matter of Chignola, 25 Mass. Att’y Disc. R. 112 (2009).  Similarly, an attorney should only safeguard a client’s will at the client’s direct request, not at the attorney’s suggestion, as the retention of a client’s will may lead to additional work for the drafting attorney if the client decides to revise his or her estate plan.  Where a client is unfamiliar with the options for safekeeping of estate planning documents, however, an attorney can provide the client with a list of options that may include the attorney’s firm holding the original documents. 

Additionally, pursuant to Rule of Professional Conduct 1.8(c) a lawyer shall not solicit any substantial gift, including a testamentary gift, from a client, or prepare an instrument for a client giving the lawyer a gift, unless the lawyer is closely related to the client.  For the purposes of Rule 1.8(c), a person is “closely related” to another person if related to such other person as sibling, spouse, child, grandchild, parent, or grandparent, or as the spouse of any such person.  To avoid violating Rule 1.8(c), an estate planning attorney should not draft any estate planning document naming the attorney as a beneficiary absent such a close relation to the client.  The Massachusetts Bar Association in Ethics Opinion No. 82-8 made it clear that the acceptance of any gift from the client will leave the attorney exposed to a possible charge of undue influence.  An estate planning attorney should insist that another practitioner draft any document naming the attorney as a beneficiary. 

Knowing when to step back from estate planning work out of a concern for unethical solicitation ultimately will save an attorney from much heartache down the road.  A lawyer who has questions about when he or she must step aside should seek advice from ethics counsel on the appropriate course of action. 

How to Approach Questions of a Client’s Mental Capacity in Estate Planning

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Authors: Erin K. Higgins and Conor Slattery of Conn Kavanaugh

Clients of all ages may at one point or another become mentally incapacitated and unable to make important legal decisions. Questions of mental capacity arise most often with elderly clients, which leaves estate planning attorneys making mental capacity determinations more frequently than their colleagues practicing in other legal fields.

The basic presumption is that a person is legally competent to make decisions and execute legal documents.  Determining whether a client has the requisite capacity to make decisions involves assessing whether the client is able to effectively communicate and understand his or her decisions, and the consequences associated with these decisions.  The ABA Commission on Law and Aging has issued a handbook in collaboration with the American Psychological Association in order to aid attorneys in assessing whether or not their elderly clients are of a diminished capacity.  Some common warning signs of diminished capacity that estate planning attorneys should look out for when meeting with their clients are:

  • Repetitive phone calls or conversations where a client does not remember the previous conversations;
  • Reliance on a care-giver;
  • Completely forgetting a recent event; and
  • The client’s failure to recall his or her assets or previous decisions.

Once the client’s mental capacity comes into question, the estate planning attorney should attempt to review the client’s assets, personal information, and other basic information to see if the client is able to effectively communicate and recall such information. It may be prudent to ask another attorney to attend a meeting with a client as a witness to events and to assist in determining the client’s mental capacity. An attorney should remember that such a conversation may not only be awkward and difficult for himself or herself, but may be equally (if not more) embarrassing or intimidating for the client. In order to put the client at ease, the attorney should employ a conversational approach, rather than running through a checklist of questions akin to an interrogation, when evaluating a client’s capacity. For example, the attorney may begin the conversation by inquiring as to whether the client’s family is still planning a vacation, whether a grandchild is still playing a particular sport, how the client’s hobby is going, or simply discuss current events with the client as the attorney would if catching up with a friend over coffee.

If you reasonably believe that your client’s capacity is diminished, you may need to take action to protect the client’s interests and assets pursuant to Rule of Professional Conduct 1.14. Confidential client information is protected under Rule of Professional Conduct 1.6, and attorneys for the most part cannot disseminate such confidential client information without the client’s consent. However, an exception exists to Rule 1.6 when representing a client with a diminished capacity. An attorney is impliedly authorized to reveal confidential information when taking protective action on behalf of a client with diminished capacity, but only to the extent reasonably necessary to protect the client’s interests. See Rule 1.14(c). The estate planning attorney must take care to determine exactly what confidential client information, if any, must be disclosed to protect the client’s interests and assets, and limit any such disclosure to this identified information only.

Estate planning attorneys who fail to safeguard the assets and interests of their clients with diminished capacity may be subject to disciplinary action. In Matter of Reynolds, 15 Mass. Att’y Disc. R. 497 (1999), an attorney received a public reprimand for altering an elderly client’s estate plan to benefit the client’s live-in caregiver without inquiring about the parties’ relationship, where the attorney knew that this was a fundamental change to the estate plan to the detriment of the client’s family. The attorney in this situation should have conducted a diminished capacity review before making such a fundamental change to the client’s estate plan.

Questioning and determining a client’s mental capacity is never easy, and an estate planning attorney may face the difficult choice of whether he or she is ethically able to execute a client’s request. In these situations, estate planning attorneys may wish to consult with outside counsel on the appropriate course of action.

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

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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.

 

 

A Win for Trusts & Asset Protection in Massachusetts

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Author:  Annette K. Eaton, Nixon Peabody LLP

After a year of living with the uncertainty caused by the Massachusetts Appeals Court’s decision in Pfannenstiehl v. Pfannenstiehl, on August 4, 2016 the Massachusetts Supreme Judicial Court reversed the decision, representing a major win for the asset protection features of trusts in Massachusetts.

In August 2015, the Massachusetts Appeals Court issued the unprecedented decision in Pfannenstiehl allowing a husband’s beneficial interest in a discretionary spendthrift trust with an ascertainable standard to be included in his marital estate and divisible in a divorce proceeding.   

The 2015 decision sent shockwaves through the Massachusetts estate planning community, casting uncertainty upon all discretionary spendthrift trusts, especially those that employed an ascertainable standard for distributions, i.e. “comfortable support, health, maintenance, welfare and education,” such as the trust at issue in Pfannenstiehl.  Although, many estate planners in recent years have had reservations about employing ascertainable standards for this very reason, there had been no prior case in Massachusetts which specifically included a discretionary trust with an ascertainable standard in a beneficiary’s marital estate in the event of divorce until Pfannenstiehl.  Historically, a spouse’s interest in a discretionary spendthrift trust has been excluded from the marital estate because the interest is considered to be too remote and speculative to be deemed an asset.  This is because distributions to beneficiaries are generally within the trustee’s discretion even if subject to an ascertainable standard. 

However, on August 4, 2016, the Massachusetts Supreme Judicial Court reversed the Appeals Court’s decision, holding that the beneficiary’s right to receive distributions from the trust was “speculative” and did not render his right to future distributions from the trust to be “sufficiently certain such that it may be included in the marital estate.”  As a result, discretionary spendthrift trusts with ascertainable standards are once again safe, for now, from being included in a marital estate in the event of divorce.

Bank of America v. Commissioner of Revenue

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Author: Kerry Reilly, Esq., K. Reilly Law LLC

Bank of America v. Commissioner of Revenue

SJC – 11995 (July 11, 2016)

On July 11, 2016, the Massachusetts Supreme Judicial Court (“SJC”) upheld the decision of the Appellate Tax Board (the “board”) that Bank of America N.A. (“B of A”), in its capacity as corporate trustee, qualified as an inhabitant of the Commonwealth of Massachusetts (“MA”) and was subject to the state’s fiduciary income tax for the trusts in question.

G.L. c.62 §10 (a) provides that income received by trustees is subject to MA taxes if “the persons to whom the same is payable, or for whose benefit it is accumulated, are inhabitants of the commonwealth…”  Under G.L. 62 §1(f), inhabitant” means – “(1) any natural person domiciled in the commonwealth, or (2) any natural person who…maintains a permanent place of abode in the commonwealth and spends in the aggregate more than 183 days of the taxable year in the commonwealth.” Section 14 subjects corporate trustees to the same tax regime as “natural” trustees.

The SJC affirmed that B of A was an inhabitant of the Commonwealth based on its extensive branch structure, its conducting of business related specifically to the trusts at issue – “maintaining relationships with the beneficiaries, making decisions about distributions to those beneficiaries, administering trust assets, and retaining certain records” – as well as conducting similar business for other trusts, and was thus subject to taxes pursuant to G.L. c.62 §10.

Governor Baker’s Proposed MassHealth Estate Recovery Expansion NOT Included in House Committee on Ways & Means FY 2017 Budget Recommendations

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By: Sarah Roscioli (BCLS 3L)

Overview of Governor’s Proposed Changes to MassHealth Estate Recovery. The Governor’s proposed FY 2017 budget would have, among other things, expanded MassHealth estate recovery to include non-probate property for those becoming eligible for Medicaid (nursing facility benefits) on or after July 1, 2016.

Legislative Update.  On April 13, 2016, the House Committee on Ways and Means made its recommendations for the FY 2017 budget, which do not include the Governor’s proposed expanded definition of “estate” for purposes of recovery against the assets of a deceased MassHealth long-term care benefits recipient.

Broadening Definition of “Estate.”  Currently, M.G.L. Ch. 118E, Section 31(c) defines “estate” as all real and personal property and other assets included in decedent’s probate estate.  The Governor’s proposed language would have redefined the term “estate” to include: (1) joint property, including joint tenancy and tenancy by the entirety; (2) life estates; (3) funded revocable trusts; and (4) other property passing by beneficiary designation.  The Governor’s proposed language specifically excluded annuities and life insurance, with the exception of payments otherwise includable in the decedent’s probate estate.

Recovery Deferred for Surviving Spouse.  It is important to note that the Governor’s proposed budget would not have hastened the Division’s recovery when the decedent is survived by a spouse, i.e., under Chapter 118E, Section 31(b), recovery may not commence until after the death of the surviving spouse.

Overview of Budget Approval Process. On January 27, 2016, Governor Baker and Lieutenant Governor Polito filed their budget proposal for the Fiscal Year 2017 (FY17).  In mid-April, the House Ways & Means Committee reported its budget to the full House for debate and vote.  Then, in mid-May, the Senate Ways & Means Committee will report its budget to the full Senate for debate and vote.  The House and Senate budgets will then be reconciled into a single budget which will return to each chamber for a vote.  Once the House and Senate pass the reconciled budget, it will go to the Governor to be signed.  Following any legislative overrides, the final budget would go into effect for the fiscal year beginning July 1, 2016.

The full text of the Governor’s budget proposal can be found here.  The full text of the House Committee’s recommendations can be found here.

Court Rejects Income-Only Trust Created by MassHealth Applicant

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In a poorly-reasoned and somewhat murky decision, a Superior Court judge in Daley v. Sudders (Civil Action No. 15–CV–0188–D.Dec. 24, 2015) extends the Doherty decision to reject the MassHealth application of a man who, with his wife, placed his Worcester condominium into an irrevocable trust for long-term care planning purposes. To learn more about this case and its implications for life estate trusts, click HERE.