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Fiduciary Litigation Update: Scanlan v. Eisenberg

Author:
Joseph L. Bierwirth, Jr., Esq., Hemenway & Barnes, LLP
 

In a recent case of interest, the Seventh Circuit Court of Appeals held that a discretionary trust beneficiary did not need to plead facts indicating that a diminution in trust assets had, or ever would have, a probable adverse impact on discretionary distributions.  Although the Seventh Circuit applied the federal law of standing and Illinois substantive trust law, it seems that the Seventh Circuit’s viewpoint also reflects the likely outcome if a similar matter was presented to the Massachusetts courts.

The plaintiff, Mary Bucksbaum Scanlan, is the daughter of the founder of General Growth Properties, Inc., one of the largest real estate investment trusts in the United States.  Mary’s father and uncle established significant trusts for her benefit, and appointed their lawyers to serve as officers, directors and counsel to a trust company established to serve as trustee of the trusts.  In these roles, Mary alleged, the defendants breached their fiduciary duty by purchasing shares of stock in General Growth Properties in furtherance of their individual interests as GGP shareholders and in dereliction of their duty to diversify the trusts’ assets.  On the basis of these allegations, Mary brought an action in U.S. District Court in Illinois.

At an early motion hearing, the district court judge raised sua sponte the issue of whether Mary might lack Article III standing because she was a discretionary beneficiary of the trusts.  The trusts authorized the corporate trustee to distribute “all or as much of the net income or principal, or both, as the trustee deems to be necessary for [Mary’s] support” or “in her best interests.”  In essence deciding his own motion, the district court judge held that Mary did not allege any facts indicating that the value of the trusts’ corpus, approximately $1 billion, would ever be insufficient to fund any potential “support” and “best interests” payments which the trustee, in its discretion, might find appropriate.  Having found that Mary therefore failed to assert a legally protected interest and a cognizable injury to that specific interest, the court dismissed her claims for lack of standing.

The Seventh Circuit reversed.  It relied on principles taken from the Restatement (Third) of Trusts, § 94 which authorizes only beneficiaries, co-trustees or successor trustees to bring an action against a trustee to redress a breach of trust.  It also relied on Illinois state law for the simple proposition that a beneficiary has an equitable interest in the trust property, even if the beneficiary is a “discretionary” beneficiary.  The court’s discussion of the nature of this equitable interest, and the fiduciary duty which attaches to a trustee/beneficiary relationship, could be taken directly from Massachusetts law: 
“Stemming from Scanlan’s status as a beneficiary is a fiduciary relationship between her and the Trustee that gives rise to equitable remedies against the Trustee for breach of trust.  A Trustee owes a fiduciary duty to the trusts’ beneficiaries and is obligated to carry out the trust according to its terms and to act with the highest degree of fidelity and utmost good faith.”
The existence of a fiduciary relationship, and the attendant right to enforce it, is not based upon an absolute entitlement or a probability of receiving trust assets.  As the Seventh Circuit pointed out, if this was the law, then a discretionary beneficiary of a substantial trust may never be able to bring a claim for breach of trust, and significant breaches of fiduciary duty could go unremedied.  For example, in this case, the allegation was that the Trustee’s conduct caused the trust to lose approximately $200,000,000 in value.  However, given that the trusts’ corpus as a whole was valued at nearly $1 billion, the trustee could mismanage the trusts with impunity and reduce the assets by half or even more, all the while arguing that the remaining trust assets were still sufficient to fund any appropriate “best interests” or “support” distributions to Mary.  The Seventh Circuit was unwilling to stomach such a result.

In our view, the Seventh Circuit’s decision comports with Massachusetts law.  Generally, trust beneficiaries in Massachusetts may bring actions to compel trustees to abide by their duties, as disclosed in the trust instrument or required by law.  Briggs v. Crowley, 352 Mass. 194 (1967) (even where trust document purported to relieve trustee of duty to account, beneficiary was not deprived of standing to maintain proceeding, nor was court deprived of jurisdiction to hear the suit).  Even broad grants of discretion carry a duty to exercise such discretion with reasonable regard for fiduciary principles.  Old Colony Trust Co. v. Silliman, 352 Mass. 6 (1967).  It appears beyond doubt that the law as expressed by the Seventh Circuit in Scanlan– that a court in equity will provide a forum to redress breaches of trust despite the potential absence of technical Article III standing – would carry the day in Massachusetts as well.

The MUPC Strengthens Provisions that Provide Immediate Financial Relief to the Surviving Spouse and Dependent Children

Author:
Michelle B. Kalas, Esq., Prince Lobel Tye LLP

The Massachusetts Uniform Probate Code (the “MUPC”) now entitles the surviving spouse, and any minor children or adult children who were supported by the decedent, to certain additional advance distributions from the estate to provide for their support beyond any provisions in the decedent’s will or under Massachusetts intestacy or elective share provisions. The MUPC replaces the prior Massachusetts statutory provisions for a “widow’s allowance,” which were extremely limited in scope and required a court appearance, with a broader entitlement that does not require a court appearance if the personal representative and surviving spouse can agree on the amount of the family allowance. By revitalizing archaic common law protections for financially needy spouses or dependent children, the MUPC has made relief feasible to obtain, now that the surviving spouse or dependent children no longer need to plead their case in court.

Common Law Background

In order to understand the rationale behind the form of this revival under the MUPC, it is important to understand the prior forms of protection available to the surviving spouse, who was historically presumed to provide and care for any minor children. The widow was a uniquely vulnerable figure under the common law property regime at the time of its inception during the feudal era.[1]  At first, under the common law, these protections took the form of an automatic life interest in one-third (1/3) of the husband’s real estate acquired during the marriage, called “dower,” which was superior to the rights of the husband’s creditors subsequent to the marriage and prevented the husband from transferring real estate subject to the dower interest during his lifetime without his wife’s consent. Dower was paralleled by the automatic life interest that a widower retained in all his wife’s real estate, called “curtesy,” which functioned as a continuation of the husband’s control over his wife’s property during her life. The widow’s paraphernalia, i.e. bedding, clothing, and personal adornments, and homestead right to remain in the residence were additional ancillary rights.[2]  

By the mid-20th century, most states had abolished dower and curtesy in their common law forms and instead replaced them with a gender-neutral statutory share of the deceased spouse’s entire estate, including personal property.[3] The statutory share was also called an “elective share,” since the surviving spouse had to elect the statutory share in lieu of any provisions made for the surviving spouse in the deceased spouse’s will. Unlike the dower or curtesy interests, the elective share does not vest automatically and is not distributed until after all debts and expenses of the estate are paid, often a year or more after the decedent’s death. For these reasons, the elective share statutes often include provisions for an immediate distribution from the estate for the basic support of the surviving spouse and any minor children in his or her care. In Massachusetts, this distribution was called a “widow’s allowance,” as a nod to the historical reasons for the statutory provisions. The “widow’s allowance” was amended by statute in 1978 to extend the provisions to a surviving spouse of either sex.

Prior Massachusetts Statutory Law

Under prior Massachusetts law, a surviving spouse could file a petition to have the probate court award him or her an allowance pursuant to M.G.L. c. 196, § 2 as the court deemed necessary and proper for his or her needs and those of the minor children in his or her care. M.G.L. c. 196, § 2 provided that: 

Such parts of the personal property of a deceased person as the probate court, having regard to all the circumstances of the case, may allow as necessaries to the surviving spouse and for the family under the care of such spouse or if there is no surviving spouse, to the minor children of the deceased, not exceeding one hundred dollars to any child, and also such provisions and other articles as are necessary for the reasonable sustenance of the family, and the use of the house of the deceased and of the furniture therein for six months next succeeding the death, shall not be taken as assets for the payment of debts, legacies or charges of administration. After exhausting the personal property, real property may be sold or mortgaged to provide the amount of allowance decreed, in the same manner as it is sold or mortgaged for the payment of debts, if a decree authorizing such sale or mortgage is made, upon the petition of any party in interest, within one year after the approval of the bond of the executor or administrator.

The surviving spouse’s allowance was designed to provide for the necessities of the surviving spouse and minor children for a short period of time, until they had an opportunity to adjust themselves to their new situation.[4]

The surviving spouse’s allowance took precedence over all debts and expenses of the estate, regardless of whether or not an estate was insolvent.[5] The allowance took priority even over the expenses of the decedent’s last illness and funeral and the expenses of administering the decedent’s estate.[6] Even if the spouses were living separately at the time of the decedent’s death, this fact, and the cause of the separation, would have been irrelevant to the determination of any allowance under prior law.[7] No notice was generally required for the court to order an allowance to a surviving spouse.[8]

Family Protections under the MUPC

The MUPC explicitly abolishes the estates of dower and curtesy[9] and repeals M.G.L. c. 196, §§ 1 &2,[10] and replaces them with new family protections.[11] The MUPC’s family protections are in addition to, and are not charged against, any share of a decedent’s intestate estate, distribution under a decedent’s will (unless otherwise provided in the will), or elective share of a decedent’s estate.[12] 

If a decedent dies domiciled in Massachusetts, the surviving spouse or decedent’s children, if there is no surviving spouse, are entitled to receive $10,000 of exempt property.[13] The decedent’s children would receive the property jointly, regardless of whether they are adults or minors.[14] The $10,000 comes first from the equity[15] in household furnishings, automobiles, furnishings, appliances, and personal effects, as long as the estate is sufficient and the item is not specifically devised.[16] If the equity in these assets is less than $10,000, then the remaining balance may be taken from any other assets of the estate.[17] The surviving spouse also retains the right to remain rent-free in the house of the decedent for 6 months from the date of death (referred to later in this article as the “homestead allowance”).[18]

In addition to the right to exempt property, there is a discretionary family allowance, in order to provide support to the decedent’s immediate family during the period of administration.[19] The personal representative may choose to pay the family allowance to the surviving spouse, if all minor or dependent adult children reside with the surviving spouse.[20] If there is no surviving spouse, then the personal representative may choose to pay the family allowance to or for the benefit of any minor or dependent adult children.[21] If there is a surviving spouse but any minor or dependent adult children do not reside with him or her, the personal representative may choose to pay the family allowance partially to the surviving spouse and partially to or for the benefit of any minor or dependent adult children, as the personal representative determines based on their respective needs.[22]

The allowance is a monetary one and must be in a total amount that is “reasonable.”[23] Unless the court orders otherwise, a “reasonable” amount cannot exceed a lump sum payment of $18,000 or monthly payments of $1,500 for up to one year.[24] The personal representative has the discretion to determine the amount and terms of the family allowance unless there is a supervised administration, in which case court approval is required; but the personal representative or an aggrieved interested person can always file a petition with the court requesting that the court determine the family allowance.[25] This is both a remedy for an interested person who is unhappy with the personal representative’s decision and a means for the personal representative to avoid any potential liability resulting from the personal representative’s distribution of the family allowance, in the event of an unsupervised administration.

In the Comment to the Uniform Probate Code, Section 2-404, Family Allowance, the Commissioners state as follows:

In determining the amount of the family allowance, account should be taken of both the previous standard of living and the nature of other resources available to the family to meet current living expenses until the estate can be administered and assets distributed. While the death of the principal income producer may necessitate some change in the standard of living, there must also be a period of adjustment. If the surviving spouse has a substantial income, this may be taken into account. Whether life insurance proceeds payable in a lump sum or periodic installments were intended by the decedent to be used for the period of adjustment or to be conserved as capital may be considered. A living trust may provide the needed income without resorting to the probate estate. Obviously, need is relative to the circumstances, and what is reasonable must be decided on the basis of the facts of each individual case. [26]

Impact of New MUPC Provisions on Practitioners

What does all of this mean for practitioners?

  • The personal representative should be aware of this new responsibility to provide for the support of the surviving spouse and any minor or adult dependent children during the period of administration. In other words, since the family allowance has priority over devisees under the will, any unsecured creditors of the estate, the expenses of the estate administration, and the expenses of the decedent’s last illness and funeral, the personal representative should set aside funds for the family allowance before paying any of these other expenses.
  • In addition, if the decedent had significant liabilities or an estate is insolvent, these allowances provide additional protection to the surviving spouse and any minor or adult dependent children, since they take priority over transfers resulting from rights of survivorship or payable on death designations (if the allowances are claimed within one year of the decedent’s death), any unsecured creditors of the estate, the expenses of the estate administration, and the expenses of the decedent’s last illness and funeral, and should be claimed as soon as possible by the family members. 
  • In the case of a small estate subject to the MUPC’s voluntary administration procedures, the personal representative can distribute the exempt property and the family allowance without giving notice to creditors, if the entire value of the estate minus liens and encumbrances does not exceed the homestead allowance, exempt property, family allowance, costs and expenses of administration, funeral expenses, and the expenses of the decedent’s last illness.[27] 
  • In order to limit these rights, a spouse can provide in his or her will that the exempt property and the family allowance must be charged against the beneficiary’s share of the estate. However, this only serves as a restriction if the surviving spouse is actually provided for in the deceased spouse’s will. A disinherited spouse or a spouse that otherwise elects against the will will receive a net increase in the amount of property received from the estate above and beyond the elective share that he or she would otherwise receive. 
  • A person who does not want his or her spouse to be able to claim the exempt property right, homestead allowance or family allowance under any circumstance might consider negotiating a prenuptial or postnuptial agreement that waives the surviving spouse’s entitlement to the family allowance.

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[1] A husband could freely manage and spend his wife’s individual property during his lifetime under the doctrine of coverture and as the owner of an interest called jure uxoris, or “by right of his wife.”  After his death, a widow could not inherit any entailed real property from her husband, and her husband was free to give any of his individual property not subject to entailments to whomever he pleased in his will.  In a society where wives were often significantly younger than their husbands and overall mortality rates were high, there was a high probability that a married woman would be widowed and left with assets insufficient to support her and any minor children in her care.  As a result, early in the feudal era, the common law developed protections for the widow, in order to mitigate the harshness of a system where men, in general, owned a larger portion of the individual property in the marital estate and had control of their wives’ own individual property.

[2] See Development of Common Law Dower, George L. Haskins, 62 Harv.L.Rev. 42 (1948) (providing an analysis of the development of the dower right during the feudal period in England).

[3] See Opinion of the Justices, 337 Mass. 786 (1958) (discussing the rationale behind the curtailing of dower and curtesy by statute). Although curtesy was completely abolished by statute in 1978, statutory dower, although limited to the real estate in the decedent’s probate estate and redefined to be available to either spouse, was not abolished in Massachusetts until the passage of the MUPC.

[4] See Townsend v. Wood, 342 Mass. 481 (1961).

[5] See Hooker v. Porter, 273 Mass. 316 (1930).

[6] See Kingsbury v. Wilmarth, 84 Mass. 310 (1861).

[7] Chase v. Webster, 168 Mass. 228 (1897).

[8] See Wright v. Wright, 95 Mass. 207 (1866). 

[9] M.G.L. c. 190B, § 2-112.

[10] Section 10 of the MUPC repeals M.G.L. c. 196.

[11] M.G.L. c. 190B, §§ 2-403 – 2-405.

[12] M.G.L. c. 190B, §§ 2-403 & 2-404.

[13] M.G.L. c. 190B, § 2-403(a).

[14] Id.

[15] Defined as the fair market value minus the amount of any security interest encumbering the asset.

[16] M.G.L. c. 190B, §§ 2-403(a) & 2-405.

[17] M.G.L. c. 190B, § 2-403(a).

[18] M.G.L. c. 190B, § 2-403(b).

[19] M.G.L. c. 190B, § 2-404(a).

[20] Id.

[21] Id.

[22] Id.

[23] M.G.L. c. 190B, § 2-404(a).

[24] M.G.L. c. 190B, § 2-405.

[25] M.G.L. c. 190B, § 2-405; see M.G.L. c. 190-B, § 3-504.

[26] UNIF. PROBATE CODE § 2-404 cmt. (amended 2008).

[27] M.G.L. c. 190B, § 3-1203.

T&E Litigation Update – Howes v. Riordan; Berkowitz v. Berkowitz

Author:
Mark E. Swirbalus, Esq., Day Pitney LLP 

The T&E Litigation Update is a recurring column summarizing recent trusts and estates case law. If you have question about this update or about T&E litigation generally, please feel free to e-mail the author by clicking on his name above.

Howes v. Riordan

In Howes v. Riordan, Case No. 11-P-596, 2012 Mass. App. Unpub. LEXIS 220 (Feb. 28, 2012), a decision issued pursuant to Rule 1:28, the Appeals Court affirmed the allowance of a motion to strike an affidavit of objections. 
 
The decedent executed a last will on February 26, 2008, leaving a tea cart to her daughter Judith and the residue of her estate to her sons John and James. The decedent died on June 12, 2010, following which James filed the will for probate and Judith filed an affidavit of objections. In response to the affidavit of objections, John and James filed a motion to strike or alternatively for summary judgment. In opposition, Judith’s counsel filed an affidavit asserting that he could not adequately defend the summary judgment motion without additional discovery. 
 
The probate court granted the motion to strike, and the Appeals Court affirmed, rejecting Judith’s argument that it was procedurally improper for John and James to combine their motion to strike with a motion for summary judgment. The Appeals Court also rejected Judith’s substantive arguments. 
 
Regarding her claim of lack of testamentary capacity, the Court held that Judith failed to allege sufficient facts supporting her claim. Although the decedent was physically in decline, “Judith simply fails to set forth facts that connect her [the decedent’s] physical decline to the elements of testamentary capacity. … The affidavit is silent as to the [decedent’s] communication skills or ability to converse coherently, her level of awareness of her estate, her level of awareness of her children and their relationship with her, her ability to respond appropriately to information, or other indicia of testamentary capacity.” 
 
Judith’s undue influence claim was rejected for the same reason, i.e., she failed to allege sufficient facts raising a triable claim that the decedent’s declining physical health caused her to be susceptible to undue influence. 
 
Berkowitz v. Berkowitz

In Berkowitz v. Berkowitz, Civil Action No. 11-10483-DJC, 2012 U.S. Dist. LEXIS 31487 (D. Mass. March 9, 2012), the U.S. District Court denied a motion to dismiss a complaint alleging breach of an oral trust. 
 
In 1998, Samuel Berkowitz gave a general power of attorney to his daughter Bonnie. One year later, he conveyed certain real estate to Bonnie, allegedly instructing her that if he were to die, then she was to use the value of the real estate to take care of his wife Barbara for her lifetime, and thereafter that Bonnie was to share the remaining value with her brother. Samuel characterized this as an “express oral trust” for the benefit of his wife for life, with the remainder for Bonnie’s brother and Bonnie herself. 
 
Over the next two or three years, there were a series of transfers by Bonnie involving accounts in Samuel’s name, to which he acquiesced after-the-fact because he allegedly believed the transfers were initiated by Bonnie in furtherance of his wishes as expressed in the oral trust agreement. 
 
In June 2008, Samuel asked Bonnie for an accounting of the oral trust assets. Bonnie repudiated holding any assets in trust for Samuel. He filed suit in March 2011, claiming breach of fiduciary duty and requesting an accounting. Bonnie filed a motion to dismiss the complaint on three grounds: (1) that the complaint fails to state a claim upon which relief can be granted; (2) that the breach of fiduciary duty claim is barred by the three-year statute of limitations; and (3) that this claim is also barred by the statute of frauds. The Court denied the motion. 
 
The Court held that the complaint states an actionable claim for breach of fiduciary duty under the alleged oral trust. Quoting Cooney v. Montana, 347 Mass. 29, 34-35 (1964), the Court explained that “[t]o create an oral trust sufficient to impose a fiduciary duty on a would-be trustee, ‘[n]o particular form of words is necessary but the words employed must unequivocally show an intention that the legal estate be vested in one person to be held in some manner or for some purpose on behalf of another.'” 
 
Regarding the statute of limitations defense, the Court took as true Samuel’s allegation that Bonnie did not repudiate the trust until June 2008, and noted that a cause of action for breach of fiduciary duty does not accrue until the trustee repudiates the trust and the beneficiary has actual knowledge of the repudiation. 
 
Finally, as to Bonnie’s argument under the statute of frauds that agreements concerning the conveyance, sale or lease of property, and agreements establishing a legacy trust, must be in writing to be legally enforceable, the Court explained that the question of whether the statute of frauds applies is best answered at summary judgment or at trial on the basis of discovered facts. 
 
The Boston Bar Association Trusts & Estates Section Blog provides information as a service to its users and BBA members. Neither the Trusts & Estates Section nor the Boston Bar Association are a law firm and do not represent clients in any way. Although the information on this site is about legal issues and informational services it is not legal advice. Use of this blog does not in any way create a lawyer-client relationship. If you need a lawyer, the Boston Bar Association Lawyer Referral Service can refer you to a qualified attorney. http://www.bostonbarlawyer.org/or call 617-742-0625.

BBA Trusts & Estates Section Program Recap – February & March 2012

In February and March 2012, the Boston Bar Association’s Trusts & Estates Section offered several educational programs on timely topics and developments in trusts and estates law. Below is a summary of the programs.

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CLE – TRUST ADMINISTRATION UNDER THE NEW MUPC & MUTC
Thursday, February 2, 2012

On January 15, 2009, the Governor Patrick signed the Massachusetts Uniform Probate Code (“MUPC”) into law. The MUPC provisions relating to wills, intestacy, estate administration and trust administration went into effect on March 31, 2012.

Article VII of the MUPC focuses on the way the Probate Court deals with trusts, and the key changes from current law relate to taking trust administration outside of court supervision in most cases the same way the MUPC takes estate administration outside of court supervision. Article VII overlaps with the Uniform Trust Code, which is currently being considered for enactment in Massachusetts, but the Uniform Trust Code is far broader and touches on additional substantive topics relating to trusts. If enacted, the Uniform Trust Code will repeal and incorporate many of the provisions of Article VII.

In this program, speakers Marc J. Bloostein, Esq. of Ropes & Gray LLP, and Jennifer Locke, Esq. and Eric P. Hayes, Esq. of Goodwin Procter LLP, focused on the actual and expected changes to the law affecting the administration of trusts and the duties and obligations of trustees, and the transition rules that will govern trusts already in effect at the time the MUPC and the Trust Code go into effect. Specific topics included:

  • Duty to Inform and Account to Beneficiaries
  • Change of Trustee
  • Statute of Limitations for Claims Against Trustees
  • Trustees Act by Majority Decision
  • Virtual Representation
  • Non-Judicial Settlement Agreements
  • Animal Trusts and Purpose Trusts
  • Reformation and Modification
  • Spendthrift Provisions
  • Revocable Trusts

If you are interested in a copy of the CLE program materials, please contact Sandra Vega at the Boston Bar Association.

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TRUST DECANTING: A DISCUSSION OF CURRENT TAX AND NON TAX ISSUES
Friday, February 24, 2012

In this program, George Cushing, Esq. of McLane, Graf, Raulerson & Middleton, P.A. spoke on the topic of decanting and moving the situs of trust administration.

Sponsoring Section: Estate Planning Committee

Program materials can be found here.

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ESTATE PLANNING FOR TRANSGENDER CLIENTS
Friday, March 2, 2012

An attorney working with a transgender client must anticipate issues that may not arise with other clients. In this program, presented in collaboration with the Massachusetts LGBTQ Bar Association, speakers Michelle LaPointe, Esq. of Wade Horowitz LaPointe, LLC and Allison Cleveland, Esq. of Day Pitney LLP provided an overview of relevant laws (on a national scale) and practical considerations with respect to drafting and executing wills and non-testamentary instruments, recognition of marriage for estate planning purposes, drafting incapacity documents, and postmortem planning for transgender clients. Massachusetts-specific estate planning issues and best practices were also discussed.

Sponsoring Section: Trusts & Estates Section

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THE PREPARATION OF FORMS 706 & 709 AND PRACTICAL TIPS FOR ESTATE AND GIFT TAX FILINGS
Wednesday, March 7, 2012

Sara W. Condon, Esq. of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo P.C. provided an overview of the federal estate tax return (Form 706) and the federal gift tax return (Form 709). These forms are used to report and pay tax on bequests and lifetime gifts and are an integral part of estate planning and administration. The presentation covered the general purposes and structure of the forms, and provided tips for preparing them.

Sponsoring Committee: Practice Fundamentals Committee

Program materials can be found here and here.

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For a schedule of upcoming programs, visit the Boston Bar Association’s online calendar.

MUPC Comes Into Effect

On Saturday, March 31, 2012, Articles I, II, III, IV, VI and VII of the Massachusetts Uniform Probate Code, G.L. c. 190B (the “MUPC”) became effective. Today, Monday, April 2, 2012, is the first day that the Massachusetts Probate and Family Court will operate under the new law. The MUPC makes important changes to Massachusetts probate and estate administration procedures. Most significantly, personal representatives may now choose between informal and formal probate and administration.

Article V of the MUPC, containing provisions pertaining to guardianships and conservatorships, became effective on July 1, 2009. The remainder of the MUPC was originally scheduled to become effective on July 1, 2011, but was twice delayed (as discussed here and here).

The MUPC may be found here. A press release from the Probate and Family Court regarding the effective date, as well as new MUPC probate and estate forms and a 139 page estate administration procedural manual, may be found here. For some comments by practitioners regarding how the MUPC may affect their practices, see here.

The Boston Bar Association continues to push for passage of the Massachusetts Uniform Trust Code, certain provisions of which would supersede corresponding provisions of the MUPC. We will keep you posted with any further developments in this regard.

T&E Litigation Update – Rivera v. Mackoul; Boyle v. Weiss; Cassell v. Christian Science Board of Directors

Author:
Mark E. Swirbalus, Esq., Day Pitney LLP

The T&E Litigation Update is a recurring column summarizing recent trusts and estates case law. If you have question about this update or about T&E litigation generally, please feel free to e-mail the author by clicking on his name above.

Rivera v. Mackoul

In Rivera v. Mackoul, Case No. 10-P-1663, 2012 Mass. App. Unpub. LEXIS 120 (Feb. 3, 2012), a decision issued pursuant to Rule 1:28, the Appeals Court affirmed a judgment in favor of an estate planning attorney for fees incurred in a will contest, where the will was determined to be invalid pursuant to an agreement for judgment. The executors and heirs of the estate claimed that the attorney’s negligence in preparing the will led to the will contest. 
 
The decision is largely devoid of facts, but the Appeals Court expressly relied on the decision in Logotheti v. Gordon, 414 Mass. 308 (1993), where the Supreme Judicial Court held that (1) the mere foreseeability of harm was insufficient to impose a duty owed to potential heirs by an attorney who drafted a will where the potential heirs would be disinherited by the will, (2) the attorney’s duty in drafting the will was to the decedent as his client, and (3) the attorney owed no duty to the heirs, who only inherited by intestate succession, because imposing such a duty would create conflicts of interest. The Appeals Court noted that the law in this area is clear in Massachusetts, and further noted that cases in other jurisdictions reaching the opposite conclusion involved a commonality of interest among the testator and all the devisees that has been frustrated by the attorney’s failure to achieve the agreed objective of the testator. 
 
Boyle v. Weiss

In Boyle v. Weiss, Case No. SJC-10933, 2012 Mass. LEXIS 33 (Feb. 16, 2012), the Supreme Judicial Court answered the following certified question: “May the holder of a beneficial interest in a trust which holds title to real estate and attendant dwelling in which such beneficiary resides acquire an estate of homestead in said land and building under G.L. c. 188, § 1?” Confining its answer to the 2004 version of the homestead statute, the Court answered NO. 
 
First, under the 2004 version, the beneficiary is not an “owner,” as that term is defined in the statute, because she is not a sole owner, joint tenant, tenant by the entirety or tenant in common. Therefore, she holds no direct ownership interest in the property. Second, her beneficial interest in the trust holding title to the property does not indirectly endow her with an ownership interest. Rather, her beneficial interest, which gives her a right to a share of trust income, is a personal property interest. Third, the language in the statute pursuant to which an estate of homestead may be acquired by someone who rightfully possesses the property “by lease or otherwise” does not give the beneficiary, who is occupying the property as a tenant at will, the privilege of claiming a homestead exemption. 
 
Finally, the Court rejected the beneficiary’s argument that the 2010 version of the homestead statute, which expands the definition of “owner” to include holders of life estates and holders of beneficial interests, was a mere clarification of the 2004 version. Instead, the Court held that this expanded definition is a change in the law to which the beneficiary could not avail herself, because she filed her homestead declaration one year before the 2010 version went into effect. 
 
Cassell v. Christian Science Board of Directors

In Cassell v. Christian Science Board of Directors, Case No. 11-P-453, 2012 Mass. App. Unpub. LEXIS 173 (Feb. 15, 2012), a decision issued pursuant to Rule 1:28, the Appeals Court affirmed the probate court’s dismissal for lack of subject matter jurisdiction. 
 
Plaintiff was excommunicated from the First Church of Christ, Scientist. She filed suit in probate court against members of the church’s board of directors, seeking reinstatement and an affirmative injunction that the board “abide by all terms and conditions of the Governing Documents, including the Deeds of Trust and Church Manual.” Plaintiff argued that probate court was the proper forum for her complaint because Mary Baker Eddy founded the church as a trust, pursuant to a deed of trust, and thus that the board consists of trust fiduciaries. 
 
The probate court disagreed, and the Appeals Court affirmed, holding that Mary Baker Eddy’s deed of trust was for the purpose of conveying land, not to establish judicial policing of church membership. The Court also held that excommunication is a form of internal discipline covered by the “church autonomy doctrine,” which provides that both congregational and hierarchical churches are entitled to autonomy over church disputes touching on matters of doctrine, canon law, policy, discipline and ministerial relationships, and that the First Amendment forbids courts from interfering with a church’s internal governance or the excommunication of its members.
 
The Boston Bar Association Trusts & Estates Section Blog provides information as a service to its users and BBA members. Neither the Trusts & Estates Section nor the Boston Bar Association are a law firm and do not represent clients in any way. Although the information on this site is about legal issues and informational services it is not legal advice. Use of this blog does not in any way create a lawyer-client relationship. If you need a lawyer, the Boston Bar Association Lawyer Referral Service can refer you to a qualified attorney. http://www.bostonbarlawyer.org/or call 617-742-0625.

IRS Notice 2012-21 Extends Form 706 Due Date for Certain Estates

On February 17, 2012, the IRS released Notice 2012-21, granting a 6 month extension to file Form 706 to qualifying estates that did not file a Form 4768 before the due date. Qualifying estates are those where the decedent died after December 31, 2010 and before July 1, 2011, where the decedent was survived by a spouse, and where the decedent’s gross estate does not exceed $5 million.

In October 2011, the IRS released Notice 2011-82, instructing an executor of a deceased spouse to file a Form 706 within 9 months of the decedent’s date of death in order to make a portability election. As a result of the late date of the Notice, executors of estates where the decedent died in early 2011 did not have the benefit of guidance on electing portability and executors of estates valued at less than $5 million would have had no reason to file a Form 706 or to request an extension to file. Accordingly, executors of qualifying estates, as described above, now have until 15 months after the decedent’s date of death to file a Form 706 if the executor files Form 4768 no later than 15 months after the date of death and references Notice 2012-21 thereon.

March 12th MUPC "Resource Desk" Volunteer Lawyer Training

Trusts & Estates Section members,

As you may know, the Massachusetts Uniform Probate Code, G.L. c. 190B (MUPC), a significant change in Massachusetts probate law and procedure, is slated to take effect on March 31, 2012. While the justices of the Probate Court Department and their staff have worked hard to prepare for the new world of the MUPC, there remains a significant opportunity for those of us who have attended one of the many CLE’s last fall to assist the Court during this transition over the next several months.

How can you help?
Members of the BBA, MBA, and attorneys from the Probate Court have been working together to develop ways in which volunteer attorneys can be most useful to the Probate Court, attorneys, and pro se petitioners. As a volunteer attorney you will staff the “MUPC Resource Desks” that will be located in the Probate Court registries around the Commonwealth, including Suffolk, Middlesex and Norfolk Counties. We hope that the Resource Desks in each of the participating registries will be staffed one to two days a week, for at least two hours each day. Volunteer attorneys will answer questions concerning the MUPC that are posed by other attorneys, as well as pro se petitioners, helping them understand the new substantive rules (e.g., identifying heirs at law and persons interested in an estate) and the new Probate Court forms.

Resource Desk Volunteer Training: March 12 at the BBA
In order to make sure we are ready to assist the court and community adequately, we will be conducting a training session at the Boston Bar Association (16 Beacon Street, Boston) on Monday, March 12, from 12:00 PM to 1:30 PM. At the training volunteer attorneys will learn how the “Resource Desks” will be staffed, the questions to expect from attorneys and the public, and various practical issues in connection with the project (e.g., how to sign up, what courts will be participating, etc.). There may be additional training opportunities at a later date, however we encourage you to join us on March 12th if you are available.

For more information and to register for the training session, please click here.

Thank you for your help.

Sincerely,
The Boston Bar Association

T&E Litigation Update – Rochalski v. Sklodowski (Correction)

Due to an error in the original post, this Litigation Update is being re-posted.

Author:
Mark E. Swirbalus, Esq., Day Pitney LLP

The T&E Litigation Update is a recurring column summarizing recent trusts and estates case law. If you have question about this update or about T&E litigation generally, please feel free to e-mail the author by clicking on his name above.

Rochalski v. Sklodowski

In Rochalski v. Sklodowski, Case No. 10-P-1750, 2012 Mass. App. Unpub. LEXIS 12 (Jan. 6, 2012), a decision issued pursuant to Rule 1:28, the Appeals Court affirmed the probate court’s judgment voiding certain transactions on grounds of lack of capacity and undue influence.

The decedent’s native language was Polish, with her knowledge of English being limited. She also suffered from mental illnesses, among them hoarding. Despite these limitations, she was able to accumulate a considerable estate, including a six-family residential building in Boston.

The decedent lived in an apartment on the property until 2002, when the building was condemned and put into receivership. The decedent contested the receivership and became embroiled in legal proceedings in an attempt to rehabilitate the property. She was assisted by an attorney, her guardian, and the defendant, who acted as the decedent’s interpreter. The attorney developed a plan for the property that required the decedent to deed one-half of her interest to a developer, who would rehabilitate the property and then allow the decedent to live in one of the apartments rent-free for the remainder of her life. The defendant intervened, however, persuading the decedent to deed the entire property to him for one dollar.

Thereafter, the defendant rehabilitated the property but rented the apartment meant for the decedent to a third party. The defendant also assumed control of the decedent’s finances, using a general power of attorney to withdraw money from the decedent’s accounts and cashing her Social Security checks, and isolated her from her family and guardian. Moreover, the defendant arranged for the decedent to execute a new will, which the defendant hand-wrote, naming himself as executor and the beneficiary of almost the entire estate.

The defendant admitted that he had emptied the decedent’s accounts, but argued that he did so at the decedent’s request. He also claimed that he sent $150,000 to a purported guard who had allegedly helped the decedent escape from a concentration camp in Siberia, even though the defendant conceded that he did not believe this had actually happened.

After trial, the probate court found the decedent had been incompetent and the victim of undue influence, voiding the deed, invalidating the will, and ordering the defendant to return funds to the decedent’s estate. The probate court also found that the defendant had violated his common law duties associated with a power of attorney, including by sending $150,000 to a person whose identity the defendant himself had questioned. The Appeals Court affirmed on all counts, and further ordered the defendant to pay the plaintiff administratrix’s costs and fees on appeal pursuant to Rule 25 of the Massachusetts Rules of Appellate Procedure.

The Boston Bar Association Trusts & Estates Section Blog provides information as a service to its users and BBA members. Neither the Trusts & Estates Section nor the Boston Bar Association are a law firm and do not represent clients in any way. Although the information on this site is about legal issues and informational services it is not legal advice. Use of this blog does not in any way create a lawyer-client relationship. If you need a lawyer, the Boston Bar Association Lawyer Referral Service can refer you to a qualified attorney. http://www.bostonbarlawyer.org/ or call 617-742-0625.

Final Regulations re: IRC § 2036 and the Extent of Gross Estate Includibility of Grantor’s Retained Interest

Author:
Nikki Marie Oliveira, Esq., LL.M., Margolis & Bloom, LLP

On November 8, 2011, the IRS published T.D. 9555, final regulations regarding the includibility of property (regardless of whether held in trust) in the grantor’s gross estate under I.R.C. § 2036 where the grantor retained:

(1) the use of the property;
(2) the right to an annuity or unitrust;
(3) a graduated retained interest; or
(4) other payment from the property

in any event, for:

(A) life;
(B) any period not ascertainable without reference to the grantor’s death; or
(C) a period that does not in fact end before the grantor’s death.

The final regulations amend Treas. Reg. § 20.2036-1 and fine tune proposed regulations published in the Federal Register on April 30, 2009. The final regulations are generally effective as of November 8, 2011 and affect estates filing a federal estate tax return.

Grantor’s retained annuity or unitrust. The final regulations describe how to determine the portion of trust corpus that is includible in the grantor’s gross estate where the grantor retained an annuity or unitrust. The amount includible is the amount of trust corpus required to generate sufficient income to satisfy the retained interest.

Grantor’s retained annuity following another person’s current annuity interest. The final regulations describe how to determine the portion of trust corpus that is includible in the grantor’s gross estate where the grantor was to receive an annuity after the death of the current recipient of the annuity. The amount includible in the grantor’s gross estate is the greater of (1) the amount of trust corpus required to generate sufficient income to pay the annuity or unitrust payable to the grantor as of the date of death, or (2) amount of corpus required to produce sufficient income to satisfy the annuity or other payment the grantor would have been entitled to receive if the grantor had survived the current recipient, reduced by the present value of the current recipient’s interest. The maximum includible value is the fair market value of the trust corpus at the grantor’s death.

Grantor’s graduated retained interest. The final regulations define a graduated retained interest as the grantor’s reservation of a right to receive an annuity, unitrust or other payment that increases over a period of time, and provide an example of how to calculate the extent to which trust corpus is includible in the grantor’s gross estate where the grantor retained a graduated retained interest.

Grantor and child share equal income or annuity interests. The final regulations clarify the extent to which the value of trust corpus is includible in the grantor’s gross estate where income is payable to the grantor and his child in equal shares while they are both living, and then to the survivor of them. In summary, if the grantor dies first, the present value of the surviving child’s life estate reduces only the half of the trust corpus from which it is payable. One half of the value of the trust corpus is includible in the grantor’s estate because of his right to receive one half of the trust income for life. The value of the remaining one half of trust corpus less the present value of the child’s outstanding life estate in the child’s half is also includible in the grantor’s estate because the grantor had the right to receive all the trust income if he had survived the child. Alternatively, if the grantor survived the child, the entire trust corpus would be includible in the grantor’s gross estate.

The final regulations also provide an example calculating the portion of the trust corpus includible in the grantor’s estate where the grantor and his child held annuity interests rather than trust income.

No double inclusion under §§ 2033 and 2036. The final regulations resolve the issue of whether I.R.C. §§ 2033 and 2036 might cause an asset to be subject to “double inclusion” in a particular circumstance. Specifically, if a grantor retains an interest for a term of years, dies before the term expires, and payments become payable to his estate for the balance of the term, those amounts payable to the estate after the grantor’s death are not includible in the grantor’s gross estate under § 2033 because they are already reflected in the value of the trust corpus and are includible under § 2036. Conversely, if the payments are payable to the grantor prior to death, but not actually paid until after death, those amounts are includible under § 2033.