Posts Categorized: Uncategorized

Alert: Massachusetts Uniform Trust Code Passes House

Brad Bedingfield, Esq., Wilmer Cutler Pickering Hale and Dorr LLP

As discussed here, on October 19, 2011, the Massachusetts Uniform Trust Code (MUTC) (formerly H. 2261 and S. 688, now H. 3780 and S. 2034) was reported favorably from the Joint Committee on the Judiciary. On October 31, it was reported from the House Committee on Ways and Means, and on November 1 passed the House.

For those of you who have contacted your representatives to urge passage of the MUTC, thank you for your support. However, we’re not there yet. Please ask your representatives in the Senate to send the MUTC to the Governor’s desk. As discussed here, the trust law provisions of the Massachusetts Uniform Probate Code (MUPC) are scheduled to take effect on January 2, 2012. It is vital that the MUTC, which has an effective date of January 2, 2012, is signed as soon as possible, to avoid a scenario whereby courts, practitioners, trustees and beneficiaries must grapple with multiple disparate bodies of trust law in succession.

In addition, the Massachusetts Uniform Probate Code (MUPC) technical corrections bill (S. 704) has not yet passed the House or the Senate. The Boston Bar Association is working closely with representatives to encourage passage of both the MUTC and the MUPC technical corrections bill as soon as possible. Please contact your representatives and urge them to push this bill through as well.

Thank you for your support.

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. or call 617-742-0625.

Standing Order 5-11, Guidance in Applying the MUPC to Pending Proceedings

Kerry L. Spindler, Esq., Goulston & Storrs, PC

The Massachusetts Probate and Family Court (the “Court”) recently announced new Standing Order 5-11, providing guidance as to application of the MUPC’s estate administration and trust provisions to proceedings pending before the Court after January 2, 2012, the MUPC effective date. A proceeding is “pending” if a petition was docketed, filed or date stamped as received by a Probate and Family Court on or before December 30, 2011 and where (i) a permanent decree has not entered, or (ii) a permanent decree has entered but other proceedings may be pending in the matter. The proceedings addressed in the Standing Order include:

  • Citations
  • Probate and administration decrees
  • Petitions to establish a testamentary trust or to fill a vacancy in a previously established testamentary trust
  • Petition for license to sell
  • Other petitions
  • Allowance of accounts
  • Voluntary administration
  • Appointment of certain fiduciaries

The Standing Order also provides that “all fiduciaries, including trustees, shall continue to have the obligations of their pre-MUPC bonds unless modified by petition after January 2, 2012”. This suggests that a fiduciary acting under a pre-MUPC bond may submit a petition to modify the bond and request access to the more flexible MUPC procedures. However, as previously reported, the MUPC technical corrections legislation, which would eliminate the ambiguity in the MUPC’s “effective date” provisions and cause Article VII of the MUPC (and the provisions incorporated through Article VII) to apply to trusts that became irrevocable prior to January 2, 2012, has not yet been adopted. As a result, it remains unclear whether trustees of such trusts may petition to bring those trusts within the MUPC.

IRS Proposed Regulations re: IRC Section 67 Limitations on Estates or Trusts Improved But Imperfect

Nikki Marie Oliveira, Esq., LL.M.
Kerry L. Spindler, Esq., Goulston & Storrs, PC

On September 7, 2011, the IRS withdrew the 2007 proposed regulations and released new proposed regulations providing guidance as to when expenses incurred by estates or non-grantor trusts are subject to the two percent floor for miscellaneous itemized deductions under I.R.C. § 67(a). When final, the regulations will be published at Treas. Reg. § 1.67-4.


I.R.C § 67(a) provides that, with respect to an individual taxpayer, miscellaneous itemized deductions are allowed only to the extent that the aggregate of the deductions exceeds two percent of adjusted gross income (“AGI”). I.R.C. § 67(e) provides that estates and trusts compute AGI in the same manner as an individual except that deductions for costs “paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate” are deductible without regard to the two percent floor.

The law around this exception has been evolving, and in 2007 the IRS published proposed regulations[1]providing that a cost is deductible without regard to the two percent floor to the extent that it is “unique” to the estate or trust.[2] The 2007 proposed regulations also provided that where an estate or trust pays a single investment advisory fee that includes costs subject to the two percent floor and costs not subject to the two percent floor, the fee must be “unbundled”.[3]

In 2008, the United States Supreme Court decided the case of Knight v. Commissioner, 55 U.S. 181 (2008), holding that while trust investment advisory fees are generally subject to the two percent floor, they are not subject to the floor if they are “uncommon (or unusual or unlikely) for a[n] . . . individual to incur”.[4] Knight’s focus on “uncommon” expenses was considered to be less restrictive than the requirement in the 2007 proposed regulations that the expenses be “unique”.

Since 2008, the IRS has issued annual guidance stating that fees did not have to be unbundled until final regulations were promulgated.[5] In September 2011, the IRS withdrew the 2007 regulations and published new proposed regulations more aligned with Knight. Noteworthy provisions of the new proposed regulations are as follows.

Test for When Expenses are Subject to the Two Percent Floor

The new proposed regulations provide a three-prong test for determining when an expense is subject to or excepted from the two percent floor. A cost is subject to the two percent floor to the extent that it is: (1) included in the definition of miscellaneous itemized deductions under section 67(b), (2) incurred by an estate or non-grantor trust, and (3) commonly or customarily incurred by a hypothetical individual holding the same property.[6]

Expenses Commonly or Customarily Incurred by Individuals

Whether an expense is commonly or customarily incurred by a hypothetical individual holding the same property depends on “the type of product or service rendered…, rather than the description of the cost of that product or service.”[7] Costs that are commonly or customarily incurred by individuals include:

  • Costs incurred in defense of a claim against the estate, the decedent, or trust that are unrelated to the existence, validity, or administration of the estate or trust.[8]
  • Ownership costs, such as condominium fees, real estate taxes, insurance premiums, maintenance and lawn services, automobile registration and insurance costs, and partnership costs deemed to be passed through to and reportable by a partner.[9]
  • Certain tax preparation fees. Deductibility is dependent upon the type of tax return. For instance, tax preparation fees for an estate tax return, generation-skipping transfer tax return, fiduciary income tax return, or a decedent’s final individual income tax return are not subject to the two percent floor.[10] On the other hand, other individual income tax returns, gift tax returns, and tax returns for a retirement plan or sole proprietorship are commonly incurred by individuals and would be subject to the two percent floor.[11]
  • Investment advisory fees are generally subject to the two percent floor, however, the new proposed regulations provide an exception to the extent that any portion of the investment advisory fee exceeds the fee normally charged to an individual investor, and the excess is attributable to (a) an unusual investment objective of the trust or estate or (b) a specialized balancing of the interests of various parties, such that a reasonable comparison with individual investors would be improper.[12]

Unbundling of Fiduciary Fees

There has been much controversy over when and how fiduciary fees must be “unbundled” for the purpose of calculating the AGI of the trust or estate under I.R.C. § 67(e). While the new proposed regulations permit more expenses to avoid the two percent floor, looming is still the issue of how to allocate investment advisory fees.

The new proposed regulations provide that costs that are subject to the two percent floor and those that are not must be separately accounted for in computing AGI. However, if the fee charged is not based on an hourly rate, then only the portion for investment advice is characterized as subject to the two percent floor and any excess is deductible without regard to the floor. In response to concerns raised over high anticipated administrative costs associated with unbundling fees, the new proposed regulations allow “any reasonable method” to be used to unbundle. Nevertheless, this is a broad and vague standard requiring further clarification.

Effective Date

Estates and non-grantor trusts with tax years beginning on or after final regulations are published in the Federal Register must comply with the new rules. Since the public hearing is scheduled for December 19, 2011, it is unlikely that the final regulations will be published before 2012. Therefore, where a trust has a calendar-year accounting period, trustees should not need to unbundle fees until at least 2013, and unbundled fees should not need to be reflected on income tax returns until those filed in 2014, at the earliest.


[1] 72 Fed. Reg. 144, 41,243 (July 27, 2007).
[2] Prop. Reg. § 1.67-4(a) (2007).
[3] Prop. Reg. § 1.67-4(c) (2007).
[4] Knight v. Comm’r, 55. U.S. 181 (2008) (emphasis deleted from original).
[5] I.R.S. Notice 2011-37, 2010-32, 2008-116 & 2008-32.
[6] Prop. Reg. § 1.67-4(a).
[7] Prop. Reg. § 1.67-4(b)(1).
[8] Prop. Reg. §1.67-4(b)(1).
[9] Id. at § 1.67-4(b)(2).
[10] Id. at § 1.67-4(b)(3).
[11] Id. at § 1.67-4(b)(3).
[12] 76 Fed. Reg. 173, 55,323 (Sept. 7, 2011)

IRS Announces 2012 Inflation Adjustments

The IRS recently announced inflation adjustments for several tax provisions related to income and estate planning.
  • Personal and dependent exemption.  The value of each personal and dependent exemption is $3,800, up $100 from 2011.
  • Standard deduction.  The new standard deduction is $11,900 for married couples filing a joint return, $5,950 for singles and married individuals filing separately, and $8,700 for heads of household.
  • Tax-bracket thresholds.  Tax-bracket thresholds increase for each filing status.  For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
  • Estate tax exclusion.  For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011.
  • Special use valuation for real estate.  If the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.
  • Annual Exclusion for Gifts.  The gift tax annual exclusion remains at $13,000.
See Rev. Proc. 2011-52 (Nov. 7, 2011).

Double Taxed – Massachusetts Cost Basis for Assets Passing At Death

Brad Bedingfield, Esq., Wilmer Cutler Pickering Hale and Dorr LLP

As we have reported in the past (here and here), because of an apparently accidental disconnect between various federal and Massachusetts statutes, it appears that assets passing from Massachusetts decedents in 2010 and thereafter may no longer receive a full step-up in cost basis for purposes of Massachusetts capital gains tax. The Boston Bar Association has promulgated and promoted Bill # H2559, which in essence would provide for a continuation of prior Massachusetts law in this regard, under which property passing upon death will receive a full step-up in cost basis for decedents regardless of the year in which they have died. Such a result avoids an unfair double tax (estate tax and capital gains tax) on the heirs of decedents who die in 2010 or thereafter.

On Tuesday, October 11, 2011, the Massachusetts Department of Revenue issued, for practitioner comment, a two-part draft Directive addressing this issue. In Directive 2, the DOR has interpreted the law as providing that the Massachusetts cost basis of property acquired from decedents who die in 2011 or thereafter is “stepped-up” basis. Although a legislative solution would be preferable to provide certainty regarding the law in this regard, Directive 2 would be a welcome relief to taxpayers facing possible double taxation with regard to property passing at death in 2011 and beyond.

Directive 1, however, addressing 2010 decedents, comes up short. Instead of providing for a full step-up in cost basis for Massachusetts purposes, in Directive 1 the DOR has interpreted the law as providing for the “modified carryover” basis regime applicable under IRC Section 1022 to estates of 2010 decedents whose executors elect out of application of estate tax (as discussed in more detail here and here).

Under federal law, this modified carryover basis regime was intended to be a “trade-off” for repeal of the estate tax. Current federal law provides the executor of a 2010 decedent’s estate with a choice – (1) no estate tax, but a potential capital gains tax burden on assets passing from the decedent (after application of certain cost basis allocations allowed under IRC Section 1022), or (2) application of estate tax, but full step-up in cost basis. Under no circumstances does federal law impose both estate tax and capital gains liability resulting from denial of step-up in cost basis at death.

Massachusetts law does not allow an election out of estate tax for 2010 decedents. Therefore, avoidance of double taxation requires a full step-up in cost basis for Massachusetts purposes in all cases. Although Directive 1, if put into effect, would potentially mitigate the effects of double taxation in some situations, many estates would still be subject to double taxation in Massachusetts.

The Boston Bar Association continues to support H2559, which would alleviate the need for the aforementioned Directives, would provide certainty regarding cost basis of assets received from a decedent after 2009 for Massachusetts purposes, and would conform Massachusetts practice in this regard with the federal policy, and with the historic Massachusetts practice, of subjecting assets passing at death to either estate tax or capital gains tax, but not both.

H2559 is currently before the Joint Committee on Revenue. Please consider contacting your representatives and asking them (1) to urge the members of the Joint Committee to report H2559 favorably out of the committee and (2) to vote for it. The phone numbers and email addresses of the members of the Joint Committee on Revenue may be found here.

To identify your representatives, and for contact information, please click here.

A template letter for your consideration may be found here.

Thank you for your support.


Update as of October 24, 2011: The Massachusetts Department of Revenue has extended the deadline for comments on the draft Directive from October 28, 2011 to November 11, 2011.

Probate Bills Move Forward

The Boston Bar Association’s Issue Spot recently published the following announcement.

Probate Bills Move Forward

On October 12th, in hearing room A-1 of the State House, the Judiciary Committee heard public testimony on 164 bills related to the broadly defined category of “crimes.”  Spanning the better part of the afternoon, the testimony addressed issues ranging from Governor Patrick’s high-profile gun crime bill to reinstating the death penalty to strengthening animal abuse laws. 

Meanwhile, upstairs on the floor of the House, the details of a supplemental budget appropriation, which included $12 million in direct funds and $8 million in retained revenue fee collections for the Trial Court, was taken up and passed with a vote of 149-1. 

While the supplemental budget and the crime bills captured the headlines the next day, the Judiciary Committee polled its members on the Massachusetts Uniform Probate Code (MUPC) technical corrections bill and the Massachusetts Uniform Trust Code (MUTC).  Both bills were ultimately reported out of committee favorably today.  These two pieces of legislation have been at the forefront of the BBA’s public policy agenda for years and represent the culmination of the efforts of task forces and a significant number of stakeholders.  We are encouraged that both bills have begun to move, particularly during such a busy and pressure-filled week for the legislature. 

As of today, just 80 days remain until the estates portion of the MUPC takes effect; the guardianship portion became effective on July 1, 2009.  A delay in passing both the MUPC technical corrections and the MUTC legislation will result in unnecessary compliance costs, while also putting greater strain on an already overburdened Probate & Family Court.  The Court has been working around the clock to prepare for the implementation of the MUPC and any delays will only undermine their efforts to achieve a smooth transition. 

Both bills address some of the shortcomings of the Commonwealth’s current trusts and estates statutes.  Although the two pieces of legislation are neither flashy nor easy to explain to non-lawyers, both are much-needed, commonsense measures seeking to ensure that soundness and equity prevail in Massachusetts law.  It is critically important to the bench, bar and the public that the legislature acts soon.

Kathleen Joyce, Government Relations Director, Boston Bar Association

IRS Releases Notice 2011-82, Guidance on Electing Portability of Deceased Spouse’s Unused Exclusion Amount

Joshua Caswell, J.D. Candidate, Suffolk University Law School

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 amended Internal Revenue Code § 2010(c) to create, for the first time ever, “portability” of the federal estate tax exemption amount between spouses, such that a surviving spouse’s federal estate tax exemption amount may be increased by the amount unused by the deceased spouse. Portability is currently effective with respect to deaths in 2011 and 2012.

On September 29, 2011, the IRS released Notice 2011-82, providing instruction for making (and avoiding) the portability election. Pursuant to the Notice, executors and administrators should consider filing a Form 706, United States Estate (and Generation Skipping Transfer) Tax Return to take advantage of portability for the surviving spouse, even if an estate is otherwise not required to file. The Notice provides as follows:

Making the Election

The IRS’s intention is to the election as uncomplicated as possible, to minimize inadvertently missed elections:

  • The executor or administrator of the estate of a decedent dying in 2011 or 2012 must timely file Form 706 to elect portability and preserve the decedent’s “unused exclusion amount”, even if the estate is not otherwise required to file.
  • The decedent’s unused exclusion amount is defined in § 2010(c)(4) as “[t]he lesser of (A) the basic exclusion amount, or (B) the excess of (i) the basic exclusion amount of the last such deceased spouse of such surviving spouse, over (ii) the amount with respect to which the tentative tax is determined under § 2001(b)(1) on the estate of the deceased spouse”.
  • A timely filed Form 706 is one filed within the time prescribed by law (including extensions).
  • Once a portability election is made, it is irrevocable.
  • A portability election will be presumed to be made on any properly filed Form 706. Besides filing the Form 706, no other affirmative action is needed. Any Form 706 filed after the time prescribed by law will not be presumed to have made the portability election.

Avoiding the Election

The IRS anticipates that most, if not all, executors or administrators of estates of decedents dying in 2011 or 2012 will want to make the portability election. However, if the election is not desired, it can be avoided as follows:

  • If a Form 706 is not required and an executor or administrator does not want to make the portability election, simply not filing Form 706 will prevent the portability election from being made.
  • If a Form 706 is required and an executor or administrator does not want to make the portability election, he or she must affirmatively opt out by timely filing Form 706 and attaching a statement indicating that the estate is not making the election under § 2010(c)(5), or by writing “no election under Section 2010(c)(5)” across the top of the first page of Form 706, as provided in the Instructions for Form 706.

Forthcoming Regulations

  • The IRS intends to issue regulations under § 2010(c) consistent with this Notice, and to address further issues arising from the portability election.

Probate Court Seeks Input on Amendments

Massachusetts Lawyers Weekly recently published the following announcement, available to its subscribers.

Probate Court Seeks Input on Amendments

The Massachusetts Uniform Probate Code Implementation Committee is inviting comments on proposed amendments to Rule 72 of the Massachusetts Rules of Civil Procedure and Rule 72 of the court’s proposed Supplemental Rules.

The proposed amendment to Rule 72 would repeal the rule on probate accounts and add a new rule, for the allowance of accounts filed in the Probate & Family Court, to the proposed Supplemental Rules, retaining the same number.

The proposed amendments reflect procedural changes as a result of the enactment of the MUPC, G.L.c. 190B. The remaining articles of the MUPC, as it relates to estate and administration matters, will go into effect on Jan. 2, 2012.

Comments should be directed no later than Friday, Oct. 21, to the MUPC Implementation Committee, Estate Working Group, c/o Evelyn J. Patsos, Probate & Family Court, John Adams Courthouse, One Pemberton Square, Boston, MA, 02108, or by email at

After reviewing submitted comments, the Estate Working Group of the MUPC Implementation Committee, along with Chief Justice Paula M. Carey, will make recommendations to the Supreme Judicial Court’s Standing Advisory Committee.

The full text of the proposed rule changes can be found by clicking here.

T&E Litigation Update – Harootian v. Douvadjian, Rose v. Rose

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.

Harootian v. Douvadjian

In Harootian v. Douvadjian, Case No. 10-P-1798 (Oct. 4, 2011), the Appeals Court addressed the question of whether certain distributions of principal from a trustee to herself, as the lifetime beneficiary of the trust, were in breach of her fiduciary duties to the remainder beneficiaries.

Beatrice Ansbigian, whose late husband was the settlor of the trust, was the trustee and lifetime beneficiary of the trust. The plaintiff claimed that Beatrice breached her fiduciary duties to him, as a remainder beneficiary, by distributing approximately $214,000 in trust principal to herself to pay her expenses after the settlor’s death. The plaintiff argued that Beatrice had assets of her own to pay her bills, and thus there was no need for her to invade the trust principal. The superior court rejected this argument, entering summary judgment against the plaintiff, and the Appeals Court affirmed.

The trust provided that Beatrice, as trustee, had the power to invade trust principal for her “support in reasonable comfort and maintenance.” The Court held that this language did not require her to exhaust her own assets before invading principal because her discretionary power to pay her expenses was not qualified by words such as “when in need” or “if necessary.” The Court also noted that the plaintiff cited no authority for the proposition that the word “reasonable,” which appeared before the words “comfort and maintenance,” meant that Beatrice should have used her own assets first so as to preserve the trust principal for the remainder beneficiaries.

Rose v. Rose

In Rose v. Rose, Case No. 10-P-1889 (Sept. 26, 2011), the Appeals Court addressed whether a specific bequest of real property was adeemed.

The testator owned two abutting lots in Wellesley, shown as Lot 7 and Lot 8. In her will dated September 22, 1962, the testator bequeathed Lot 8 to her son. After executing her will, however, the testator recorded a new plan with the town planning board to subdivide her two lots. Under the new plan, Lot 7 was designated as Lot A, and Lot 8 was effectively split in two and designated as Lots 1 and 2. Thereafter, Lot A and Lot 2 were assessed as one lot for tax purposes and the testator sold Lot 1 to third parties.

The testator died in 1983 without having changed her will.

The heirs of the testator’s son, who had been bequeathed Lot 8, filed a petition for partition in the probate court, claiming ownership of the portion of Lot 8 that still remained under the new plan. The probate court held on a motion for summary judgment that the specific bequest to the son was adeemed because Lot 8 no longer existed.  

The Appeals Court affirmed the probate court judgment. The Court recognized the general rule that where only part of real property owned by a testator is conveyed during the testator’s life, a partial ademption results and the bequest is not adeemed as to the remaining part. Nevertheless, the Court held that the specific bequest of Lot 8 was adeemed because the merger of Lot 8 with Lot 7 arose from the “affirmative acts” of the testator. This merger was not the product of the common-law doctrine of merger or a local bylaw that caused the lots to merge.

IRS Releases Final Form 8939, to Make a § 1022 Election for 2010 Decedents

Kerry L. Spindler, Esq., Goulston & Storrs, PC

On October 6, 2011, the IRS released Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent.

The executor or administrator of an estate of a 2010 decedent will use Form 8939 if he or she wishes to elect out of the estate tax/step-up basis rules of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and into the zero estate tax/modified carry-over basis rules of the Economic Growth and Tax Relief Reconciliation Act of 2001. Notice 2011-76 extended the filing due date of this form from November 15, 2011 to January 17, 2012. Notice 2011-66 provides guidance with respect to making the election.

The IRS has not yet released instructions to accompany Form 8939.


Update as of October 7, 2011:  The Instructions to Form 8939 are now available.