Posts Categorized: Uncategorized

Update on Status of Adopted Issue Statute

Authors:
Brad Bedingfield, Esq., Wilmer Cutler Pickering Hale and Dorr LLP
Matthew R. Hillery, Esq., Edwards Angell Palmer & Dodge LLP
Suma V. Nair, Esq., Goulston & Storrs, P.C.

As a follow up to our August 6, 2010 post (available HERE), on January 21, 2011, Representative Alice Hanlon Peisch introduced An Act to Repeal the Adopted Children’s Act as House Docket No. 02828. A bill number will be assigned once the proposed legislation has been assigned to a committee, and a link to the draft will then be provided on this blog.

As background, Chapter 524 of the Acts of 2008 (the “Adopted Children’s Act”) reversed a longstanding rule of construction governing the treatment of adopted persons in wills, trusts and similar instruments executed before August 26, 1958. Adopted persons (or their issue), who were previously presumed to be excluded as beneficiaries where the instrument did not specify their status, are now presumed to be included, retroactively conferring upon them benefits they never before enjoyed and retroactively diminishing interests held by natural-born descendants.

The Adopted Children’s Act originally was signed by the Governor in January of 2009. Due to multiple concerns relating to the application of this retroactive statute, the Boston Bar Association and other bar associations asked the Legislature to repeal the new act or to delay its original April 15, 2009 effective date. The legislation took effect as scheduled, but in response to these requests, the Legislature included provisions in the 2009 budget that essentially suspended the new rule of construction from July 1, 2009 to June 30, 2010. The rule of construction then came back into effect on July 1, 2010 and has existed ever since. The bar’s further efforts to repeal the new rule permanently have been unsuccessful to date, but the proposed legislation has now been reintroduced in the House.

The Boston Bar Association continues to support the repeal of the rule of construction introduced by Chapter 524.

Information about the IRS’ 2010 Form 8939

Today, the IRS posted additional information about the Form 8939. The final version of the Form will be used to allocate basis for property acquired from a decedent dying in 2010. The IRS notes that instructions will be published once the final version of the Form is available (at least 90 days before the date that the Form is required to be filed).

The IRS advises that Form 8939 should not be filed with the decedent’s final income tax return, and that the election into EGTRRA’s modified carry-over basis rules should not be made on the decedent’s final income tax return. Instructions for how to make the election will be included on the final Form 8939.

More information can be found here.

T&E Litigation Update – Comeau v. Coache and Bruner v. Bruner

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 questions about this update or about T&E litigation generally, please feel free to e-mail the author by clicking on his name above.

Comeau v. Coache

In Comeau v. Coache, Case No. 09-P-1984, 2010 Mass. App. Unpub. LEXIS 101 (Jan. 24, 2010), a decision issued pursuant to Rule 1:28, the Appeals Court reversed a judgment of the probate court terminating the plaintiff’s life estate in the trust property.

Plaintiff was granted a life estate in a home in Ipswich held in the Comeau Family Trust. The relevant provision of the trust allows plaintiff to “continue to occupy the dwelling as his principal residence, provided that he pay all real estate taxes, insurance, maintenance and utilities for the premises.” When plaintiff sought an order compelling the remaindermen to reimburse him for their proportional share of the cost of replacing certain windows, which he claimed to be a capital improvement, and for which he had already paid, the remaindermen sought to terminate plaintiff’s life estate, arguing that the replacement of the windows constituted maintenance work for which plaintiff was solely responsible.

The probate court decided in favor of the remaindermen, finding that the window-replacement work constituted maintenance and terminating plaintiff’s right to occupy the property. In reversing this decision, the Appeals Court held that, regardless of whether the replacement of the windows was a capital improvement or maintenance, plaintiff had in fact paid for the work, and his pattern of conduct over the years showed a continuing effort to preserve the integrity and value of the property. The Appeals Court also noted that although plaintiff’s obligation to pay for maintenance work could be interpreted to be a condition subsequent, such conditions are not favored in the law. “[T]here is substantial doubt whether the trust document intended that [plaintiff] automatically forfeit his right to occupy the premises if he breached his duty to pay for maintenance.”

Bruner v. Bruner

In Bruner v. Bruner, Case No. SJC-10653 (Jan. 27, 2011), the Supreme Judicial Court approved the reformation of a trust to conform with the settlor’s intent.

The trust instrument provides that its assets are to be divided between two subtrusts: the “marital trust” for the benefit of the settlor’s surviving spouse, and the “family trust” for the benefit of the remaining named beneficiaries and their issue. Unfortunately, because of a decline in the value of the assets since the settlor’s death, there would have been nothing left for the family trust after the marital trust was funded pursuant to the formula in the trust instrument.

The trustees sought to reform the trust to allow the family trust to be funded first, with the remaining assets allocated to the marital trust. The trustees argued that this modification would be consistent with the settlor’s intent to fund the family trust and to minimize the eventual taxes on her surviving spouse’s estate by reducing the assets allocated to the marital trust. With the assent of all parties and a guardian ad litem, the Court ordered the requested reformation.

Interestingly, after oral argument, the Court asked the trustees to supplement the record with affidavits from the attorney who drafted the trust instrument and from the surviving spouse. These affidavits provided the Court with information regarding the settlor’s estate planning goals that was missing from the record. The Court reminded parties in future cases to furnish “a full and proper record and the requisite degree of proof that they are entitled to the relief they seek.”

Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 – A Summary and Statutory Analysis of Key Estate Planning Provisions

Authors:
Adrienne Penta, Esq., Brown Brothers Harriman
Kerry L. Spindler, Esq., Goulston & Storrs, PC

On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (the “TRA”) into law. The TRA extends a number of the Bush tax cuts and benefits under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), the Jobs and Growth Tax Relief Reconciliation Act of 2003 (“JGTRRA”), and the Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), and also introduces additional cuts. Effective for only two years, the TRA is a temporary fix to the uncertainties raised by the sunset of the relevant provisions of these acts (now scheduled to occur after December 31, 2012).

Following is a summary and statutory analysis of the TRA provisions that most affect estate planning.

SELECT ESTATE, GIFT AND GENERATION SKIPPING TAX PROVISIONS

(1) Federal Estate, GST and Gift Tax Exemption Amounts. The TRA increases the individual exemption amounts from federal estate, GST and gift taxes to $5M. The $5M estate and GST tax exemption amounts are retroactive to January 1, 2010 and remain in effect through 2012. The $5M gift tax exemption is effective as of January 1, 2011 and also remains in effect through 2012. As a result, the gift tax exemption amount remains at $1M for 2010, but beginning January 1, 2011, the estate tax, GST tax and gift tax exemption amounts are unified for the first time ever and through 2012. Unification means not only that the taxes share the same rate and exemption amount, but also that an individual may use any portion of his or her $5 million exemption amount to make gifts (including generation skipping gifts) during life. Any amount not used during life will be available at death.

(a) Statutory analysis of federal estate tax exemption amount. EGTRRA § 521(a) amended Internal Revenue Code (the “Code”) § 2010(c) to increase the federal estate tax exemption amount incrementally from $675,000 in 2001 to $3,500,000 in 2009. EGTRRA § 501(a), however, created Code § 2210, repealing the estate tax for decedents dying in 2010. EGTRRA § 901 scheduled this repeal to sunset on December 31, 2010 and directed that the Code thereafter be applied and administered as if EGTRRA “had never been enacted”. The result would have been a federal estate tax exemption amount of $1M beginning on January 1, 2011.

TRA § 302(a) amends Code § 2010(c) to increase the federal estate tax exemption amount to $5M, and TRA § 101 postpones EGTRRA’s sunset until December 31, 2012. Together, these sections eliminate the one-year repeal of the estate tax (see the discussion below regarding an optional election into the repeal and out of the estate tax for deaths occurring in 2010) and establish a $5M estate tax exemption amount from 2010 through 2012 (with a possible inflation adjustment after 2011).

(b) Statutory analysis of federal GST tax exemption amount. Prior to 2004, Code § 2631(c) prescribed a GST exemption amount of $1M. EGTRRA §§ 521(c) and (e)(3) caused the GST exemption amount to track the federal estate tax exemption amount beginning in 2004. Moreover, EGTRRA § 501(b) created Code § 2664, which caused Subtitle B of the Code (containing the GST tax statutes) not to apply to GST transfers occurring after December 31, 2009, thereby repealing the GST tax with respect to 2010 transfers. EGTRRA § 901 scheduled the GST repeal to sunset on December 31, 2010, after which the Code was to be applied and administered as if EGTRRA “had never been enacted”. The result was that while there was to be no GST tax (and, in fact, no GST tax provisions in effect) in 2010, beginning January 1, 2011, the GST tax provisions were to come back into effect and the GST exemption amount would again track the federal estate tax exemption amount (becoming $1M and adjusted for inflation since 2001 under Code § 2631(c)).

TRA § 301(a) amends the Code to read as if EGTRRA and Code § 2664 had never been enacted, and TRA § 303(b)(2) amends Code § 2631(c) to refer to the federal estate tax exemption amount. As a result, the GST tax exemption amount tracks the estate tax exemption amount without interruption through 2012. The GST tax exemption amount is therefore $5M in 2010 though 2012 (with a possible inflation adjustment after 2011).

(c) Statutory analysis of federal gift tax exemption amount. Prior to EGTRRA, the federal gift tax exemption amount tracked and was equal to the federal estate tax exemption amount. When EGTRRA § 521(b)(1) amended Code § 2505(a), it set the federal gift tax exemption amount at $1M, irrespective of the federal estate tax exemption amount. EGTRRA did not repeal the gift tax in 2010, unlike the estate and GST taxes, and EGTRRA § 521(b)(2) set the gift tax exemption amount to remain at $1M in 2010. EGTRRA § 901, however, did cause the gift tax provisions to sunset on December 31, 2010 and for the Code to be applied and administered thereafter as if EGTRRA “had never been enacted”. The result was that beginning January 1, 2011, the federal gift tax exemption amount would again track the federal estate tax exemption amount, and would become $1M beginning January 1, 2011.

TRA § 301(b) amends Code § 2505(a) to read as if EGTRRA § 521(b)(2) had never been enacted. This eliminates EGTRRA’s special provision for a 2010 gift tax exemption amount and bases the gift tax exemption amount for 2010 gifts on the $1M federal gift tax exemption amount. TRA § 302(b) also amends Code § 2505(a) so that the gift tax exemption amount once again tracks the estate tax exemption amount for gifts made after December 31, 2010. Therefore, the gift tax exemption amount is to increase to $5M for gifts made in 2011 and 2012 (with a possible inflation adjustment after 2011).

(2) Federal Estate, GST, and Gift Tax Rates. The TRA effectively unifies the federal estate, GST and gift tax rates and in each case causes the top marginal rate to be 35% from January 1, 2010 through 2012.

(a) Statutory analysis of federal estate tax rate. EGTRRA § 511 amended Code § 2010(c) and over several years reduced the top marginal estate tax rate from 55% in 2001 to 45% beginning in 2007. As discussed above, EGTRRA § 501(a) also created Code § 2210, which repealed the estate tax for decedents dying in 2010. EGTRRA § 901 scheduled this repeal to sunset on December 31, 2010 and directed that the Code thereafter be applied and administered as if EGTRRA “had never been enacted”. Therefore, beginning on January 1, 2011, the federal estate tax was to return with a top marginal rate of 55%.

TRA § 302 amends Code § 2001(c), setting the top marginal estate tax rate at 35% (applicable to amounts greater than $500,000), TRA § 302(f) applies the 35% rate to the estates of decedent’s dying after December 31, 2009, and TRA § 101 postpones EGTRRA’s sunset until December 31, 2012. Together, these sections create a 35% estate tax rate that is effective from 2010 and through 2012.

(b) Statutory analysis of GST tax rate. Pursuant to Code § 2642(a), the GST tax rate tracks and is equal to the federal estate tax rate. EGTRRA did not change this. However, as discussed above, EGTRRA § 501 did create Code § 2664, which caused subtitle B of the Code (containing the GST tax statutes) not to apply to GST transfers occurring after December 31, 2009, thereby repealing the GST tax with respect to such transfers. Meanwhile, EGTRRA § 901 scheduled the GST repeal to sunset on December 31, 2010, after which the Code was to be applied and administered as if EGTRRA “had never been enacted”. The result was that while there was to be no GST tax (and, in fact, no GST tax provisions in effect) in 2010, beginning January 1, 2011, the GST tax provisions were to come back into effect, and the GST tax rate would again track the federal estate tax rate (becoming 55%).

TRA § 301(a) amends the Code to read as if EGTRRA and Code § 2664 had never been enacted. Alone this would have caused the GST tax rate to track the federal estate tax rate without interruption through 2012, but, as discussed later in this summary, TRA § 302(c) sets a special GST tax rate for 2010. As a result, the GST tax rate is 0% in 2010 and 35% in 2011 and 2012.

(c) Statutory analysis of federal gift tax rate. Prior to 2009, the federal gift tax rate tracked the federal estate tax rate under Code § 2502(a). However, under EGTRRA § 511(d), a separate 35% gift tax rate was created for gifts made in 2010 (as compared to no estate tax in 2010). EGTRRA § 901 scheduled this 35% gift tax rate to sunset on December 31, 2010 such that beginning on January 1, 2011, the gift tax rate would again track the estate tax rate as if EGTRRA had “never been enacted” (becoming 55%).

Effective January 1, 2011, TRA § 302(b) restores Code § 2502(a) to its pre-EGTRRA language. The result is that the 2010 gift tax rate remains 35% under EGTRRA § 511(d), and in 2011 and 2012 the gift tax rate is also 35%, tracking the 35% estate tax rate pursuant to the TRA.

(3) Portability of Estate Tax Exemption Amount. For the first time ever, a surviving spouse is allowed to receive the unused portion of a decedent spouse’s federal estate tax exemption. This concept, called “portability”, permits a surviving spouse’s estate tax exemption amount to be increased by the amount unused by the deceased spouse. The estate of the first spouse to die must file a timely estate tax return in order to elect portability and preserve the unused exemption, even if the estate would not otherwise be required to file. Portability is effective with respect to deaths in 2011 and 2012. Portability is not cumulative in that it applies only to the surviving spouse’s last deceased spouse.

TRA § 303 amends Code § 2010(c) to create portability of the federal estate tax exemption amount between spouses. Moreover, TRA § 302(b)(1)(A)’s amendment to Code § 2505(a) has the effect of permitting a surviving spouse to use a deceased spouse’s unused exemption (in addition to his or her own exemption amount) for the purpose of making lifetime gifts in 2011 and 2012.  Portability does not apply to the GST tax.

(4) Deduction for State Death Taxes. A federal estate tax deduction for state death taxes actually paid remains in effect through 2012.

EGTRRA § 531 amended Code § 2011 to terminate the state death tax credit with respect to the estates of decedents dying after December 31, 2004 (see Code § 2011(f), originally Code § 2011(g)) and also created new Code § 2058 to permit a state death tax deduction in its place. EGTRRA § 501(a) scheduled the deduction to be repealed with the estate tax for 2010, while EGTRRA § 901 scheduled the repeal to end after December 31, 2010 and directed that the Code thereafter be applied and administered as if EGTRRA “had never been enacted”. The result is that there was to be no estate tax and no state death tax deduction with respect to 2010 deaths, and beginning January 1, 2011, the state death tax credit was to return with the estate tax.

The TRA does not affect the state death tax deduction or credit except for TRA § 101’s postponement of EGTRRA’s sunset until December 31, 2012. As a result, the state death tax deduction does not sunset on December 31, 2009, and instead remains effective for 2010 through 2012.

(5) Basis Step-Up. Property passing as a result of a death occurring on or after January 1, 2010 through 2012 receives a step-up in basis.

Pursuant to Code § 1014, the basis of property passing at death is the fair market value of the property at the date of the decedent’s death. Under EGTRRA §§ 541 and 542, “step-up basis” was generally eliminated with respect to the estates of decedents dying in 2010 in favor of “carry-over basis” for all property. More specifically, the estate of a decedent dying in 2010 was allowed to allocate $1.3M in basis increase to estate property and an additional $3M in basis increase to estate property passing outright to a surviving spouse or into a QTIP trust. EGTRRA § 901 caused §§ 541 and 542 to sunset after December 31, 2010. The result is that estates of decedents dying in 2010 were subject to EGTRRA’s new carryover basis regime, but the estates of those dying in 2011 or later were subject to the prior step-up basis regime under Code § 1014.

TRA § 301(a) amends the Code to read as if EGTRRA and Code §§ 541 and 542 had never been enacted. As a result, the step-up basis regime is effective with respect to estates of decedents dying during 2010, 2011 or 2012.

(6) Change in Gift Tax Calculation Method. The gift tax calculation under Code § 2505(a) includes subtracting the amount of the unified credit available. The amount available is calculated by subtracting the amount of credit already used with respect to prior gifts. Under TRA § 302(d)(2), the gift tax rate applicable to the current gift is to be used to calculate the amount of credit used on prior gifts. The effect of this change is to correct for the situation where an individual earlier paid gift tax at a higher rate, using more of his or her unified credit than he or she would have under the TRA’s 35% rate. The estate tax calculation is similarly changed under TRA § 302(d)(1) (also to account for changing gift tax rates). Although a detailed mathematical analysis of the effects of TRA § 302(d) is beyond the scope of this summary, click here for an excellent examination by Steve R. Akers, Esq of Bessemer Trust.

(7) Special Provisions for Transfers Occurring in 2010. The above notwithstanding, the TRA includes special provisions with respect to generation skipping transfers occurring in 2010 and the estates of decedents who died in 2010. These provisions ascribe a 0% GST tax rate to generation skipping transfers made in 2010, permit the personal representative of the estate of a decedent who died in 2010 to choose between the TRA’s 35% estate tax/step-up basis provisions and EGTRRA’s zero-estate tax/carry-over basis provisions, and extend the due dates for filing certain gift or estate tax returns, paying estate or GST tax, or making a qualified disclaimer to no earlier than nine months after the TRA’s date of enactment.

(a) Statutory analysis of 2010 GST tax applicable rate. Under TRA § 302(c), the GST tax applicable rate is 0% with respect to generation skipping transfers made in 2010. The remaining substantive GST provisions remain intact for 2010, including the ability to allocate GST exemption on a timely filed gift or estate tax return to transfers made or deemed to have been made in 2010.

(b) Statutory analysis as to electing out of the TRA. As discussed above, under the TRA, the default estate tax rules for 2010 deaths include a $5 million estate tax exemption amount, a top estate tax rate of 35%, and a basis step-up. However, TRA § 301(c) provides that, as an alternative, a decedent’s personal representative may elect out of the TRA so as to apply EGTRRA’s no estate tax/carry-over basis regime. Instructions from the Secretary of the Treasury on how to make the election are forthcoming. Once made, such election is revocable only with the consent of the Secretary.

(c) Statutory analysis of filing extensions. Under TRA § 301(d)(1), with respect to deaths occurring in 2010 before the TRA date of enactment (December 17, 2010), the due date of estate tax returns, payment of estate tax and for making qualified disclaimers is extended to no earlier than nine months from the date of enactment, resulting in September 19, 2011 as the earliest possible due date (September 17, 2011 is a Saturday). Under TRA § 301(d)(2), the gift or estate tax return due date with respect to generation skipping transfers made after December 31, 2009 and before December 17, 2010 is also extended to no earlier than September 19, 2011.

SELECT INCOME TAX PROVISIONS

(8) Charitable Distributions from an IRA. Through 2012, individuals who are 70½ years of age or older may continue to make qualified charitable distributions from an IRA. An individual may direct up to $100,000 of his or her required minimum distribution from the IRA directly to a public charity. The amount directed will not be included in the individual’s taxable income.

Under Code § 408(d)(8)(F), the ability to make qualified charitable distributions directly from an IRA was scheduled to sunset on December 31, 2010. TRA § 725 postpones this sunset until December 31, 2012, thereby extending this charitable giving technique. [1]

(9) Ordinary Income Tax Rate. The top federal marginal ordinary income tax rate will remain at 35% through 2012.

Over several years, EGTRRA § 101(a) reduced the top federal income tax rate from 39.6% to 35% beginning in 2006. EGTRRA § 901, however, scheduled this rate reduction to sunset on December 31, 2010 and return the top federal income tax bracket to its pre-EGTRRA rate in 2011. TRA § 101 postpones EGTRRA’s sunset until December 31, 2012, thereby extending the 35% top federal income tax rate.

(10) Capital Gains & Dividend Income Tax Rate. The top federal marginal tax rate for long-term capital gains and qualified dividends will remain at 15% through 2012.

JGTRRA §§ 301 and 302 reduced the top tax rate for long-term capital gains and qualified dividend income from 20% to 15% for tax years ending on or after May 6, 2003, and beginning after December 31, 2002, respectively. Although JGTRRA § 303 scheduled these rates to sunset on December 31, 2008, TIPRA § 102 postponed the date of sunset to December 31, 2010. Now, TRA §§ 101 and 102 further postpone the date of sunset to December 31, 2012, thereby extending the applicability of the 15% long-term capital gains and qualified dividend income tax rate.

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[1] Pursuant to Massachusetts General Law c. 62, § 1(c), and as discussed in Massachusetts’ Technical Information Release 06-20 dated November 17, 2006, Massachusetts has adopted Code § 408(d)(8) as “in effect for the taxable year”. This “in effect for the taxable year” language causes Massachusetts to also adopt, absent authority to the contrary, the TRA’s amendment to Code § 408(d)(8)(F) and the extension of this technique.

Alert: Effective Date of Massachusetts Uniform Probate Code Deferred to January 2, 2012

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

On January 15, 2009, the Massachusetts Uniform Probate Code (the “MUPC”) was signed into law. Certain provisions of the MUPC, pertaining to guardians, conservators, and durable powers of attorney, came into effect on July 1, 2009. The remainder of the MUPC was set to come into effect on July 1, 2011, and includes provisions that will streamline procedures for appointment of personal representatives and for probate of certain estates, limit court supervision over testamentary trusts, liberalize requirements for disposition of tangible personal property, and change certain default rules relating to intestate succession, division of property among descendants, omitted children, and the effects of marriage and divorce on estate planning documents.

In late 2010, Chief Justice Carey of the Probate and Family Court sought deferral of this July 1, 2011 starting date, in light of certain staffing and budgetary pressures facing the courts. In response to Chief Justice Carey’s request, the legislature included in a supplemental appropriations bill (Bill H5128) a provision (Section 24) deferring implementation of the remaining provisions of the MUPC until January 2, 2012. Governor Patrick signed the bill on January 3, 2011.

Alert: New Act Allows for Creation of Trusts for the Care of Animals

Author:
Matthew Hillery, Edwards, Angell, Palmer & Dodge LLP

On January 7, 2011, Governor Patrick signed into law “An Act Relative to Trusts for the Care of Animals.” This act provides for the first time that an individual may establish an enforceable trust under Massachusetts law for the benefit of one or more specific animals. It enables pet owners to provide for pets that survive them through special estate planning. The new act will be codified at section 3C of Chapter 203 of the General Laws and will come into effect 90 days after its enactment.

Previous to the enactment of the law, pet owners were limited in how they could provide for their pets after the owners had died. The Act now provides that a trust for the care of one or more animals alive during the settlor’s life is valid following the donor’s death. During the trust term, the trustee may use the income and principal for the benefit of the covered animals. Unless expressly provided otherwise in the trust instrument, the Act forbids the trustee to convert any of the trust property to his or her own use other than for the payment of reasonable trustee fees and administration expenses. The settlor or other custodian of an animal benefiting from the trust may transfer custody of the animal to the trustee at any time after the creation of the trust, although the act does not appear to require it.

The trust will terminate upon the death of the last survivor of the animals named as beneficiaries or upon such earlier time as is specified in the trust instrument. The act expressly excepts trusts for animals from application of the rule against perpetuities. This provision is helpful because, at common law, an animal cannot constitute a measuring life. See RESTATEMENT (SECOND) TRUSTS § 124 cmt. f (1959). It is therefore possible to create trusts for the benefit of animals with very long lives (such as certain kinds of tortoises or birds), without worry that the trust may violate the rule against perpetuities. This portion of the act will require technical correction in the future, as the act’s reference to the statutory rule against perpetuities is to Chapter 184A of the General Laws rather than to the new version in the Massachusetts Uniform Probate Code at Chapter 190B, which will supersede it.

Upon the termination of a trust for animals, the act directs the trustee to transfer the remaining property in the following order: (1) as directed in the trust instrument; (2) to the settlor, if living; (3) as part of the residue of the transferor’s estate, if the trust was created under a non-residuary clause of the transferor’s will; or (4) to the settlor’s heirs at law.

The amount of property with which a trust for animals may be funded is not unlimited. The act gives the court the power to reduce the amount of property held in the trust if that amount “substantially exceeds the amount required for the intended use and the court finds that there will be no substantial adverse impact in the care, maintenance, health or appearance of the animal or animals” benefiting from the trust. Presumably, the appropriate amount of property with which to fund the trust will depend upon the type of animal benefiting from the trust. An animal with a long life expectancy or high cost of upkeep (such as a horse) should merit a larger trust than an animal with a short life or low cost (such as a gerbil). Any property removed from the trust by the court will pass as if the trust had then terminated.

Trusts for the care of animals were traditionally considered to be “honorary trusts.” Such a trust would be valid if the trustee was willing to accept it, but would lack a beneficiary to enforce it. 2 AUSTIN WAKEMAN SCOTT ET AL., SCOTT AND ASCHER ON TRUSTS § 12.11.3 (2006). The new act squarely addresses this problem by granting a long list of individuals the power to enforce the trust. These enforcers include an individual designated for that purpose in the trust instrument, a person having custody of an animal that benefits from the trust, a remainder beneficiary or an individual appointed by the court upon application by an individual or a charity.

The court may fill any vacancy in the office of trustee if the governing instrument creating the trust for animals does not provide a mechanism for doing so. In addition, the court may order the transfer of property to another trustee if necessary to ensure that the intended use of the property is carried out.

Section 408 of the proposed Massachusetts Uniform Trust Code also contains provisions authorizing the establishment of trusts for the care of animals. Although the overall substance is the same, the provisions in Trust Code are less extensive than those in the new act, provide less guidance on the administration and enforcement of the trust and do not address the application of the rule against perpetuities. Should the Trust Code be enacted, it will be necessary to integrate its provisions with those of the new act.

T&E Litigation Update – Rostanzo v. Rostanzo

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.

Rostanzo v. Rostanzo

In Rostanzo v. Rostanzo, Case No. 09-P-1671, 2010 Mass. App. Unpub. LEXIS 1334 (Dec. 14, 2010), a decision issued pursuant to Rule 1:28, the Appeals Court affirmed the superior court’s dismissal of the plaintiff’s quantum meruit claim against the decedent’s estate for the uncompensated “services” she allegedly provided to the decedent.

The plaintiff was married to the decedent. Prior to marrying, they entered into an antenuptial agreement which stated that each would continue to own the real and personal property with which they came to the marriage and that both would abandon any rights or claims to the other’s property. In connection with a separate proceeding that was commenced in probate court, the validity of the antenuptial agreement was upheld. Based on the validity of the antenuptial agreement, the superior court and then the Appeals Court ruled that the plaintiff had effectively contracted away her quantum meruit claim. “That rather comprehensive contract essentially specifies that the plaintiff waived any interest in any aspect of the estate without reservation of any obligation that the decedent undertook to ‘take care’ of the plaintiff upon his death. Given that there is a binding contract addressing the very subject that the plaintiff here presses, the quantum meruit claim is necessarily and fatally flawed.”

Alert: New Massachusetts Homestead Legislation Signed Into Law

On December 16, 2010 Governor Patrick signed into law An Act Relative to the Estate of Homestead, a comprehensive revision of the Massachusetts declaration of homestead.

The previous law, M.G.L. c. 188, protected up to $500,000 of equity in a primary residence upon recording a declaration of homestead, but contained several confusing provisions that sometimes disadvantaged homeowners.

The new Homestead Legislation goes into effect on March 16th, 2011. Under the new law every Massachusetts homeowner will automatically receive $125,000 of creditor protection for the equity in their home, regardless of whether a homestead declaration is filed. Homeowners who file a declaration of homestead will continue to receive $500,000 of creditor protection. Moreover, the rules for filing a homestead declaration should be clearer, including that:

  • Trust beneficiaries are able to secure homestead protection,
  • A refinancing mortgage will not terminate previously filed homesteads,
  • Proceeds from the sale of a home or insurance are protected,
  • Spouses and co-owners who transfer property between and among themselves are protected, and
  • Homestead protection is extended to manufactured homes.

T&E Litigation Update – Ajemian v. Yahoo! Inc., Coyne v. Nascimento and Germain v. Girard

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 questions about this update or about T&E litigation generally, please feel free to e-mail the author by clicking on his name above.

Ajemian v. Yahoo! Inc.

In Ajemian v. Yahoo! Inc., Case No. 09E-0079-GC1 (Nov. 10, 2010), the Norfolk County Probate and Family Court (Casey, J.) addressed the question of whether the administrators of an estate could access the decedent’s e-mail account with Yahoo, including all of the decedent’s e-mails. Yahoo filed a motion to dismiss the administrator’s complaint in equity, arguing, inter alia, (1) that the forum selection clause in the “Terms of Service” contract between the decedent and Yahoo requires the action to be brought in California, (2) that the one-year limitations period set forth in the contract had expired, and (3) that the administrators had failed to state a claim upon which relief can be granted because the private e-mails in the decedent’s Yahoo account are not property of the decedent’s estate.

The Court granted Yahoo’s motion to dismiss based on the forum selection clause. The Court explained that these clauses are to be enforced in Massachusetts if (1) doing so is fair and reasonable, (2) the contract was not affected by fraud, undue influence or a disparate bargaining position, and (3) enforcement would not contravene a strong public policy of Massachusetts. Regarding online contracts in particular, the Court explained that courts elsewhere have applied traditional principles of contract law and determined whether the plaintiff had both reasonable notice of the online contract and manifested assent to its terms. Here, the Court rejected the administrators’ argument that forcing them to travel to California to litigate would be oppressive. Mere inconvenience and additional expense are not enough, especially where it may be assumed that the contracting party had received consideration for this inconvenience and expense. Moreover, the Court found it significant that the administrators’ legal remedies would not be reduced in California, because both Massachusetts and California consider the same principles in measuring fairness and reasonableness. The fact that the decedent may not have actually read the Yahoo contract was of “no consequence,” because the decedent was free to find another no-cost e-mail provider.

Given the enforceability of the forum selection clause, the Court held that the California court should determine when the one-year limitations period in the contract began running and whether it had expired. The Court likewise held that the “seminal issue” of whether the decedent’s e-mail accounts are property of his estate or Yahoo should also be resolved by the California court.

Coyne v. Nascimento

In Coyne v. Nascimento (Case No. 10-P-12, 2010 Mass. App. Unpub. LEXIS 1251 (Nov. 19, 2010)), a decision issued pursuant to Rule 1:28, the Appeals Court affirmed summary judgment against the plaintiff on statute of limitations grounds.

In August 2003, the plaintiff brought a complaint in equity in probate court against the defendant, who was the decedent’s attorney-in-fact, claiming that the defendant had breached her fiduciary duties by transferring certain securities and real estate to herself shortly before the decedent’s death in 2002. Then, in October 2006, the plaintiff filed a separate action in superior court against the defendant, claiming that the defendant had tortiously interfered with the plaintiff’s expectancy.

The Court held that the claim for tortious interference with expectancy was barred by the three-year limitations period pursuant to G.L. c. 260, § 2A, because the superior court action was filed more than three years after the probate court action. As the complaint in equity in probate court established, the plaintiff had actual knowledge of the facts underlying the tort claim. Actual knowledge was required because the defendant’s alleged interference with expectancy arose from her breach of fiduciary duty.

The Court also held that the claim was not tolled during the pendency of the probate court action under the doctrine of equitable tolling. The plaintiff could have simultaneously brought the superior court action and the probate court action and then requested a stay of the superior court action or an interdepartmental assignment or consolidation. “Probate proceedings do not delay the occurrence of the injury or the accrual of the claim; rather, probate proceedings operate to fix the extent of the injury. Until the end of probate, the precise value of a plaintiff’s expectancy naturally remains uncertain. But our law rejects this uncertainty as a reason to toll the statute of limitations.”

Germain v. Girard

In Germain v. Girard (Case No. 09-P-1710, 2010 Mass. App. Unpub. LEXIS 1167 (Oct. 28, 2010)), a decision issued pursuant to Rule 1:28, the Appeals Court addressed an award of legal fees pursuant to G.L. c. 215, § 39A.

This is the second decision issued by the Appeals Court in this case. The first decision (Germain v. Girard, 72 Mass. App. Ct. 409 (2008)) concerned the probate court’s approval and allowance of a will that was executed by the decedent in 2004, shortly before his death. The probate court had rejected a claim that the will was the product of undue influence. The Appeals Court reversed this ruling and remanded the case to the probate court with instructions that the burden of proof on the undue influence claim should have been shifted to the petitioner, who is the decedent’s stepdaughter, because her husband stood in a fiduciary relationship with the decedent and indirectly benefited from the will.

After a bench trial on remand, the probate court ruled that the stepdaughter had met her burden of proving that her husband had not unduly influenced the decedent. The Appeals Court affirmed.

The Appeals Court also affirmed the probate court’s allowance of the stepdaughter’s motion for legal fees pursuant to G.L. c. 215, § 39A. Section 39A authorizes the probate court to award an attorney compensation and reimbursement for legal services upon a showing that the services “conferred a benefit upon the estate, and ‘benefit conferred’ means assistance in ‘creating, preserving, or increasing the estate.’” Because the work of the stepdaughter’s lawyer preserved the decedent’s will, the Court held that a benefit was conferred on the estate and that the lawyer was entitled to compensation under the statute.

IRS Announces 2011 Inflation Adjustments

The IRS recently announced inflation adjustments for several tax provisions related to estate planning.

  • Valuation of Qualified Real Property in Decedent’s Gross Estate. The maximum reduction in estate tax value for qualifying real property used in a farm or business valued under section 2032A is $1,020,000 for estates of decedents dying in 2011.
  • Interest on a Certain Portion of the Estate Tax Payable in Installments. The value of a closely-held business interest on which the payment of estate taxes may be deferred (and on which interest will be charged at a rate of 2%) is increased to $1,360,000 for estates of decedents dying in 2011.
  • Annual Exclusion for Gifts. The gift tax annual exclusion remains at $13,000 for 2011.
  • Annual Exclusion for Gifts to Non-U.S. Citizen Spouse. The annual exclusion for gifts to a non-U.S. citizen spouse increases to $136,000 for 2011.
  • Tax Responsibilities of Expatriation. The exemption for appreciation in assets recognized by a covered expatriate is increased to $636,000 for expatriations that occur in 2011.
  • Expatriation to Avoid Tax. The standard for determining whether an expatriate is a “covered expatriate” under section 877A(g)(1) is based on whether his or her average annual net income tax exceeded $147,000 (increased from $140,000) for the five taxable years ending before the date of expatriation for tax years beginning in 2011.
  • Notice of Large Gifts Received from Foreign Persons. For 2011, gifts from foreign persons in excess of $14,375 in a taxable year are required to be reported.

See Rev. Proc. 2010-40 (Nov. 15, 2010).