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 [email protected].

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

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.

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

Author:
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.

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

Time to Modernize Massachusetts Trust Law

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

Since the Uniform Law Commission first promulgated the Uniform Trust Code in 2000, Massachusetts has watched as a growing number of states, including neighbors Maine, Connecticut, New Hampshire and Vermont, adopted versions of the UTC. The flexibility and uniformity provided by the UTC has proven to be a great selling point in pitching settlors to establish trusts in UTC states, and trustees to migrate trusts to those states.

Now, it’s our turn.

Two bills currently before the Massachusetts legislature, the Massachusetts Uniform Trust Code (H. 2261 and S. 688) (“MUTC”) and a bill making certain important technical corrections to the Massachusetts Uniform Probate Code (“MUPC”) (S. 704), will go far towards modernizing trust law in Massachusetts. These bills, which have been endorsed by the Boston Bar Association, the Massachusetts Bar Association, and the Massachusetts Bankers Association, are important to ensure that Massachusetts remains competitive as a forum for trusts. They will streamline certain aspects of trust administration and probate court proceedings, reducing costs, inefficiency and uncertainty for trustees and for beneficiaries, and will ease the burden on the probate courts.

Some of the key benefits of the MUTC are that it:

  • Codifies much of the existing law of trusts (now spread between statutes and court decisions), thereby making the law of trusts more accessible;
  • Provides statutory guidelines regarding powers, duties and liabilities of trustees;
  • Provides more flexible rules regarding representation in court proceedings, in many cases eliminating the need for appointment of a guardian ad litem;
  • Eliminates the distinction between inter vivos and testamentary trusts, reducing the need for continued court oversight over testamentary trusts in many cases;
  • Gives standing to donors of charitable trusts to bring a proceeding to enforce the trust’s terms;
  • Provides courts with greater flexibility to modify or reform a trust instrument;
  • Provides statutory support for non-judicial settlement agreements, allowing many trust matters to be resolved outside of court;
  • Gives trustees the power to divide and combine trusts for tax or other purposes, and to terminate uneconomic trusts;
  • Allows for the creation of trusts with no specific beneficiaries, established for specific non-charitable purposes (so-called “purpose trusts”); and
  • Allows for directed trusts, in which certain powers may be granted to persons other than the trustees, with protection of trustees who act as directed.

The BBA’s statement to the Joint Committee on the Judiciary in support of the MUTC may be found here.

The provisions of the MUPC pertaining to trusts are scheduled to come into effect on January 2, 2012. This would also be the effective date of the MUTC, as filed. If passed, the MUTC will effectively replace the trust law provisions of the MUPC. However, if passage of the MUTC is delayed, courts, practitioners, trustees and beneficiaries will have to grapple with multiple disparate bodies of trust law in succession, unnecessarily increasing compliance costs and putting additional pressure on the courts.

In order to avoid this scenario, and to provide as much time as possible to prepare for the new law, both bills should be passed promptly.

At present, both bills are before the Joint Committee on the Judiciary. Therefore, please consider contacting your representatives and asking them (1) to urge the members of the Judiciary Committee to report these bills favorably out of the committee and (2) to vote for these bills, when they come to a full vote.

The phone numbers and email addresses of the members of the Judiciary Committee 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 helping to move Massachusetts trust law into the 21st century.

Passage of Probate Laws Needed ASAP

Author:
Kathleen Joyce, Government Relations Director, Boston Bar Association

The Massachusetts Uniform Probate Code (UPC) will be effective for estates on January 2, 2012; it became effective for guardianship on July 1, 2009. This landmark piece of legislation is something the BBA has worked on and supported for over 20 years. Not only does the UPC improve what was a deplorable situation concerning the appointment and conduct of guardians, but it will simplify the probate process for families and our courts while expediting the process for administering estates. The UPC facilitates the appointments of executors and also provides options for choosing informal or formal procedures to open and close probate matters. All in all, lawyers and the courts are pleased with it.

The Probate and Family Court has been educating its staff on the new law and working diligently to promulgate new forms that will be used when the rest of the UPC is rolled out in January. To supplement their efforts, the BBA will offer a continuing legal education seminar introducing the new estate rules in November to help practitioners navigate the changes.

Now what? The Legislature needs to pass two more bills quickly. The first, S733, contains technical corrections to the UPC. These corrective changes address issues that came to light during the initial implementation and take into account things like missed cross references, typos and other oversights. The second bill, the Massachusetts Uniform Trust Code (MUTC), is a companion piece to the UPC. Since the MUTC repeals most of Article VII of the UPC and replaces it with more current language, it would be advantageous to have all the statutory trust law provisions in the same place in the new MUTC and take effect as scheduled on January 2, 2012.

Like the UPC, the MUTC is a substantial bill that has been well-vetted. It was produced by the Uniform Laws Commission after a five-year drafting period. Then in 2005, an ad hoc committee of lawyers, including members of the BBA, was convened to review the bill in detail. They debated each section of the MUTC and, as a result, what we have is a statute that will simplify and make the trusts laws in Massachusetts more accessible.

Here are just a few reasons that the MUTC should be passed:

  • The laws concerning trust will be uniform, comprehensive and easy to find.
  • It will make the administration of trusts more uniform among the states.
  • It will reduce uncertainty and costly and needless litigation.
  • It provides guidance and protection for trustees who, by the terms of the trust, are to take direction from a non trustee.
  • It simplifies judicial proceeding regarding non judicial settlement agreements and modification and termination of trusts.

January is less than five months away and, realistically, we are looking at a legislative schedule that at best might enact the bills by late September – not a lot of time to conduct the education and training necessary for a smooth implementation next January. Whatever can be done to facilitate the prompt passage of the MUTC legislation should be done. Adopting the MUTC will move Massachusetts into the 21st century in trust law.

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This article was first published on Issue Spot.

T&E Litigation Update – Furman v. Gossels, Sherman v. Shub, Cherubini v. Goodsell, Austin v. Austin, Paine v. Sullivan, McGeoghean v. McGeoghean

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.

Furman v. Gossels

In Furman v. Gossels, Case No. 10-1603-BLS1, 2011 Mass. Super. LEXIS 84 (Super. Ct. May 24, 2011), the Superior Court addressed a business dispute that turned on the nature of the rights held by a beneficiary of a trust.

Siblings Elaine, Jerome and Walter were the members of a limited liability company, with each owning a one-third interest. The operating agreement of the LLC provides that only descendants of the siblings’ parents shall be members. The operating agreement also contains a restriction on the transfer of a membership interest, providing in part that a membership interest can be transferred only (1) to a descendant of the siblings’ parents or (2) to a trust in which all of the beneficial interests are owned by another member or a descendant and the trustee of which is a member. If a membership interest is transferred to an impermissible transferee, then the operating agreement gives the LLC the right to purchase that interest at a discounted price.

When Walter died in 2010, his membership interest passed through his estate to a family trust. Under the terms of the trust, his widow Miriam disclaimed her interest in the LLC and declined to act as trustee. The result of these actions was that Walter’s children, who (unlike Miriam) are descendants of the siblings’ parents, became the beneficiaries of Walter’s membership interest through the trust and Walter’s daughter Rebecca became the trustee.

The question presented in the litigation was whether Rebecca holds an ownership interest in the LLC and thus is a member, fulfilling the requirement that a membership interest can be transferred only to a trust of which a member is the trustee.

Elaine and Jerome argued that the trust is an impermissible transferee of Walter’s membership interest because Rebecca is not a member of the LLC. The Court disagreed, ruling that Rebecca and her siblings, as the beneficiaries of the trust, hold equitable interests in Walter’s membership interest and thus are the “real owners”. Accordingly, the trust is a permissible transferee because Rebecca, the trustee, is a member of the LLC.

The Court based its ruling on the following trust-law principles: “A trustee of a trust holds the legal title to trust property with the power to administer it for the benefit of the beneficiaries, in accordance with the terms of the trust instrument…. A beneficiary, on the other hand, is the owner of the trust res, has an equitable interest in the trust property, and is considered the real owner.”

Sherman v. Shub

In Sherman v. Shub, Case No. SUCV2007-BLS1, 2011 Mass. Super. LEXIS 146 (Suffolk Super. Ct. June 16, 2011), the Court entered summary judgment against the plaintiffs on their Chapter 93A claim against the defendant insurance advisers and attorneys relating to allegedly defective estate plans.

The plaintiffs purchased two life insurance policies that were to become assets of two irrevocable life insurance trusts. Some time later, the plaintiffs discovered defects in the trust instruments and related documents that could result in increased estate and gift tax liability in the future. The plaintiffs brought the Chapter 93A claim against the defendants for this potential liability.

The Court granted the defendant’s motion for summary judgment, holding that the plaintiffs’ alleged damages are too speculative to be actionable. The Court adopted the defendants’ argument that estate and gift taxes are subject to calculation only at the time of death, and that this calculation is subject to a number of variables (e.g., the value of the decedent’s estate; the nature and amount of any deductions, credits and exemptions that may be available in the estate; the state or jurisdiction in which the estate is located; the applicable federal and state estate tax laws in force at the time; the decedent’s marital status; and the identity of the beneficiaries of the estate). As the Court explained,

Here, even assuming that there are no changes in the [plaintiffs’] personal circumstances and the size of their estates at the time of their future deaths, the court can make no such assumptions with respect to the federal and state tax statutes that may be in effect. . . . [T]he court is not in a position to divine the future intent and/or actions of Congress or to make such a prognostication.

Cherubini v. Goodsell

In Cherubini v. Goodsell, Case No. 10-P-1245, 2011 Mass. App. Unpub. LEXIS 827 (June 24, 2011), a decision issued pursuant to Rule 1:28, the Appeals Court addressed the anti-lapse statute, G.L. c. 191, § 22, and its effect on purported assignments of interests in an estate.

Donald Goodsell predeceased Dominic Cherubini. One of Donald’s children, Edward Goodsell, argued that the portion of Dominic’s estate that would have passed to Donald should go directly to Edward rather than to all of Donald’s children by right of representation, because Donald’s other children had assigned their interests in Donald’s estate to Edward. The probate court disagreed, instructing the executor of Dominic’s estate to make distributions to all of Donald’s children by right of representation.

The Appeals Court affirmed, explaining that the anti-lapse statute operates to require the distribution of Donald’s share of Dominic’s estate directly to Donald’s surviving issue. In other words, Donald’s share would not pass through his estate, meaning that any assignment of interest in Donald’s estate would have no effect. The Appeals Court also rejected Edward’s argument that the assignment agreements were intended to include Donald’s share in Dominic’s estate, because Edward did not meet his high burden of proving mutual mistake, and found that the assignment agreements unambiguously pertained to Donald’s estate exclusively.

Austin v. Austin

In Austin v. Austin, Case No. 10-P-1342, Mass. App. Unpub. LEXIS 870 (July 7, 2011), a decision issued pursuant to Rule 1:28, the Appeals Court affirmed summary judgment for the defendant on the plaintiff’s reformation claim and the defendant’s claim to enforce the in terrorem clause in the settlor’s will.

First, the plaintiff contended that the probate court had erred as a matter of law in granting summary judgment for the defendant on the plaintiff’s reformation claim because there was a genuine issue of material fact as to whether the settlor, who was the parties’ mother, intended that her assets be equally distributed between them. Because a parcel of land transferred to the plaintiff through a QPRT resulted in the plaintiff paying more taxes than the defendant, the plaintiff claimed that the settlor’s intent was frustrated. The Appeals Court disagreed, holding there was no evidence that the settlor intended to treat her sons “equally”, and so reformation of the trust to conform with this alleged intent would have been inappropriate.

Second, the plaintiff contended that the in terrorem clause in the settlor’s will should not be enforced against his reformation claim because the claim did not challenge the will or the settlor’s revocable trust. He claimed that he only sought to revise the provisions of the QPRT, which was not covered by the in terrorem clause. Again, the Appeals Court disagreed, explaining that if the plaintiff’s QPRT taxes had been paid out of the settlor’s residuary estate, then reformation would have prevented Article Sixteenth of the will (the tax allocation provision) from being carried out in accordance with its terms, because that provision explicitly prohibits the residuary estate from paying the taxes of any trust other than the settlor’s revocable trust. Therefore, the Court held that the probate court had properly enforced the in terrorem clause against the plaintiff.

Paine v. Sullivan

In Paine v. Sullivan, Case No. 10-P-289, 2011 Mass. App. LEXIS 1042 (July 22, 2011), the probate court had ruled that the testator possessed testamentary capacity when he executed his last will and testament and that his will was not the product of undue influence. The Appeals Court reversed the probate court’s ruling on the testamentary capacity claim.

The Court explained that where there is evidence of lack of capacity, the presumption of sanity loses effect and the burden falls upon the proponent of the will to prove by a fair preponderance of the evidence that the testator was of sound mind when the instrument was executed. Here, the objector had offered evidence of lack of capacity, and thus the burden shifted to the proponent to prove capacity. The Court held that the proponent failed to meet this burden. The testimony of a medical expert was insufficient because, according to the Court, it was not clear that the medical expert’s opinion was supported by careful review of the testator’s medical records. The expert “cherry picked” portions of the medical records that could suggest the testator’s dementia was mild and ignored contrary medical records. Moreover, although the Court acknowledged that the testimony of a drafting attorney can be relevant, the drafting attorney was unable to offer any relevant evidence as to the testator’s capacity. He had not seen the testator in years, had spoken with him only by telephone, and was not aware that he had been diagnosed with dementia. Finally, the witnesses to the will, who were employees of the bank where the will was executed, could not recall the specifics of the execution.

McGeoghean v. McGeoghean

In McGeoghean v. McGeoghean, Case No. 10-P-407, 2011 Mass. App. Unpub. LEXIS 936 (Aug. 3, 2011), a decision issued pursuant to Rule 1:28, the Appeals Court affirmed the superior court’s judgment in all respects. The complicated facts of this case are not fully apparent from the decision, but the Court held that the superior court’s findings of fact and conclusions of law were not clearly erroneous. Two issues in particular bear noting.

First, the Appeals Court affirmed the superior court’s finding that the plaintiff John McGeoghean was entitled to quantum meruit damages in compensation for his actions in reliance on the oral promise of his mother, the decedent, to give him certain property and her interest in a business. The superior court did not specify whether the oral promise was one to make an inter vivos gift or a bequest in her will. Consequently, the Court held that the superior court, in awarding quantum meruit damages, had not impermissibly remade the dispositions in the will. Although a promise to include a bequest in a will is not enforceable under the Statute of Frauds, quantum meruit is an available remedy under these circumstances, and the superior court properly found that the plaintiff had rendered valuable services in reliance on his mother’s oral promise.

Second, the defendant argued that the plaintiff is judicially estopped from arguing promissory estoppel (i.e., reliance on the mother’s oral promise) because of a “Vaughan” affidavit filed by the mother in the plaintiff’s divorce action. In that affidavit, the mother had not mentioned a bequest of the property and her interest in the business to the plaintiff. Because the superior court had not found that the mother’s oral promise was one to make a bequest, however, judicial estoppel was not implicated. Moreover, even if the superior court had found that the oral promise was one to make a bequest, the Court held that the superior court would have been within its discretion in not applying judicial estoppel.

IRS Releases Notice 2011-76, Extending Due Dates for Forms 706, 706-NA and 8939 for 2010 Decedents

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

On September 13, 2011, the IRS released Notice 2011-76, providing the following:

  • An executor or administrator of an estate of a decedent who died in 2010 will receive an automatic six month extension of time to file an estate tax return (Form 706 or Form 706-NA) and pay the estate tax due if he or she timely files Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes. Thus, an executor or administrator who files Form 4768 on or before September 19, 2011 will receive an automatic extension to March 19, 2012.[1] No substantiation of the reason for the requested extension is required.
  • The due date of Form 8939, Allocation of Increase in Basis of Property Acquired From a Decedent is extended from November 15, 2011 to January 17, 2012.[2] The IRS has not yet released a final Form 8939. 
  • Allocation of a decedent’s available GST exemption on Schedule R or R-1 attached to a timely filed Form 8939 is a timely allocation effective as of the decedent’s date of death. Automatic allocation rules apply if the executor or administrator timely files Form 8939 without attaching either Schedule. Automatic allocation rules also apply if the executor or administrator does not make a § 1022 Election, or timely revokes a § 1022 Election, unless he or she timely files Form 706 or 706-NA and attaches Schedule R or R-1.
  • Recipients of property from a decedent who died in 2010 may receive income tax penalty relief where such recipient also disposed of the property in 2010 but did not know whether the decedent’s executor or administrator would make a § 1022 Election, affecting the property’s basis, tax character or holding period, when filing his or her own income tax return and computing the income tax liability.

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[1] Consistent with §§ 301(d)(1) and (d)(2) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA)which extended the due date for filing an estate tax return, paying estate tax, making qualified disclaimers and allocating GST to no sooner than nine months from the date of the TRA’s enactment, the Instructions to Form 706 and the Instructions to Form 706-NA set September 19, 2011 as such due date with respect to the estates of decedents dying between January 1, 2010 and December 16, 2010. Click here for more information.


[2] IRS Notice 2011-66 set the November 15, 2011 due date. Click here for more information.

IRS Releases Notice 2011-66, Instruction Regarding § 1022 Elections and GST Allocation for 2010 Decedents

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

On August 5, 2011, the IRS released Notice 2011-66, providing instruction for how and when an executor or administrator of the estate of a decedent who died in 2010 can elect out of the estate tax/step-up basis rules of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA) and into the zero estate tax/modified carry-over basis rules of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGRTRRA). The Notice also addresses allocation of generation skipping transfer (GST) tax, transfer certificates and elections under I.R.C. § 645.

I. Making a § 1022 Election into EGTRRA’s Zero Estate Tax/Modified Carry-Over Basis Rules

EGTRRA was to have repealed the federal estate tax for decedents dying in 2010 and replace the step-up in basis traditionally available to property transferred at death with a modified carry-over basis regime. The TRA restored the federal estate tax for 2010 decedents, subject to a $5M federal estate tax exemption amount and a 35% maximum federal estate tax rate, and also restored the step-up in basis rules. This notwithstanding, TRA § 301(c) permits the executor or administrator of the estate of a 2010 decedent to elect into EGTRRA’s zero estate tax/modified carry-over basis rules.

A. Making the § 1022 Election

The executor or administrator of an estate of a 2010 decedent may make the § 1022 election by filing Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, no later than November 15, 2011. A Form 8939 filed before November 15, 2011 may be amended or revoked, but only on a subsequent Form 8939 filed no later than November 15, 2011. Otherwise, the election is irrevocable, except under the following circumstances:

  • Where the IRS receives multiple Forms 8939 and those forms collectively allocate basis increase in an amount greater than the amount of basis increase available, the IRS will invite the filers to submit a single restated Form 8939.
  • Where the sole purpose is to amend a timely filed Form 8939 to allocate Spousal Property Basis Increase (as defined in I.R.C. § 1022(c) and Revenue Procedure 2011-41, also released on August 5, 2011), and the timely filed Form 8939 was complete except for such allocation, the executor or administrator may file an amended Form 8939 no later than 90 days after the distribution of the property to which such increase is allocated.
  • Where an executor or administrator filed a timely Form 8939, he or she may file an amended Form 8939 under the automatic six month extension provisions of Treas. Reg. § 301.9100-2. The amended form must be filed no later than May 15, 2012. 
  • Where an executor or administrator filed a timely Form 8939, he or she may apply for relief to supplement the form under Treas. Reg. § 301.9100-3. The executor or administrator must prove that he or she acted reasonably and in good faith and that the interests of the government are not prejudiced. Moreover, the IRS will grant relief so as to allow supplemental information only if one or both of the following is present: (i) The executor or administrator discovered, after timely filing Form 8939, additional property to which he or she could have allocated basis increase, and/or (ii) the fair market value of the property reported on a timely filed Form 8939 has been adjusted as a result of an IRS examination or inquiry.
  • Whether or not the executor or administrator filed a timely Form 8939, he or she may apply for relief to file under Treas. Reg. § 301.9100-3. Again, the executor or administrator must prove that he or she acted reasonably and in good faith and that the interests of the government are not prejudiced. The amount of time that has passed since the decedent’s death may constitute a lack of reasonableness and/or prejudice.
  • Persons serving in the United States Armed Forces or affected by a federally declared disaster may have a longer period of time to file Form 8939, pursuant to I.R.C. §§ 7508 and 7508A.

At this time, only a draft Form 8939, published on December 16, 2010 is available. The final Form 8939 is expected to be available this fall.

B. Allocating Basis

If the executor or administrator makes a § 1022 election, he or she must also allocate Basis Increase, as defined in Revenue Procedure 2011-41, on Form 8939. The Revenue Procedure provides safe harbor guidance for making such allocation.

C. Reporting Property Acquired from the Decedent

Finally, if the executor or administrator makes a § 1022 election, he or she must value and report all property acquired from the decedent (except cash and property constituting the right to receive income in respect of a decedent) on Form 8939. He or she must report all appreciated property acquired from the decedent, valued as of date of death, that was required to be included on the donor’s gift tax return (Form 709), if the property was acquired by the decedent by gift, or by transfer for less than adequate and full consideration in money or money’s worth, during the three years prior to the decedent’s death (except certain property acquired by the decedent from his or her spouse).

Where the decedent is not a United States citizen, the executor or administrator reports only tangible property situated in the United States acquired from the decedent, and property acquired from the decedent by a United States person.

Individuals acquiring property from a decedent dying in 2010 and subject to a § 1022 election need information about the decedent’s basis in the property in order to determine their own basis. Accordingly, within thirty days of filing Form 8939, the executor or administrator must provide a statement to each recipient, regardless of whether the executor or administrator has allocated basis increase to the property received by that person. The statement must include the following information:

  • Name, address and phone number of the executor or administrator,N
  • ame and TIN of the recipient of the property,
  • Description of the property,
  • Adjusted basis of the property in the hands of the decedent and its fair market value at the time of death, Decedent’s holding period for the property,
  • Information regarding whether any gain on the sale of the property would be treated as ordinary income, and
  • Amount of basis increase allocated to the property (if any).

II. Allocating GST Tax to 2010 Transfers

TRA § 302(c) set a special GST tax rate of 0% with respect to generation skipping transfers made in 2010. Nevertheless, the other provisions of chapter 13 remain intact with respect to transfers made or deemed to have been made in 2010, including the allocation of GST exemption on a timely filed gift or estate tax return.

A. 2010 Estates

The GST tax applies to 2010 estates, whether or not the decedent’s executor or administrator makes a § 1022 election. Although the applicable rate for 2010 transfers is 0%, an executor or administrator who wants a decedent’s GST exemption to be allocated differently than it would be allocated under the deemed allocation rules must still file a timely federal estate tax return. An executor or administrator making a § 1022 election on Form 8939 must make such allocation on Schedule R of Form 8939.

B. Lifetime Transfers During 2010

If a donor made a lifetime direct skip transfer during 2010 and does not want the IRS to allocate GST exemption to the transfer (because the 2010 applicable rate is 0%), the donor may elect out of the automatic allocation of GST exemption in either of two ways:

  • Where the transfer constitutes an inter vivos direct skip not in trust, the donor needs only to timely file a Form 709. Reporting the direct skip on the Form 709 will constitute an election out of automatic allocation of GST exemption to the direct skip not in trust.
  • The donor may affirmatively elect out of automatic allocation by timely filing a Form 709 and describing the transfer and the extent to which automatic allocation is not to apply. This is required for all transfers made to GST trusts, regardless of whether the transfer constitutes a direct or an indirect skip.

C. Filing Deadline

Section 301(d)(2) of the TRA extends the due date for filing a gift or estate tax return reporting a GST transfer (direct skip, taxable distribution or taxable termination) made on or after January 1, 2010 but no later than December 16, 2010, to September 17, 2011. Where a GST transfer is being reported on Form 8939’s Schedule R (because the executor or administrator has made a § 1022 election), the form and schedule must be filed no later than November 15, 2011.

The TRA does not extend the due date for returns reporting indirect skips, regardless of when the transfer occurred. It also does not extend the due date for returns electing to treat a trust as a GST trust, or for returns reporting GST transfers that occurred after December 16, 2010.

III. Transfer Certificates

A transfer certificate is not required where a nonresident decedent who is not a citizen of the United States died in 2010 and the decedent’s executor or administrator makes a § 1022 election. The IRS will not issue transfer certificates in such cases.

IV. Section 645 Election to Treat a Trust as Part of an Estate

An executor or administrator who makes a § 1022 election, and who also wants to make a § 645 election to treat the trust as part of the estate for income tax purposes, may do so, and such trust will be treated as being part of the estate for all taxable years of the estate ending after the decedent’s date of death and ending before the second anniversary of the decedent’s death.

IRS Releases Final Form 706 and Instructions With Respect to 2010 Deaths

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

On September 8, 2011, the IRS released final Form 706 United States Estate (and Generation Skipping Transfer) Tax Return for decedents dying in 2010, and the Instructions thereto.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was to have repealed the federal estate tax for decedents dying in 2010 and replace the step-up in basis traditionally available to property transferred at death with a modified carry-over basis regime. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRA) restored the federal estate tax for 2010 decedents, subject to a $5M federal estate tax exemption amount and a 35% maximum federal estate tax rate, and also restored the step-up in basis rules. This notwithstanding, TRA § 301(c) permits the executor or administrator of a 2010 estate to elect into EGTRRA’s zero estate tax/modified carry-over basis rules. This election (a § 1022 Election) will be made on a timely filed Form 8939 (see IRS Notice 2011-66).  This Form 706 is to be used only with respect to decedents who died during calendar year 2010 where the executor or administrator is not making a § 1022 Election.

Form 706 & Instructions

This Form 706 is due on or before September 19, 2011 with respect to the estates of decedents who died between January 1, 2010 and December 16, 2010. This is consistent with TRA § 301(d)(1) and § 301(d)(2), which extended the due date for filing the estate tax return, paying estate tax, making qualified disclaimers and allocating GST to no sooner than 9 months from the date of the TRA’s enactment. Also noteworthy are the following:

  • As discussed above and pursuant to TRA § 301(c), the executor or administrator of a 2010 estate may elect out of estate tax and elect into EGTRRA’s modified carry-over basis treatment of property acquired or passing from the decedent by timely filing Form 8939.
  • Pursuant to TRA § 302(a)(1), the federal estate tax exclusion amount is $5,000,000.
  • Pursuant to TRA § 302(a)(2), the maximum federal estate tax rate is 35%.
  • Pursuant to TRA § 302(c), the applicable rate for generation skipping transfers is zero.
  • Pursuant to TRA § 302(d)(1), prior gifts made by the decedent must be calculated at the rate in effect at the date of the decedent’s death.
  • Executors and administrators must provide documentation of their status, such as a certified copy of the decedent’s will or a court order designating the executor or administrator.

 In addition, the following are indexed for inflation and applicable to decedents dying in 2010:
  • The ceiling on special use valuation is $1,000,000.
  • The amount used in computing the 2% portion of estate tax payable in installments is $1,340,000.

Massachusetts Uniform Probate Code Announcement Regarding Community Service Projects and Fall Trainings

The Trusts & Estates Section of the Boston Bar Association and the Probate Law Section of the Massachusetts Bar Association are pleased to announce their collaboration with the Massachusetts Probate and Family Court Department to assist in the transition to the Massachusetts Uniform Probate Code for the Court, the bar and the community at large. Together they are developing a series of projects that will require the assistance of a team of lawyers located throughout the Commonwealth who are trained in MUPC issues and can serve as resources for others who have questions regarding the new law.

If you are interested in volunteering with these efforts please contact Peter Shapland and Cameron Casey. Additional information will be broadcasted about these projects as they take shape this fall.

As an effort to educate the bar on the new law, which takes effect on January 2, 2012, several organizations throughout the state are sponsoring MUPC trainings. If you are interested in volunteering to help with these efforts, or simply want to stay updated on the new law, please consider attending one or more of these programs in the coming months.

The Boston Bar Association is currently accepting registrations for their training scheduled to be held this November.

The New Massachusetts Uniform Probate Code CLE
November 4, 2011
9:00 a.m. – 1:00 p.m.
Millennium Bostonian Hotel, Faneuil Hall Marketplace, Boston
Sponsored by: Boston Bar Association

The Massachusetts Bar Association, Suffolk University Law School and Massachusetts Continuing Legal Education, Inc. are also sponsoring CLE programs on this topic. Please check their websites for more information.