Massachusetts Probate Courts Release Revised and New Guardianship/Conservatorship Forms

When Article 5 of the MUPC became effective in July 2009, the Massachusetts Probate and Family Courts released a number of forms pertaining to Guardianship and Conservatorship. Since then, the Courts have collected and reviewed comments on the forms, and on May 30, 2011 released a series of revised and new forms.

The revised and new Guardianship and Conservatorship forms are available here. The Probate and Family Courts’ May 30, 2011 press release announcing the forms is available here. Practitioners should note that the Courts will continue to accept the earlier version of the forms until June 30, 2011.

The New Pet Trust Law and the Proposed Massachusetts Uniform Trust Code

Liza M. Connelly, Esq., Rackemann, Sawyer & Brewster

In January 2011, Governor Deval Patrick signed H. 1467 into law, making Massachusetts the 44th state to adopt a pet trust law. On April 7, 2011, the pet trust law came into effect. The law will be listed as M.G.L. c. 203, § 3C.

The proposed Massachusetts Uniform Trust Code (“MUTC”) also contains pet trust provisions in § 408. The most frequently asked question I heard once the pet trust bill was passed into law was: “How will this new law work with the proposed MUTC?” The answer is that the pet trust statute will be inserted into § 408 of the proposed MUTC and will completely replace the existing § 408.

In March of 2011, I met with Eric Hayes and Ray Young, two members of the MUTC Ad Hoc Committee, to discuss how the pet trust law would work with the proposed MUTC if it is passed. The MUTC Ad Hoc Committee suggested that the existing terms of § 408 of the proposed MUTC be lifted out and replaced with the pet trust law. If the proposed MUTC is adopted, the pet trust statute in M.G.L. c. 208, § 3C will be removed with a reference to the MUTC § 408 so that the only pet trust provision will be contained in the MUTC.

The proposed MUTC’s replacement of § 408 with the pet trust statute will ensure that there are no gaps, conflicts or overlaps between the proposed MUTC and existing pet trust statute.

The members of the MUTC Ad Hoc Committee also requested one change to the statute. The pet trust statute as passed into law specifically exempts pet trusts created under it from the Rule Against Perpetuities (“RAP”). The MUTC Ad Hoc Committee has requested that the RAP be added back in, with the compromised language stating that the lives in being shall be measured on the animal or animals alive at the time of the settlor’s death or when the pet trust becomes irrevocable. The drafters and proponents of the pet trust law have agreed to this change, and it will be incorporated into the proposed MUTC.

If the proposed MUTC is adopted, the existing pet trust statute will replace the text currently found in MUTC § 408 and will contain RAP provisions. For the present time, the pet trust statute remains as drafted and passed into law.

Trusts and Estates in the Spotlight on Beacon Hill

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

A number of bills impacting trusts and estates practitioners are currently under consideration by Beacon Hill. On May 18, 2011, representatives of the Boston Bar Association, the Massachusetts Bar Association and the Massachusetts Bankers Association testified before the Joint Committee on the Judiciary regarding several of these bills, including a version of the Uniform Trust Code (Bill # H2261 / S688, discussed in further detail here); repeal of the 2008 Adopted Children’s Act (Bill # H2262, discussed in further detail here); and a bill pertaining to certain technical corrections to the Massachusetts Uniform Probate Code (Bill # S704). In addition, the Joint Committee is considering a bill pertaining to payment of interest on pecuniary legacies and distributions (Bill # S732). The Massachusetts Uniform Trust Code (which, as filed, is scheduled to become effective on January 2, 2012) would go a long way towards modernizing Massachusetts trust law, and would help bring Massachusetts in line with the twenty-three other states that have passed a version of the Uniform Trust Code, including Maine, New Hampshire and Vermont.

In addition, the Boston Bar Association, along with the Massachusetts Bar Association and the Massachusetts Bankers Association, is working with the Joint Committee on Taxation regarding a bill (Bill # H2559) pertaining to cost basis step-up on death. Because of an apparently accidental disconnect between various federal and Massachusetts statutes (discussed in further detail here), assets passing from Massachusetts decedents in 2010 and thereafter may no longer receive a step-up in cost basis for purposes of Massachusetts capital gains tax. Unlike the federal law, this apparent limitation on cost basis step-up is not limited to decedents who died in 2010, but will remain a problem indefinitely, unless corrected.

All of the foregoing bills are currently under Committee review, and all have been endorsed by the Boston Bar Association. If you are interested in helping to get these bills passed, please contact your congressional representative.

IRS Issues Guidance on Investment Advisory Costs Subject to 2% Floor Under I.R.C. Sec. 67(a)

On April 13, 2011, the Internal Revenue Service issued Notice 2011-37, providing interim guidance on the treatment of investment advisory and other costs subject to the 2% floor under I.R.C. Sec. 67(a). For taxable years beginning before the date final regulations on the issue are published, nongrantor trusts and estates will not be required to “unbundle” a fiduciary fee into portions consisting of costs that are fully deductible and costs that are subject to the 2% floor.

Notice 2011-37 is scheduled to be published in Internal Revenue Bulletin 2011-20 on May 16, 2011.

IRS Releases 2010 Form 709 & Instructions

On March 15, 2011, the IRS released the Form 709 with respect to gifts made during calendar year 2010, and the accompanying Instructions. 

The 2010 Form 709 may be found here.

The Instructions for the 2010 Form 709 may be found here.

March 17, 2011 Update:  The IRS has temporarily removed the 2010 Form 709 and related instructions to correct an error.  It is anticipated that revised documents will be posted soon.

New Massachusetts Homestead Act, Effective March 16, 2011

Robert H. Ryan, Esq., Bove & Langa, P.C.

On December 16, 2010, Governor Patrick signed Senate Bill 2406, AN ACT RELATIVE TO THE ESTATE OF HOMESTEAD (hereinafter referred to as the “Act”),[1] which is a complete revision of the Massachusetts homestead law. Although the statute will still be known as M.G.L. c. 188, the substantive provisions are much improved and, for the most part, clearer. This summary is intended to provide highlights to probate and trust and estate practitioners so that they may become familiar with changes that will become effective on March 16, 2011 (per Massachusetts legislative rules, laws generally become effective 90 days after the Governor signs the law).

There has been considerable discussion regarding homestead protection during the past few years by many practitioners and several articles have appeared in Massachusetts legal publications highlighting problems with the law. Many of these problems have been addressed by the Act.

Impact of Trust Ownership of Principal Residence on Homestead Declaration Under the Old Law

In a typical estate plan involving the use of trusts, the transfer of title of a principal residence is often done without proper consideration given to the issue of homestead protection. For several years, some practitioners have believed that a properly recorded homestead declaration on a principal residence could be preserved by reserving the homestead when a transfer of the principal residence was made to a trust. The authority generally cited for this position was c. 188 §7, where reference is made to termination of a homestead “by a deed conveying the property in which an estate of homestead exists, signed by the owner and the owner’s spouse, if any, which does not specifically reserve said estate of homestead {emphasis added}.” Accordingly, some practitioners believed that by specifically reserving a homestead when conveying the principal residence to a trust, the principal residence held in the trust would be protected by a homestead declaration.

However, it is understood that the Land Court has strictly relied on the ruling in Bristol County v. Spinelli [2] that a homestead cannot apply to registered land held in trust. Therefore, there has been a question as to whether the Land Court would recognize the reservation of a homestead declaration for a conveyance of registered land to a trust. Since Spinelli did not address recorded land, some practitioners have also believed that a homestead declaration might be effective for recorded land conveyed to a trust.

Who is Protected by a Homestead Declaration Under the Old Law?

A further issue of concern has been the determination of who benefits from the protection afforded by a homestead declaration. It is interesting to note that the old law clearly states that a c. 188 §1 declaration applies to a “family” as defined in the statute, which includes the declarant’s children and spouse. For c. 188 §1 purposes, the statute applies even if a child is an adult. However, c. 188 §4 provides for the continuation of the homestead upon the death of the declarant. But in that instance, c. 188 §4 refers to the “minor” children of the declarant, raising a valid question as to whether a new homestead must be declared by the surviving non-declarant spouse in order to provide protection to an “adult” child who is a member of the family.

If a couple owns a property as tenants-in-common, joint-tenants, tenants-by-the-entirety, or life tenants, the statute prior to the revision is clear that they are a family and a family can only record one c. 188 §1 homestead. Therefore, there is often a question as to which spouse should record the declaration of homestead. Generally, if the declarant spouse dies, the surviving spouse is protected. However, a c. 188 §1A elder and disabled homestead only applies to the owner who declared it and the homestead protection terminates at the same moment the c. 188 §1A declarant dies.

Furthermore, at times there has been confusion in some of the Registries of Deeds as to whether each non-spouse co-owner of a principal residence may file a homestead declaration. In response to the uncertainty, the Chief Title Examiner for the Land Court issued a memo to the Registries of Deeds, dated August 25, 2006, which confirmed that multiple homestead declarations may be filed by unrelated co-owners.

Questions About the Old Homestead Statute

As suggested by the above overview of key homestead issues, many questions about the old homestead statute have needed to be addressed, such as:

1) Why isn’t the homestead protection automatic?

2) How much equity is protected by the homestead declaration if there is more than one owner?

3) For estate planning purposes, does a homeowner have to choose between taking advantage of trust planning or homestead protection?

4) Is a homestead terminated by transfers within the family or upon the death of the declarant?

5) Are the proceeds from a sale of the principal residence or insurance for a casualty loss to a principal residence protected by a homestead?

6) Does the waiver of homestead in refinancing documents waive the homestead protection against all creditors?

7) Who should file the homestead? Should it be the spouse with greater exposure?

Key Highlights of the New Law Addressing These Questions

Automatic Homestead Protection

In response to concern that many homeowners are not aware of the requirement that a formal filing must be made in order to benefit from the homestead statute, the Act provides for an automatic allocation of homestead protection to a property that is the principal residence of the owner. However, the amount of automatic protection is limited to $125,000 of equity; a homeowner must still file a homestead declaration to benefit from the full $500,000 of equity homestead protection. The automatic homestead will apply to all existing principal residences as of March 16, 2011.

Clarification of Extent of Protection for Multiple Owners

The Act clarifies that although multiple owners of a principal residence may benefit from homestead protection, the aggregate protection (not including the enhanced protection for elder or disabled owners) is limited to the $500,000 homestead amount. However, in the case of a married couple who can BOTH benefit from what is known as an elder and disabled homestead, the aggregate protection for the principal residence may be increased to $1,000,000 of equity. In the case of non-married co-owners of a principal residence (e.g. sibling co-owners) who ALL file for the elderly or disabled homestead, the aggregate protection is the product of $500,000 of equity multiplied by the number of owners who qualify for the elderly or disabled homestead. Depending on the circumstances, the aggregate protection for a property could be $125,000, $500,000, $750,000, $1,000,000, or even greater.

Finally – Homestead Applies to a Principal Residence Titled in Trust

In recognition of the extensive use of trusts to hold title to principal residences, the Act finally extends the benefit of homestead protection to principal residences for which title is held in trust. In order to obtain such protection, the trustee must file a declaration of homestead stating, among other things, the names of the beneficiaries who seek to obtain such homestead protection, and the fact that the property is their principal residence.

All in the Family

The Act provides that the transfer of a principal residence between family members does not terminate an existing homestead, even if the new deed fails to reserve the homestead upon the transfer. In addition, a homestead existing at the death or divorce of a person holding a homestead shall continue for the benefit of his or her surviving spouse or former spouse and minor children who occupy or intend to occupy said home as a principal residence. However, any adult child who has an ownership interest in the principal residence is required to file his or her own homestead declaration to take advantage of the increased protection of $500,000.

Sales and Insurance Proceeds Relating to Homestead Property are Protected

Finally resolving an age-old question, the proceeds from the sale of a principal residence, or the insurance proceeds from a principal residence that suffers a casualty loss, are protected by the homestead in order to purchase a new principal residence or repair a damaged one. The proceeds from a sale are protected for the period of one year from sale of the current principal residence. Insurance proceeds are protected for a two-year period from receipt of the proceeds.

Mortgage Waiver of Homestead is Just That

Another age-old question relates to whether the apparent blanket waiver of a homestead in mortgage documents terminates the protection of a homestead against all creditors. The Act provides the sensible answer that a mortgage does not terminate a previously filed homestead but only subordinates the homestead to the specific mortgage at issue.

Simple Solution to Which Spouse Files the Homestead

To resolve the question of which spouse should file the homestead the Act chooses a simple solution – it requires that both spouses who have an ownership interest in the principal residence sign the declaration of homestead. In addition, the declaration must identify each person receiving homestead protection, including the name of a spouse who may not be an owner. The declaration must also state that each person occupies, or intends to occupy, the property as his or her principal residence.

New Act – New Questions

1) Does an existing estate of homestead in effect March 16, 2011, continue in full force and effect?

• Yes, even if it does not comply with the execution requirements of the Act (e.g., only one spouse named in the deed signed the declaration under the homestead statute before the revisions, whereas the Act now requires both spouses whose names are on the deed to sign the declaration).

2) Do I still need to file a Declaration of Homestead if I intend to file for bankruptcy?

• Yes, if you want to obtain the full exemption amount available under the Act rather than the lower exemption amount available per the automatic homestead protection.

3) Will the Homestead Declaration now apply against pre-existing debts without the need to file for Bankruptcy?

• Yes, and this is a big change in the law.

Massachusetts Issues Guidance and Forms

The Secretary of the Commonwealth has recently published guidance and forms for filing a Declaration of Homestead under the new law.  Each can be found HERE.
[1] There has been some confusion when looking to read the Act on the State Legislative website. Please note the actual text of the final version of Senate Bill 2406 (186th Session 2009-2010) is set forth at House Bill 4878 (186th Session 2009-2010), pursuant to a House Amendment.  The new Act is set forth at Session Laws, 2010, Chapter 395, AN ACT RELATIVE TO THE ESTATE OF HOMESTEAD.

[2] 38 Mass. App. Ct. 655 (1995).

IRS Releases Draft 2010 Form 709

On March 5, 2011, the IRS posted a draft Form 709 with respect to gifts made during calendar year 2010. The IRS caution preceding the draft suggests a thirty day period for comments. Instructions did not accompany the draft form.

The draft may be found here.

T&E Litigation Update – Gillespie v. Gillespie and Cosgrove v. Hughes

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.

Gillespie v. Gillespie

In Gillespie v. Gillespie, Case No. 09-P-2174, 2011 Mass. App. Unpub. LEXIS 156 (Feb. 7, 2011), a decision issued pursuant to Rule 1:28, the Appeals Court addressed claims for tortious interference with expectancy of a gift and wrongful death by suicide.

The decedent was survived by his second wife Peggy and his son Vincent. Vincent alleged that Peggy was liable to him for tortiously interfering with his expectancy by “hectoring” the decedent to execute a will largely in her favor, and was liable to the decedent’s estate for wrongful death by forcing him to commit suicide through her cruelty. The superior court granted Peggy’s motion for summary judgment with respect to both claims, and the Appeals Court affirmed.

Judgment as a matter of law was entered on the tortious interference claim because Vincent never contested the decedent’s will. Vincent’s allegations of tortious interference amounted to an undue influence claim, and so this claim should have been raised during the probate of the will. The Court explained that Vincent did not have the choice of either submitting evidence of undue influence in opposition to the probate of the will or consenting to the allowance of the will and then attacking it in a tort action in superior court.

Judgment as a matter of law was entered on the wrongful death claim because, even assuming that Vincent had standing to bring this claim pursuant to G.L. c. 230, § 5, the decedent’s suicide was an independent intervening cause between Peggy’s alleged conduct and the decedent’s death. Although suicide may not be treated as an independent intervening cause if the defendant inflicted an injury that caused an uncontrollable suicidal impulse, or if the decedent was in the defendant’s custody and she had knowledge of the decedent’s suicidal ideation, Vincent offered no such evidence.

Cosgrove v. Hughes

In Cosgrove v. Hughes, Case No. 10-P-338, 2011 Mass. App. LEXIS 211 (Feb. 15, 2011), the Appeals Court dealt with the question of what constitutes “acknowledgement” of paternity under the intestacy statute, G.L. c. 190, § 7. 

The facts of this case are interesting. In a very small nutshell, they are as follows:

The decedent’s intestate estate was substantial. A woman named Verna who claimed to be the decedent’s daughter was appointed as the administratrix, which led to a dispute as to whether Verna is indeed the decedent’s daughter. A number of the decedent’s nieces and nephews sought a declaratory judgment in the probate court that Verna is not the decedent’s daughter, and thus that she is not an heir and may not inherit from his estate. They submitted evidence indicating that the decedent had lived in Massachusetts for most of his life and had never mentioned having a wife or child. Verna submitted competing evidence, including a certificate of marriage, indicating that the decedent was married to Verna’s mother from 1944 until her death in 2006.

Although Verna was born in 1931, some thirteen years prior to her mother’s marriage to the decedent, and although there was contradictory evidence as to whether the decedent regarded her as his daughter, the probate court found that there was sufficient evidence of his acknowledgement of paternity. The Appeals Court affirmed.

The Court’s decision addressed two primary issues: (1) whether Verna must be the decedent’s biological child in order to inherit under the intestacy statute; and (2) what constitutes a valid acknowledgement.

As to the first question, the Court held that the intestacy statute does not necessarily require biological parenthood. For example, under the statute, adopted children are treated no differently than biological children. In making this holding, the Court distinguished the statutory and case law concerning support obligations, custody and visitation, because the issues at stake in those kinds of proceedings are dramatically different than in an intestacy proceeding. Therefore, because biological parenthood is not required, the genuine issues of fact regarding whether Verna is the decedent’s biological child were rendered immaterial.

As to the second question, the Court explained that the only requirement for a valid acknowledgement is that it be unambiguous. “[N]o formal acts are prescribed by the statute which shall constitute the acknowledgement required,” and “such recognition may be shown by conduct as well as declarations. . . .” In light of this standard, the Court held that the decedent had validly acknowledged his paternity in an affidavit he signed in 1944, in which he and Verna’s mother were identified as her “natural parents.” The fact that the decedent thereafter did not consistently assert that Verna was his daughter, even in a sworn listing of his beneficiaries, does not change the effect of the acknowledgement in the 1944 affidavit. Once he acknowledged Verna as his daughter, she was his child and heir, just as if she had been born in wedlock.

Generally regarding the contradictory evidence as to Verna’s relationship to the decedent, the Court noted that this evidence must be viewed against the backdrop of the shame and stigma for both mother and child attendant at the relevant times upon out-of-wedlock birth.

Update on Status of Adopted Issue Statute

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.