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

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

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

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

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).

The Defense of Marriage Act and Massachusetts’ Recognition of Same-Sex Marriage: A Summary of Recent Litigation

Kerry L. Spindler, Esq., Goulston & Storrs, P.C.

In summer of 2010, Judge Tauro of the United States District Court for the District of Massachusetts, held in two cases that the distinction drawn by the Defense of Marriage Act (“DOMA”)[1] between same-sex and opposite-sex marriage is in violation of the United States Constitution. Although the District Court has stayed the decisions while on appeal to the First Circuit, the status of same-sex marriage under federal law is an issue of ongoing importance to estate planners and their same-sex clients. Brief summaries of DOMA, in relevant part, and the decisions follow.

Summary of DOMA. In 1996, Congress enacted, and President Clinton signed into law, DOMA. Section 3 of DOMA[2] defines the terms “marriage” and “spouse” for the purposes of federal law. Under this provision, “marriage” is limited to the union of one man and one woman, and “spouse” is limited to a husband or wife of the opposite sex.

Prior to DOMA, the federal government’s recognition of a marriage was determined by reference to the relevant state’s marital law.[3] DOMA’s uniform definition of marriage implicates more than 1,000 federal laws, and, as a result, a large number of federal benefits, rights and privileges where eligibility turns on marital status.[4]

Gill v. Office of Pers. Mgmt.: In Gill v. Office of Pers. Mgmt.,[5] the plaintiffs—a group of same-sex couples and surviving spouses of same sex couples, all married in Massachusetts—argued that DOMA denied them certain federal marriage-based benefits available to similarly-situated heterosexual couples in violation of the equal protection principles embodied in the Fifth Amendment’s Due Process Clause. Specifically, each plaintiff requested to be treated as married with respect to health benefits based on federal employment, social security retirement and survivor benefits, or income tax filing status. The federal government denied the requests, citing DOMA’s mandate that it recognize only heterosexual marriages. The District Court ultimately determined that DOMA “fails to pass constitutional muster even under the highly deferential rational basis test” because there is “no fairly conceivable set of facts that could ground a relationship between DOMA and a legitimate government objective.” In relying on the rational basis test the District Court bypassed the issue of whether the strict scrutiny standard, which is reserved for fundamental rights and suspect classes, was warranted.

The District Court began with an analysis of the four motivations articulated by Congress when it passed DOMA a decade and a half ago. First is that DOMA encourages responsible procreation and child-bearing. The District Court, however, cited consensus among medical, psychological and social welfare communities that children raised by gay and lesbian parents are as well-adjusted as those raised by heterosexual parents. Moreover, even if Congress believed in 1996 that children had the best chance of success if raised jointly by biological parents, a desire to encourage heterosexual couples to procreate and rear their own children does not provide a rational basis for denying same-sex marriage federal recognition. Finally, encouraging procreation generally is not a rational basis for denying recognition to same-sex marriage because the ability to procreate is not a precondition to marriage.

The government’s second motivation is that DOMA defends and nurtures the institution of traditional heterosexual marriage. However, DOMA’s denial of marriage-based benefits to same-sex spouses bears no reasonable relation to making heterosexual marriages more secure. Moreover, if Congress seeks to make heterosexual marriage appear more valuable or desirable, it achieves this only by punishing same-sex couples, and the Constitution will not abide by such “a bare congressional desire to harm a politically unpopular group”.

The government’s third and fourth motivations are that DOMA defends traditional notions of morality and preserves scarce resources. However, a governing majority’s view that a particular practice is immoral is not sufficient reason for upholding a law. Furthermore, although resource conservation can be a legitimate government interest, it alone does not justify a particular classification.

The District Court next looked to the motivations presently articulated by the government—that DOMA is a means to preserve the status quo pending resolution of a contentious debate taking place in the states over whether to sanction same-sex marriage, and that absent DOMA, the definitions of “marriage” and “spouse” under federal law would be too variable. Family law, however, is the province of the states, and the District Court found that Congress acted improperly in creating a federal definition of marriage. Moreover, the status quo at the federal level was for the federal government to continue to recognize any marriage declared valid under state law. DOMA thus does not maintain the status quo—it is a departure therefrom.

In concluding, the District Court held that the government’s rationale is “without footing”, found that there is no reason to believe that same-sex married couples are different than heterosexual married couples in any relevant way, and inferred that animus is the basis for DOMA’s distinctions. “Because animus alone cannot constitute a legitimate government interest”, there is no rational basis to support DOMA. Thus, DOMA, as applied to the plaintiffs, violates the equal protections afforded by the Due Process Clause.

Commonwealth of Mass. v. U.S. Dept. of Health & Human Servs. In the Commonwealth of Mass. v. U.S. Dept. of Health & Human Servs.,[6] Massachusetts, as the plaintiff, argued that DOMA violates the Constitution’s Spending Clause because it forces Massachusetts to discriminate against its own citizens in order to receive and retain federal program funds. It also causes Massachusetts to pay a disproportionate federal tax. Specifically, DOMA interferes with federal funding of the State Cemetery Grants Program and MassHealth, and increases Massachusetts’ Medicare Tax payments. Massachusetts also argued that DOMA violates the Constitution’s Tenth Amendment by intruding on Massachusetts’ exclusive authority in the area of family law.

As a State Cemetery Grants Program recipient, Massachusetts owns and operates two military cemeteries. Federal funds were used to construct the cemeteries and are now received to partially reimburse Massachusetts for veterans’ burials. Funding, however, is based on Massachusetts’ compliance with a federal regulation restricting the cemeteries to only veterans, their spouses, and children. DOMA precludes recognition of same-sex spouses, and thus prevents Massachusetts, contrary to its own laws, from burying a veteran’s same-sex spouse without risking a “recapture” of several million dollars of prior federal funding and foreclosing Massachusetts’ ability to receive future funds.

Massachusetts also receives annual federal funding in support of MassHealth. Although DOMA requires MassHealth to assess eligibility for same-sex spouses as if each were unmarried, the Massachusetts’ 2008 MassHealth Equality Act provides that no person recognized as a spouse under Massachusetts law will be denied benefits on account of DOMA. Massachusetts estimated that DOMA’s restrictions with respect to same-sex spouse participants have already cost the Commonwealth nearly $3 million.

In addition, the value of health care benefits provided to a same-sex spouse of a Massachusetts employee is imputed income to the employee for federal income tax purposes. Massachusetts, as an employer, pays a Medicare tax based on each employee’s taxable income. Where an employee is charged with imputed income as a result of same-sex health care benefits, Massachusetts pays a higher tax. Massachusetts estimated that DOMA’s disparate treatment of same-sex and opposite-sex spouses has cost it nearly $200,000 in additional taxes and expenses.

The District Court began with an analysis of the Spending Clause, which provides, in relevant part, that “Congress shall have Power to Lay and collect Taxes, Duties, Imposts and Excises, to pay Debts and provide for the common Defence and general Welfare of the United States….” The federal government argued that DOMA is within Congress’ authority under the Spending Clause to determine how money is best spent to promote the “general welfare” of the public. However, among the requirements that Spending Clause legislation must satisfy is that it must not be barred by other constitutional provisions. Spending Clause power thus cannot be used to induce states to engage in activities that would themselves be unconstitutional. Whereas this court just held in Gill that DOMA is barred by the equal protection principles of the Fifth Amendment’s Due Process Clause, it also held that the Spending Clause cannot be used to save DOMA and induce states to distinguish between same-sex and opposite-sex spouses.

Lastly, the District Court turned to the Tenth Amendment issue. A federal statute violates the Tenth Amendment if it regulates the states as states,[7] concerns attributes of state sovereignty, and impairs a state’s ability to structure integral operations in areas of traditional governmental functions. The District Court found that DOMA has a substantial impact on Massachusetts’ bottom line, intrudes on its ability to define the marital status of its citizens—the archetypical area of state sovereignty—and interferes with its authority to recognize same-sex marriages and afford individuals in such marriages the same benefits, rights and privileges as afforded to individuals in opposite-sex marriages. DOMA, therefore, is in violation of the Tenth Amendment.

Conclusion. Many predict that the Gill and Commonwealth of Massachusetts decisions will spend the next several years in the appeals process and may eventually become the subject of petitions for certiorari. The District Court’s stay of these decisions notwithstanding, the dynamic legal environment and litigation around DOMA suggest that estate planners working with same-sex spouses should strive to create flexible estate plans capable of producing optimal distribution, income, gift, and estate tax results in DOMA and post-DOMA situations. To this end, distribution and tax provisions should effectuate the client’s intent to the highest degree possible, whether or not DOMA is in effect when planning and death occurs.

[1] Pub. L. No. 104-199, 110 Stat. 2419 (1996).
[2] 1 U.S.C. § 7.
[3] Gill v. Office of Pers. Mgmt., 699 F. Supp. 2d 374, 391–93 (Mass. Dist Ct. 2010).
[4] Id. at 379.
[5] Id. at 374. 
[6] Mass. v. U.S. Dept. of Health & Human Servs., 698 F. Supp. 2d 234, 235 (Mass. Dist. Ct. 2010).
[7] The District Court acknowledges the federal government’s argument that an additional Medicare tax withholding does not offend the Tenth Amendment because this is regular of Massachusetts as an employer, rather than as a state.  The District Court dismisses this argument in determining that Massachusetts has standing to challenge DOMA’s interference in its relatios with its public employees under Bowen v. Pub. Agencies Opposed to Soc. Sec. Entrapment, 477 U.S. 41, 51 n. 17 (1986) and that the “states as states” criterion is not so broad as to preclude Massachusetts’ challenge to DOMA.

Alert: NY Passes Formula Savings Legislation

New York recently passed legislation to save formula provisions in wills, trusts and beneficiary designations executed prior to January 1, 2010, for decedents dying on or after January 1, 2010 and during the repeal of the federal estate tax and generation skipping transfer tax.  By statute, such formula provisions will be construed in accordance with federal law in effect on December 31, 2009. 

For more information, click here
For the relevant statute, click here.
For the relevant bill, click here

Ansin Case Confirms Validity of Postnuptial Agreements

Sarah M. Waelchli, Esq., Hemenway & Barnes, LLP

On July 16, 2010, the Massachusetts Supreme Judicial Court issued the first clear ruling that a postnuptial agreement is valid in Massachusetts. The case, Ansin v. Craven-Ansin (SJC-10548), provided a unanimous opinion that postnuptial agreements or “marital agreements” are permissible and fully enforceable if created properly. The SJC ruled, however, that postnuptial agreements will be subject to a higher level of scrutiny than prenuptial agreements or separation agreements.

Ansin involved a couple who had been married for 19 years prior to signing a postnuptial agreement. They had two adult sons and a combined estate of approximately $19 million. After periods of separation, the couple signed a postnuptial agreement to settle the division of their assets if they were to divorce. The parties were represented by separate counsel and engaged in substantial negotiations over the agreement. The SJC found that the couple was committed to continuing their marriage after signing the agreement, but two years later the husband filed for divorce. The SJC held that the agreement, which gave the wife $5 million and 30% of the appreciation in the marital assets (among other benefits) was enforceable.

The SJC set forth five standards for the enforceability of postnuptial agreements, each subject to the “careful scrutiny” of the court: (1) whether the agreement was free of coercion or fraud; (2) whether each party knowingly, and in writing, waived his or her rights to property and support upon divorce; (3) whether each party had the opportunity to hire counsel; (4) whether each party provided full and fair disclosure of finances, including current and reasonably anticipated assets, income and liabilities; and (5) whether the agreement was substantively fair and reasonable at the time of execution and upon divorce. As an additional hurdle to the enforceability of these agreements, the SJC placed the burden of satisfying these criteria on the spouse seeking to enforce the agreement.

The utility of postnuptial agreements in the estate planning context remains unclear. Estate planners may wish to use postnuptial agreements to ensure that particular family assets (the family business, family vacation home or other inherited assets) stay in the family line at death. While Ansin confirmed the enforceability of postnuptial agreements upon divorce and set forth standards that made sense in that context, it did not address the enforceability of such agreements upon death. Ansin may provide some guidance, but a clear ruling on the enforceability and standards for postnuptial agreements upon death is yet to come.

Estate and Trust Litigation in Federal Court

Mark E. Swirbalus, Esq., Day Pitney LLP

To say that federal courthouse doors have been swung wide open for estate and trust disputes may be an overstatement, but we might be seeing the beginning of a trend. Given the heavy case loads and budget cuts affecting the probate courts, litigating estate and trust disputes in federal court could be an attractive option under the right circumstances, particularly in light of recent decisions discussing the so-called “probate exception” to federal subject matter jurisdiction.

The Probate Exception

In Jimenez v. Rodriguez-Pagan, 597 F.3d 18 (1st Cir. D.P.R. 2010), the First Circuit provided a helpful primer on the probate exception. Borrowing from the Supreme Court’s decision in Markham v. Allen, 326 U.S. 490 (1946), the First Circuit explained that “[t]he probate exception is a judge-made doctrine stemming from the original conferral of federal equity jurisdiction in the Judiciary Act of 1789[,]” and that “[t]he ambit of that jurisdiction, coterminous with that exercised by the framers’ contemporaries in the English courts of chancery, ‘did not extend to probate matters.’” In Markham, the Supreme Court had held that federal courts have no authority to “interfere with the probate proceedings or assume general jurisdiction of the probate or control of the property in the custody of the state court.”

Application of the probate exception proved difficult in the wake of Markham, because the standard that federal courts cannot “interfere” with probate proceedings did not lend itself to an easy definition.

In Marshall v. Marshall, 547 U.S. 293 (2006) (the Anna Nicole Smith case), the Supreme Court revisited the issue and provided some clarity, explaining that the “interference” language is essentially a reiteration of the general principle that when one court is exercising in rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res. Thus, the probate exception applies only where a federal court is being asked to engage in “purely” probate matters such as the probate or annulment of a will and the administration of an estate, or the disposal of property that is already in the custody of a probate court. The probate exception does not, however, bar federal courts from adjudicating matters outside those confines and otherwise within federal jurisdiction. Simply stated, the Supreme Court made clear in Marshall that the scope of the probate exception is “distinctly limited.”

Recent Application in Massachusetts

Two recent decisions by the United States District Court for the District of Massachusetts help to illustrate the “distinctly limited” nature of the probate exception.

In Dumas v. Snow, Civil Action No. 10-10187-GAO, 2010 U.S. Dist. LEXIS 86292 (D. Mass. Aug. 23, 2010), the plaintiff sought a declaration that she has a current income interest and a contingent remainder interest in a testamentary trust, and she also brought a claim for breach of fiduciary duty against the successor trustee, alleging that the trustee had failed to recognize her interest and to make proper distributions to her under the trust.

The defendants moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that the plaintiff’s claims fell within the probate exception, or alternatively that the Court should exercise its discretion to abstain from adjudicating claims which it deems to be uniquely probate matters. The Court rejected both arguments and denied the motion to dismiss.

Regarding the probate exception, the Court explained that a federal court “may exercise its jurisdiction to adjudicate rights” in property in possession of a state probate court “where the final judgment does not undertake to interfere with the state court’s possession save to the extent that the state court is bound by the judgment to recognize the right adjudicated by the federal court.” Here, the plaintiff’s claim for a declaration regarding her interest in the trust would not interfere with any property in the possession of a probate court. Moreover, her claim for breach of fiduciary duty against the trustee would not interfere with a probate court’s administration of the estate. The decedent’s estate had already been settled in the Barnstable Probate and Family Court.

Based on the same reasoning, the Court held that there was no cause to abstain because there was no pending probate court action in which the same or similar issues were being presented. The Court noted that the defendants failed to cite any case in which a federal court abstained from exercising jurisdiction because a state court action might be filed.

In Harhay v. Starkey, Civil Action No. 08-CV-30229-MAP, 2010 U.S. Dist. LEXIS 45473 (D. Mass. May 10, 2010), the Court grappled with a family dispute that was described in Shakespearian terms. The decision begins memorably with the following prologue: “In Act I, Scene 2, of Shakespeare’s play, Hamlet describes his relationship with his stepfather as ‘little more than kin and less than kind.’ This litigation exemplifies the degree of venom, and utter confusion, that can arise from disputes among family members. It also provides an example of how judicial processes can be abused when family rancor threatens to demand more than its fair share of the court’s time.”

The plaintiffs alleged that the defendants, as executrix and counsel for the estates of their mother and two aunts, swindled them of their family inheritance by misappropriating assets during the mother’s lifetime with an allegedly forged power of attorney. The plaintiffs brought claims against the defendants for conversion, fraud, negligence and breach of fiduciary duty.

The defendants moved to dismiss the claims under the probate exception, arguing that the claims were based on the plaintiffs’ alleged interests as beneficiaries or heirs of three estates, and that this lawsuit followed apparently pending actions by the probate court. The Court held that the probate exception did not apply, however, because it cannot be used to dismiss tort claims merely because the issues intertwined with claims proceeding in probate court. All of the claims brought by the plaintiffs in federal court sounded in tort and sought damages against the defendants themselves, rather than against any of the estates. As the Court noted, these claims would not even be cognizable in probate court, which does not have jurisdiction to hear tort claims or award damages.

The Take-Away from these Decisions

The lesson learned from these decisions may be that federal court ought to be considered as a viable forum for certain estate and trust disputes. Despite the Court’s disdain for what it described as the “family rancor” in the Harhay case, the Court nevertheless may be sending a message that family disputes – hopefully with less rancor – are welcome in the John Joseph Moakley U.S. Courthouse.