Posts Tagged: SJC

Ferri v. Powell-Ferri: MA Supreme Judicial Court Decision Regarding Trust Decanting

Author:  Allison M. Whitmore, Morgan, Lewis & Bockius LLP

In the case of Ferri v. Powell-Ferri, the Massachusetts Supreme Judicial Court (SJC) responded to certified questions from the Connecticut Supreme Court concerning trustees’ authority to distribute (or decant) substantially all of the assets of an irrevocable trust into a new trust.  In connection with a Connecticut divorce proceeding, the Connecticut Supreme Court certified questions to the SJC about the construction of a Massachusetts trust created by the father of the trust’s beneficiary for the sole benefit of his son.

The terms of a 1983 trust authorized the Trustees to pay to or segregate irrevocably trust assets for the beneficiary. In addition, the beneficiary, at certain ages, had the right to request withdrawals up to fixed percentages of the trust assets.  At the time of the decanting, the beneficiary had the right to request a withdrawal of up to 75% of the trust property.  Without informing the beneficiary, the Trustees decanted the 1983 trust property to a new trust, under which the beneficiary could no longer exercise a withdrawal right.

Relying on Morse v. Kraft, the SJC looked to the terms of the trust instrument and other relevant evidence of the settlor’s intent when deciding whether the Trustees were authorized to decant.  The SJC found that the Trustees were granted broad discretion when making distributions to or for the benefit of the beneficiary.  The SJC also found that the beneficiary’s right to request a withdrawal of a certain percentage of the trust assets was not inconsistent with the authority to decant.  The two distribution mechanisms provided under the trust instrument were not mutually exclusive, the Trustees maintained full legal title to the trust property and they did not lose their ability to exercise their fiduciary duties over “withdrawable” trust assets.  Therefore, unless and until all of the trust assets were distributed in response to the beneficiary’s request for a withdrawal, the Trustees could exercise their powers and obligations under the trust, including the duty to decant if they deemed decanting to be in the beneficiary’s best interest.

 

 

Bank of America v. Commissioner of Revenue

Author: Kerry Reilly, Esq., K. Reilly Law LLC

Bank of America v. Commissioner of Revenue

SJC – 11995 (July 11, 2016)

On July 11, 2016, the Massachusetts Supreme Judicial Court (“SJC”) upheld the decision of the Appellate Tax Board (the “board”) that Bank of America N.A. (“B of A”), in its capacity as corporate trustee, qualified as an inhabitant of the Commonwealth of Massachusetts (“MA”) and was subject to the state’s fiduciary income tax for the trusts in question.

G.L. c.62 §10 (a) provides that income received by trustees is subject to MA taxes if “the persons to whom the same is payable, or for whose benefit it is accumulated, are inhabitants of the commonwealth…”  Under G.L. 62 §1(f), inhabitant” means – “(1) any natural person domiciled in the commonwealth, or (2) any natural person who…maintains a permanent place of abode in the commonwealth and spends in the aggregate more than 183 days of the taxable year in the commonwealth.” Section 14 subjects corporate trustees to the same tax regime as “natural” trustees.

The SJC affirmed that B of A was an inhabitant of the Commonwealth based on its extensive branch structure, its conducting of business related specifically to the trusts at issue – “maintaining relationships with the beneficiaries, making decisions about distributions to those beneficiaries, administering trust assets, and retaining certain records” – as well as conducting similar business for other trusts, and was thus subject to taxes pursuant to G.L. c.62 §10.