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Archive for the ‘Trusts’ Category

SJC Confirms Mass Trustees Have Decanting Power

Posted on: December 10th, 2013 by Debra Rahmin Silberstein

In Morse v. Kraft¸ the Massachusetts Supreme Judicial Court held that Richard Morse, the sole trustee of the Kraft Family Irrevocable Trust (the “1982 Trust”), had the power to transfer, or “decant”, the assets of one irrevocable trust to another.

The 1982 Trust created separate sub-trusts for each of the settlor’s children, and each child was an income beneficiary of such sub-trusts. However, despite the fact that Morse believed the children were capable of managing the management and distribution of the funds held in their respective sub-trusts, the terms of the 1982 Trust forbade any interested beneficiary from exercising control over distributions.

Believing it to be in the beneficiary’s best interest, Morse wanted to transfer the assets of each sub-trust to a new 2012 Trust, retaining the same beneficiaries, but allowing each child to manage and distribute their own trust assets. Because the power to decant was not explicitly authorized in the 1982 Trust, Morse sought the Court’s interpretation of the Trust to determine whether it included the power to decant.

Although the Court noted granting the decanting powers would essentially allow the Trustee to “amend an unamendable Trust,” the SJC held that the decanting power was inherent in the terms of the 1982 Trust. Citing the Trust’s broad, discretionary language, which limited the Trustee’s power only in that his distributions must be “for the benefit of” the beneficiaries, and affidavits from the settlor and the drafting attorney, which stated that it was the settlor’s intent to give the Trustee decanting power, the Court held that the terms of the 1982 Trust authorized distributions to new sub-trusts.

The Court declined, however, to adopt the proposal of the Boston Bar Association, which, in an amicus brief, encouraged the court to recognize an inherent default power of trustees of irrevocable trusts to distribute property in further trust unless otherwise restricted by the terms of the Trust. Citing a recent trend of state legislatures to adopt trust decanting statutes, the Court reserved for the legislature the judgment of whether to recognize such a default power.

Further, the Court explicitly put drafting attorneys on notice that if a future settlor intends to give a Trustee decanting power, it is expected that the power will be explicitly granted by the Trust. Although the Court declined to answer the question of whether omitting the decanting power suggests intent to preclude decanting, it stated that “in light of the increased awareness, and indeed practice, of decanting, we expect that settlors in the future who wish to give trustees a decanting power will do so expressly.”

Estate Planning Implications

Therefore, trust settlors who wish to give trustees the flexibility – consistent with their fiduciary obligations – to decant trust assets into further trusts, should ensure that their trust instrument explicitly grants the trustee such powers.

Likewise, grantors who may be wary of Trustees altering the terms of a trust by decanting trust assets into further trusts without specific limitations on distributions or investments, for example, may wish to explicitly preclude the Trustee from decanting.

Revocable trusts may be amended at any time during the grantor’s life to accomplish the above changes, and under the Massachusetts Uniform Trust Code (“MUTC”), unless a trust expressly states that it is irrevocable it is interpreted as being revocable.

The MUTC also provides flexibility for the trustees of irrevocable trusts. Unless otherwise provided in the terms of the trust, irrevocable non-charitable trusts may be amended upon the consent of all beneficiaries and the settlor, with the approval of the court. As such, should a court construe the terms of an irrevocable trust to preclude decanting powers, the beneficiaries and the settlor may be able to modify the terms of the trust, provided that they all agree. Further, if the settlor does not consent, the beneficiaries may be able to modify the terms of the trust if the court concludes that modification is not inconsistent with a material purpose of the trust.

Such an option may have been available to Morse, had the SJC decided that the 1986 Trust precluded the decanting of trust assets, however there were potential triggers to the generation-skipping transfer tax (“GST”).

State Legislature Enacts Massachusetts Uniform Trust Code

Posted on: September 19th, 2013 by Debra Rahmin Silberstein

On July 8, 2012, Massachusetts became the 25th state to officially adopt some form of the Uniform Trust Code. The Code, drafted by the Uniform Law Commission and adopted in various forms by state legislatures, aims to promote clarity and uniformity in state trust law, and replaces the trust law provisions of the Massachusetts Uniform Probate Code which became effective in March of last year.Massachusetts State House

A New Rule Book, Not Too Many New Rules

The Massachusetts Uniform Trust Code contains a variety of new rules that govern the formation and administration of trusts in Massachusetts, and represents a significant overhaul for the Commonwealth’s trust law, which has a rich history dating back prior to constitutional ratification. One of Massachusetts’ early trusts was settled by Benjamin Franklin, who named the City of Boston as a beneficiary in the amount of $2,000. Under the trust’s terms, much of the money was not distributed to the city until 1990. In the interim, however, the balance had grown to almost $6.5 million.

As a result of the Commonwealth’s highly developed trust law – which influenced the development of trust law around the country – much of the Massachusetts Uniform Trust Code’s substance tracks prior Massachusetts law. In fact, one of the most revolutionary aspects of the new law concerns the way it is recorded. When enacted, the Code replaced centuries of recorded court decisions – formerly the only source of trust law in Massachusetts – with clear and concise rules which, for the first time, are located in one place. However, the codification does bring with it some significant substantive changes, the majority of which apply to all trusts, whenever created.

Substantive Changes Increase Efficiency and Flexibility

Many of the Code’s substantive changes function to enhance the efficiency of trust administration , and to reduce unnecessary costs for beneficiaries and trustees. For example, the Massachusetts Uniform Trust Code allows for out-of-court settlements of certain disputes including trust interpretation, trustee liability, and trustee powers. The Code also permits minors or other legally incapacitated individuals (in certain circumstances) to be represented by parents or legal guardians, reducing the need for court-appointed guardians ad litem.

Other changes alter the default rules for trusts created on or after July 8, 2012. Reversing a longstanding rule in Massachusetts, new trusts are now presumed to be revocable unless the trust document indicates otherwise. Additionally, trustees of new trusts may act on the basis of a majority vote, while previous Massachusetts law required trustee unanimity unless the terms of the trust provided otherwise.

In line with prior Massachusetts law, the Code authorizes a court to approve modification or termination of an irrevocable, non-charitable trust upon receiving consent from all the beneficiaries, with the caveat that the proposed changes must not be inconsistent with a material purpose of the trust. In contrast to prior law, however, the Code also permits modification or termination even if inconsistent with a material purpose of the trust with upon consent of all beneficiaries and the settlor.

Trusts for Pets and Non-Charitable Purposes

Purpose trusts, which were invalid and unenforceable under prior law, are now specifically authorized in the Code, allowing Massachusetts settlors to create a trust that has no specific beneficiaries, but exists solely to further one or more legal, non-charitable purposes of the settlor. Such a trust could be used to provide for the maintenance of a settlor’s prized collection of antiques, for example, or for the maintenance of a vacation property to benefit future generations. Pet care trusts are also authorized, allowing for trusts for the care of one or more animals.

For questions about how the Massachusetts Uniform Trust Code affects you, or any other Trusts and Estates matter, contact our Andover, Massachusetts Estate Planning Attorneys at the Law Office of Debra Rahmin Silberstein on (978) 474-4700.