Source: http://trustsandestates.bbablogs.org/category/probate-litigation/
Timestamp: 2019-04-21 10:56:40+00:00

Document:
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.
Consolidated Matters: Hanna v. Williams, et. al. & Berkowtiz, et. al. v. Williams, et. al.
The conduct of two estate planning attorneys, in addition to a financial advisor, are under scrutiny in the consolidated matters, Hanna v. Williams, et. al., Superior Court No. 1684CV 0722 BLS 1 and Berkowtiz, et. al. v. Williams, et. al., Superior Court No. 1684CV 0724 BLS 1. Both matters involve the same estate planning attorneys and financial advisor defendants. In its recent memorandum and order, the Superior Court ruled on the defendants’ motions to dismiss for failure to state a claim for (i) tortious interference with an expectancy (with respect to an inheritance); (ii) violations of G.L. c. 93A, § 9; and (iii) civil conspiracy, among other claims. The Court also addressed its jurisdiction over these probate-related matters.
The decision sets out a variety of colorful facts, alleged in the plaintiffs’ complaints and outlined in detail by the Court, calling into question the defendants’ conduct. The matters concern the execution of an estate plan by an 91-year-old client, then hospitalized, immediately prior to her death in 2013. The 2013 estate plan consisted of a will and trust, the terms of which differed significantly from the decedent’s prior will, executed in 1961. According to facts alleged, the new documents included provisions leaving nearly $2 million dollars to the decedent’s financial advisor; the drafting attorneys’ firm was named as trustee for resulting long-term family trusts (despite the two attorneys not having met the client prior to the signing conference). According to the plaintiffs, the attorneys and financial advisor were the only individuals present at the deathbed signing conference, and, at the time, the decedent was heavily medicated. Upon returning to their firm, the attorneys requested an administrative assistant notarize the decedent’s signature, despite the assistant not having been present at the signing conference. The decedent died six days after the new documents were executed; following her death, the would-be beneficiaries of the 1961 will raised alarm.
A petition for probate of the 2013 will was then filed in the Essex County Probate and Family Court. In the following months and years, extensive litigation took place regarding the validity of the 1961 and 2013 wills. The parties of the probate court matter eventually entered into a Compromise Agreement approved by the probate court. Pursuant to that Agreement, the beneficiaries under the 1961 will received a percentage of what they would have been entitled to under the 1961 estate plan. The Agreement did not establish the validity of either will, but it did provide that legal fees (then totaling approximately $1,240,000) be paid by the Estate. The would-be beneficiaries of the 1961 will, and the personal representative of the decedent’s Estate, then brought actions in Superior Court for recovery of monetary damages and legal fees.
In addressing the question of jurisdiction, the Superior Court analyzed the standard for making a claim for tortious interference with an expectancy. The tort, which is recognized in Massachusetts, requires proof that “but for” the interference, a plaintiff would have received something (for example, additional inheritance). A plaintiff need not prove that a particular will is invalid, but merely that the procuring of the will in question was a tortious act. Furthermore, there may be recovery notwithstanding a prior will admitted to probate.
Defendants argued that the Superior Court lacked jurisdiction to hear such a claim because the claim was, at its heart, a will contest; will contests, the defendants furthered, are within the exclusive jurisdiction of the probate court. The Court disagreed. It clarified that, despite defendants’ argument, this is not a will contest, but a separate tort claim. The probate court does not have jurisdiction to decide such actions for money damages. As such, if the Superior Court also lacked jurisdiction to hear such a matter, the plaintiffs would have no adequate remedy. On this basis, the Court denied defendants’ motion to dismiss for lack of subject matter jurisdiction.
The Court then held that the plaintiffs alleged sufficient facts to state a claim for intentional interference. In setting aside defendants’ argument that they knew nothing of the 1961 will (and therefore could not have intentionally denied anyone an expectancy), the Court clarified that such a claim requires only that the defendants intentionally interfere with an expectancy, not that they knew the scope or details of the expectancy in question. A valid claim is established where there was a reasonable likelihood of expectancy, and defendants’ conduct caused the persons affected to settle a lawsuit for less than what those individuals would otherwise have received. The facts here, the Court found, are sufficient to sustain such a claim.
The Court granted the defendants’ motion to dismiss the would-be beneficiaries’ claim of professional negligence (because the defendants owed no duty of care to the would-be heirs) but denied their motion with respect to the alleged violations of G.L. c. 93A, § 9 and civil conspiracy, among others. In doing so, the court cleared the way for this already extensively litigated matter to continue on its path toward an ultimate resolution.
After a year of living with the uncertainty caused by the Massachusetts Appeals Court’s decision in Pfannenstiehl v. Pfannenstiehl, on August 4, 2016 the Massachusetts Supreme Judicial Court reversed the decision, representing a major win for the asset protection features of trusts in Massachusetts.
In August 2015, the Massachusetts Appeals Court issued the unprecedented decision in Pfannenstiehl allowing a husband’s beneficial interest in a discretionary spendthrift trust with an ascertainable standard to be included in his marital estate and divisible in a divorce proceeding.
The 2015 decision sent shockwaves through the Massachusetts estate planning community, casting uncertainty upon all discretionary spendthrift trusts, especially those that employed an ascertainable standard for distributions, i.e. “comfortable support, health, maintenance, welfare and education,” such as the trust at issue in Pfannenstiehl. Although, many estate planners in recent years have had reservations about employing ascertainable standards for this very reason, there had been no prior case in Massachusetts which specifically included a discretionary trust with an ascertainable standard in a beneficiary’s marital estate in the event of divorce until Pfannenstiehl. Historically, a spouse’s interest in a discretionary spendthrift trust has been excluded from the marital estate because the interest is considered to be too remote and speculative to be deemed an asset. This is because distributions to beneficiaries are generally within the trustee’s discretion even if subject to an ascertainable standard.
However, on August 4, 2016, the Massachusetts Supreme Judicial Court reversed the Appeals Court’s decision, holding that the beneficiary’s right to receive distributions from the trust was “speculative” and did not render his right to future distributions from the trust to be “sufficiently certain such that it may be included in the marital estate.” As a result, discretionary spendthrift trusts with ascertainable standards are once again safe, for now, from being included in a marital estate in the event of divorce.
In Estate of Weaver (Case 15-P-714) (March 2, 2016), three siblings appealed an order of the Probate and Family Court. The Weaver siblings were children of the decedent’s first marriage. During the decedent’s second marriage he and his wife executed reciprocal Wills, leaving their estates to each other, with the decedent’s step-daughter as the alternate recipient. In challenging the Will, the siblings claim undue influence as well as alcohol and drug use by the decedent and his second wife as factors. Decedent’s second wife predeceased him and he did not change his Will prior to his death leaving his entire estate to his step-daughter on his death.
The Appeals Court affirmed the decision of the Probate and Family Court, striking the decedent’s children’s affidavits of objection to his Will. The court found that had his Will been influenced by his deceased wife and estranged step-daughter, enough time had passed in which he could have changed his Will if he so desired.
Regarding the accusations of drug and alcohol abuse, the Appeals Court found there was no evidence that the decedent was under the influence when he executed his Will or the he did not understand its contents. The Appeals Court further found the decedent was in contact with his children after his wife’s death, and that he was aware of the terms of his Will. The court found “ample opportunity” to update his Will, if he so desired.
Summary of Facts: Edward Redstone (“Edward”), along with his brother, Sumner, and father, Mickey, incorporated a closely-held family company National Amusements, Inc. (“NAI”). Upon NAI’s incorporation, Mickey contributed a disproportionate amount of capital. Nevertheless, Edward, Sumner and Mickey each were listed as the registered owners of an equal ⅓ of NAI’s shares, equal to 100 shares each.
Edward was eventually forced out of the business after numerous family disputes within the Redstone family, originally stemming from the institutionalization of Edward’s son, Michael, by Edward, for psychiatric problems. Edward felt marginalized, not only with his family, but also within the family business. Eventually, Edward quit the business. Upon leaving, Edward demanded possession of the 100 shares of common stock registered in his name.
Mickey refused to give Edward the stock certificates. Mickey argued that a portion of the shareholder’s stock, though registered in Edward’s name had actually been held since NAI’s inception in an “oral trust” for the benefit of Edward’s children, because of Mickey’s disproportionate contribution of capital. Mickey contended that he had gratuitously accorded Edward more stock than he was entitled to, and the “extra” shares should be regarded as being held in trust for Edward’s children.
The parties negotiated for six months in search of a resolution. Edward sued NAI to recover the 100 shares of stock that were registered in his name. A settlement was ultimately reached. The parties agreed in a Settlement Agreement that Edward was the owner of 66 ⅔ shares of the stock, and the remaining 33 ⅓ shares of stock would be transferred into irrevocable trusts for the benefit of Edward’s two children. The Settlement Agreement further provided that Edward would transfer the 66 ⅔ shares to NAI for $5 million.
The IRS determined that Edward’s transfer of stock to the irrevocable trusts for the benefit of his children was a taxable gift. The IRS further determined that in addition to gift tax owed, there were further penalties for fraud, negligence and failing to file a gift tax return.
Applicable Legal Principles and Analysis: Where property is transferred for less than adequate and full consideration in money or money’s worth, the amount by which the value of the property exceeds the value of the consideration is deemed a gift. A transfer of property within a family group normally receives close scrutiny as to whether it is a gift. However, on numerous occasions, the Tax Court has held that a transfer of property between family members in settlement of bona fide unliquidated claims was made for “full and adequate consideration” because it was a transaction in the “ordinary course of business.” A transfer of property will be regarded as made for “a full and adequate consideration” in the “ordinary course of business” only if it satisfies the three elements specified in Treas. Reg. Sect. 25.2512-8. The three elements are that the transfer is bona fide, transacted at arm’s length and free of donative intent.
The Tax Court held that the transfer was not a gift as it satisfied all three elements. The settlement was “bona fide” because the parties “were settling a genuine dispute as opposed to engaging in a collusive attempt to make the transaction appear to be something it was not.” See 145 T.C. No. 11, at 21. The transfer was at “arm’s length” as Edward acted “as one would act in the settlement of differences with a stranger.” See id. at 22. The Tax Court found that Edward was genuinely estranged from his father. There were legitimate business grievances against one another that led to the parties being represented by counsel and engaged in adversarial negotiations for many months prior to settlement that was incorporated into a judicial decree. The transfer was free of donative intent as Edward transferred stock to his children not because he wished to, but because his father demanded it. See id. at 25. At the time of the settlement, Edward had no desire to transfer stock to his children but was forced to accept this transfer in order to placate his father, settle the family dispute, and obtain a $5 million payment for his 66 2/3 shares.
Take Away Considerations: In the settlement of litigation in a family related context, concerns are often raised by planners as to whether any parties are making taxable gifts as a result of the settlement. Although transfers in compromise and settlement of genuine trust and estate disputes will typically be treated as transfers for full and adequate consideration in the ordinary course of business, this Tax Court case summarizes certain factors to consider in this context, which include: whether a genuine controversy existed between the parties; whether the parties were represented by and acted upon the advice of counsel; whether the parties engaged in adversarial negotiations; whether the value of the property involved was substantial; whether the settlement was motivated by the parties’ desire to avoid the uncertainty and expense of litigation; and whether the settlement was finalized under judicial supervision and incorporated in a judicial decree. See 145 T.C. No. 11, at 20. These factors offer helpful guidelines for practitioners to consider when advising clients whether a transfer of property in the context of a family settlement should be reported as a taxable gift.
In Bank of America, N.A. v. Massachusetts Commissioner of Revenue, the Appellate Tax Board determined that income received by certain foreign corporate trustees was subject to taxes under M.G.L. c. 62 § 10. The statute provides that trust income is subject to taxes if: (1) the income is received by trustees of a trust that was created by a Massachusetts inhabitant and has a trustee who is an inhabitant of Massachusetts; and (2) the income is accumulated for the benefit of Massachusetts inhabitants or for the benefit of unknown or unascertained beneficiaries. The parties disagreed over whether the corporate trustees were considered inhabitants of Massachusetts and thus subject to taxes under M.G.L. c. 62 § 10.
Although the corporate trustees had commercial domiciles in other states, the Board nonetheless considered them inhabitants of Massachusetts under M.G.L. c. 62 § 1(f) (2). Because the corporate trustees did a substantial amount of business (operating and staffing physical offices, maintaining relationships with grantors and beneficiaries, administering and distributing trust assets, consulting with clients, reviewing trust instruments, and researching and discussing trust issues) in Massachusetts, they maintained a permanent place of abode as described in M.G.L. c. 62 § 1(f) (2) and were therefore subject to tax under M.G.L. c. 62 § 10.
On August 27, 2015, the Massachusetts Appeals Court held in Pfannenstiehl v. Pfannenstiehl, Nos. 13-P-906, 13-P-686, & 13-P-1385, 2015 Mass App. LEXIS 123, that a husband’s interest in an irrevocable trust with an ascertainable standard is a “vested beneficial interest subject to inclusion in the marital estate.” This is a significant decision that could impact the way in which trusts and estates practitioners in Massachusetts draft estate plans for clients concerned about divorce protection. To read full Alert, click here.
Marshall D. Senterfitt, Esq., Goulston & Storrs, P.C.
T&E practitioners may think that the new Massachusetts rules governing electronically stored information (“ESI”) do not apply to their practice, but they would be wrong. The new rules do apply and likely will bring big changes to T&E litigation.
As most counsel are (hopefully) well aware, the Massachusetts Rules of Civil Procedure were amended effective January 1, 2014, bringing the rules concerning electronic discovery more in line with the Federal Rules of Civil Procedure. Among the amendments are provisions that: (1) expressly allow for (and sometimes require) counsel to meet and confer about electronic discovery issues; (2) grant courts authority to manage the scope of electronic discovery; (3) place limits on what ESI must be collected and produced; (4) provide claw-back rights in the event of the inadvertent production of privileged material; and (5) eliminate sanctions for spoliation of evidence in certain circumstances. See Mass. R. Civ. P. 26(f) and 37(f).
Although the use of predictive coding to search for a digital smoking gun hidden amongst terabytes of data may not concern most T&E litigators, electronic discovery will become a fundamental element of many T&E disputes for at least two reasons. First, Rule 26(f) applies not only to data residing in a multinational company’s enterprise e-mail system and off-site server farm, but also to data found on an individual’s Gmail account and home computer. Second, the burgeoning use of e-mail, text messages and social media has created countless new sources of ESI that T&E litigators will and should pursue in support of their cases.
One example of a relatively new source of evidence that will play a role in T&E disputes is the now ubiquitous smartphone. Once upon a time (i.e. less than 10 years ago), when people used cell phones solely for voice calls and iPods solely to play music, neither device held evidence of much import to most cases. That is no longer true. A recent study by the Pew Research Center’s Internet & American Life Project found that in 2013, 91% of American adults owned a cell phone.(FN2) Of those phone owners, 81% sent or received text messages (including 75% of users aged 50-64 and 35% of users over age 65), 60% accessed the internet from their phones, and 52% used their phones to send and receive e-mail. Id.
A similar study in 2012 found that 82% of cell phone owners took pictures with their phones, 44% recorded videos, and 29% used their phones for online banking.(FN3) The trend is undeniable. In a telling sign of just how reliant people have become on their phones, 25% of married or partnered adults have communicated with each other by text message while they were both home together.(FN4) Given the increased reliance people place on their smartphones for all manner of everyday uses, most of which involve the capture and/or transmission of information, it is conceivable that the contents of a single smartphone could make or break an entire case.
Of course it is not just phones that hold potentially crucial ESI – old fashion desktop computers, laptop computers, tablet devices and ever more popular “wearable” devices all hold and transmit ESI. These devices also utilize a vast array of applications (aka apps) that collect and use personal information and data for everything from accessing and maintaining social media accounts and managing personal finances, to tracking the location of other devices to help people find their friends or avoid their enemies. As new technology and uses of that technology emerge, so too do new forms and formats of electronic evidence.
Although the Probate Court has not historically been a proving ground for cutting edge legal technology, the application of the new e-discovery rules to all trial courts, coupled with the expanding universe of personal digital information available to litigants in discovery, may cast T&E litigators and probate court judges as pioneers. While lawyers trying complex civil matters are at the forefront of some ESI issues, such as computer assisted document review, there are other issues that might arise in Probate Court long before they are addressed in the Business Litigation Session of the Superior Court or federal court. For example, what are the preservation obligations with respect to a minor child’s social media account? Who has possession, custody or control over such information? The child? The parent? Two parents? The social media company? These are but a few of the myriad questions that will have to be addressed in the very near future.
Further, the incredible growth of social media is more likely to impact T&E matters than many other types of cases. In 2013, 73% of all American Adults who used the internet also used at least one social networking site (with 71% of all online adults using Facebook, including 45% of all online adults aged 65 and older) and 42% used multiple social networking sites.(FN5) Although the increased use of social media may occasionally play a role in business disputes, social media content is seemingly tailor-made for many T&E disputes. For example, the video posted online of recently-deceased aunt Edie dancing at a wedding and giving a witty congratulations speech is of little use in a contract dispute, but it may prove crucial in proving that aunt Edie had testamentary capacity when she signed her will that very same afternoon. It appears a foregone conclusion that people will continue to capture and post much of their lives on line for all to see. T&E litigators should do everything possible to adapt to this brave new world of digital evidence.
Despite the fact that the new e-discovery rules are upon us and James Bond’s watch phone is now a reality, T&E litigators do not need to become technophiles overnight (although it probably would not hurt). All counsel should be familiar with the provisions and requirements of the newly amended rules, however, and be prepared to request and produce relevant ESI. Of particular importance is ensuring that clients preserve ESI to avoid any threat of sanctions or other negative consequences. And, to the extent counsel’s idea of e-discovery is scanning paper files into a PDF and then e-mailing them, he or she should make a dedicated effort to learn about the most common forms of ESI, the sources of such information, and the basics of handling ESI in discovery and subsequent phases of litigation. Fortunately, there is no shortage of educational material, both online and in books made of actual paper, that explain the past, present and future of ESI in relatively simple terms.
FN1: It is important to note that although the newly amended rules apply to equity matters pending in the Probate Court (Mass. R. Civ. P. 1) and appear to be incorporated into the Supplemental Rules of the Probate and Family Court (see Supplemental Rule 27A), the Massachusetts Rules of Domestic Relations Procedure have not been similarly amended . Accordingly, although proceedings governed by the Rules of Domestic Relations Procedure often involve e-discovery, it is unclear if, when and how the newly amended Rules of Civil Procedure will be applied to such matters.
FN2: Pew Research Center, September 2013, “Cell Phone Activities 2013,” available at http://www.pewinternet.org/2013/09/19/cell-phone-activities-2013/).
FN4: Pew Research Center, February 2014, “Couples, the Internet, and Social Media,” available at: http://pewinternet.org/Reports/2014/Couples-and-the-internet.aspx.
FN5: Pew Research Center, January 2014, “Social Media Update 2013,” available at: http://pewinternet.org/Reports/2013/Social-Media-Update.aspx.
The program, What’s New In the World of Fiduciary Litigation, held on Thursday, February 27, 2014 and sponsored by the Fiduciary Litigation Committee of the Trusts and Estates Section provided an overview of recent decisions of note issued by the Massachusetts courts on topics related to fiduciary litigation. Please click here for the event materials.
Author: Mark E. Swirbalus, Esq., Goulston & Storrs, P.C.
In the recent Rule 1:28 decision Cheney v. Flood, 2014 Mass. App. Unpub. LEXIS 154 (February 7, 2014), the Appeals Court reviewed the dismissal of a malpractice claim brought against an attorney on the grounds that the attorney should have known that the decedent – the attorney’s former client and plaintiff’s stepfather – wanted the plaintiff and her children to be his only beneficiaries.
Although the plaintiff did not properly appeal the dismissal of the malpractice claim, the Appeals Court noted that had she done so, the decision in Miller v. Mooney, 431 Mass. 57, 61 (2000), would have been dispositive of her claim. In Miller, the Supreme Judicial Court held that the surviving relatives of a decedent could not bring claims against a lawyer based on allegedly erroneous statements the lawyer made to one of the relatives concerning the terms of the decedent’s will because they could not establish that they had an attorney-client relationship with the lawyer. Miller, 431 Mass. at 61 (holding that the duty of care owed by an attorney arises only from an attorney-client relationship).
In Johnson v. Kindred Healthcare, Inc., Case No. SJC-11335, 2014 Mass. LEXIS 7 (January 13, 2014), the Supreme Judicial Court answered the question of first impression in Massachusetts of whether a health care agent’s agreement with a health care facility to arbitrate disputes arising from the principal’s stay at the facility constitutes a “health care decision” binding on the principal pursuant to the health care proxy statute, G.L. c. 201D, § 5.
The brief background is that the administrators of the decedent’s estate brought a wrongful death action in Superior Court against a nursing home and related entities and individuals. In response, the defendants sought to enforce the mandatory arbitration provision in the nursing home agreement. The decedent’s health care agent (his wife) had signed the agreement on his behalf.
In support of this conclusion, which comports with the majority view in other jurisdictions that have considered similar issues, the Court pointed to the history of the health care proxy statute, where the Legislature considered but rejected an alternative bill that would have combined the roles of health care agent and attorney-in-fact, and noted that the statutory scheme ultimately enacted by the Legislature maintains a distinction between these fiduciary roles. The Court also reasoned that if it were to define “health care decisions” more broadly, then many decisions made by a health care agent would override the more expansive powers allocated to an attorney-in-fact, guardian or conservator.
In Rockingham County Nursing Home v. Harnois, Civil Action No. 11-11057-JGD, 2014 U.S. Dist. LEXIS 3042 (January 10, 2014), the United States District Court for the District of Massachusetts addressed a nursing home’s fraudulent transfer claim against the trustee of an irrevocable trust. The nursing home alleged that the settlor transferred to the trust her primary residence, which was also her primary asset, with the intent of avoiding her payment obligation to the nursing home, and that she did not receive equivalent value in return. The nursing home also claimed that the trust would be unjustly enriched if it were permitted to keep the property.
The Court’s decision includes a lengthy discussion of the facts and certain procedural matters arising from the nursing home’s motion for partial summary judgment and the trust’s motion for leave to amend its answer to assert the statute of limitations as an affirmative defense. Of particular note is the Court’s finding that the nursing home’s fraudulent conveyance claim is barred by the statute of limitations. The Court explained that the Massachusetts Uniform Fraudulent Transfers Act (G.L. c. 109A, §§ 1, et seq.) provides that a claim must be brought within four years following the transfer or obligation, or within one year after the transfer or obligation was or could have been reasonably discovered by the claimant, and that a claim based on constructive fraud must be brought within four years after the transfer or obligation, regardless of the claimant’s knowledge. Here, the Court found the nursing home’s claim to be time-barred, because the claim was based on constructive fraud and more than four years had passed. Accordingly, the Court did not address the substance of the allegedly fraudulent transfer to the trust.

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