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a publIcat Ion of the boston bar ass o c I a t I o n trusts & estates s e c t I o n

Trusts & Estates Section

Winter 2011 Newsletter

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Trusts & Estates Section Co-chairs

Peter Shapland Day Pitney LLP

pmshapland@daypitney.com

Christopher Perry Northern Trust

cdp7@ntrs.com

Inside this Issue

Page 3 New Act Allows for Creation of Trusts for the Care of Animals By Matthew R. Hillery

Page 5 Update on Status of Adopted Issue Statute By Brad Bedingfield, Matthew R. Hillery, and Suma V. Nair

Page 6 Effective Date of Massachusetts Uniform Probate Code Deferred to January 2, 2012 By Brad Bedingfield

Page 7 Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010: A Summary and Statutory Analysis of Key Estate Planning Provisions By Adrienne Penta and Kerry L. Spindler

Page 12 New Massachusetts Homestead Act, Effective March 16, 2011 By Robert H. Ryan

Page 16 Upcoming Section Events

Page 17 Section Leadership

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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

New Act Allows for Creation of Trusts for the Care of AnimalsBy Matthew R. Hillery, Esq., Edwards Angell Palmer & Dodge LLP

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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.

New Act Allows for Creation of Trusts for the Care of Animals

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Update on Status of Adopted Issue StatuteBy 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.

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.

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.

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Effective Date of Massachusetts Uniform Probate Code Deferred to January 2, 2012By 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, located at http://www.malegislature.gov/Bills/186/House/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.

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On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (the “TRA”) into law. The TRA extends a number of the Bush tax cuts and benefits under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), the Jobs and Growth Tax Relief Reconciliation Act of 2003 (“JGTRRA”), and the Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), and also introduces additional cuts. Effective for only two years, the TRA is a temporary fix to the uncertainties raised by the sunset of the relevant provisions of these acts (now scheduled to occur after December 31, 2012).

Following is a summary and statutory analysis of the TRA provisions that most affect estate planning.

Select Estate, Gift and Generation Skipping Tax Provisions

(1) Federal Estate, GST and Gift Tax Exemption Amounts. The TRA increases the individual exemption amounts from federal estate, GST and gift taxes to $5M. The $5M estate and GST tax exemption amounts are retroactive to January 1, 2010 and remain in effect through 2012. The $5M gift tax exemption is effective as of January 1, 2011 and also remains in effect through 2012. As a result, the gift tax exemption amount remains at $1M for 2010, but beginning January 1, 2011, the estate tax, GST tax and gift tax exemption amounts are unified for the first time ever and through 2012. Unification means

not only that the taxes share the same rate and exemption amount, but also that an individual may use any portion of his or her $5 million exemption amount to make gifts (including generation skipping gifts) during life. Any amount not used during life will be available at death.

(a) Statutory analysis of federal estate tax exemption amount. EGTRRA § 521(a) amended Internal Revenue Code (the “Code”) § 2010(c) to increase the federal estate tax exemption amount incrementally from $675,000 in 2001 to $3,500,000 in 2009. EGTRRA § 501(a), however, created Code § 2210, repealing the estate tax for decedents dying in 2010. EGTRRA § 901 scheduled this repeal to sunset on December 31, 2010 and directed that the Code thereafter be applied and administered as if EGTRRA “had never been enacted”. The result would have been a federal estate tax exemption amount of $1M beginning on January 1, 2011.

TRA § 302(a) amends Code § 2010(c) to increase the federal estate tax exemption amount to $5M, and TRA § 101 postpones EGTRRA’s sunset until December 31, 2012. Together, these sections eliminate the one-year repeal of the estate tax (see the discussion below regarding an optional election into the repeal and out of the estate tax for deaths occurring in 2010) and establish a $5M estate tax exemption amount from 2010 through 2012 (with a possible inflation adjustment after 2011).

Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010: A Summary and Statutory Analysis of Key Estate Planning Provisions By Adrienne Penta, Esq., Brown Brothers Harriman & Co. Kerry L. Spindler, Esq., Goulston & Storrs, P.C.

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(b) Statutory analysis of federal GST tax exemption amount. Prior to 2004, Code § 2631(c) prescribed a GST exemption amount of $1M. EGTRRA §§ 521(c) and (e)(3) caused the GST exemption amount to track the federal estate tax exemption amount beginning in 2004. Moreover, EGTRRA § 501(b) created Code § 2664, which caused Subtitle B of the Code (containing the GST tax statutes) not to apply to GST transfers occurring after December 31, 2009, thereby repealing the GST tax with respect to 2010 transfers. EGTRRA § 901 scheduled the GST repeal to sunset on December 31, 2010, after which the Code was to be applied and administered as if EGTRRA “had never been enacted”. The result was that while there was to be no GST tax (and, in fact, no GST tax provisions in effect) in 2010, beginning January 1, 2011, the GST tax provisions were to come back into effect and the GST exemption amount would again track the federal estate tax exemption amount (becoming $1M).

TRA § 301(a) amends the Code to read as if EGTRRA and Code § 2664 had never been enacted, and TRA § 303(b)(2) amends Code § 2631(c) to refer to the federal estate tax exemption amount. As a result, the GST tax exemption amount tracks the estate tax exemption amount without interruption through 2012. The GST tax exemption amount is therefore $5M in 2010 though 2012 (with a possible inflation adjustment after 2011).

(c) Statutory analysis of federal gift tax exemption amount. Prior to EGTRRA, the federal gift tax exemption amount tracked and was equal to the federal estate tax exemption amount. When EGTRRA § 521(b)(1) amended Code § 2505(a), it set the federal gift tax exemption amount at $1M, irrespective of the federal estate tax exemption amount. EGTRRA did not repeal the gift tax in 2010, unlike the estate and GST taxes, and EGTRRA § 521(b)(2) set the gift tax exemption amount to remain

Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010

at $1M in 2010. EGTRRA § 901, however, did cause the gift tax provisions to sunset on December 31, 2010 and for the Code to be applied and administered thereafter as if EGTRRA “had never been enacted”. The result was that beginning January 1, 2011, the federal gift tax exemption amount would again track the federal estate tax exemption amount, and would become $1M beginning January 1, 2011.

TRA § 301(b) amends Code § 2505(a) to read as if EGTRRA § 521(b)(2) had never been enacted. This eliminates EGTRRA’s special provision for a 2010 gift tax exemption amount and bases the gift tax exemption amount for 2010 gifts on the $1M federal gift tax exemption amount. TRA § 302(b) also amends Code § 2505(a) so that the gift tax exemption amount once again tracks the estate tax exemption amount for gifts made after December 31, 2010. Therefore, the gift tax exemption amount is to increase to $5M for gifts made in 2011 and 2012 (with a possible inflation adjustment after 2011).

(2) Federal Estate, GST, and Gift Tax Rates. The TRA effectively unifies the federal estate, GST and gift tax rates and in each case causes the top marginal rate to be 35% from January 1, 2010 through 2012.

(a) Statutory analysis of federal estate tax rate. EGTRRA § 511 amended Code § 2010(c) and over several years reduced the top marginal estate tax rate from 55% in 2001 to 45% beginning in 2007. As discussed above, EGTRRA § 501(a) also created Code § 2210, which repealed the estate tax for decedents dying in 2010. EGTRRA § 901 scheduled this repeal to sunset on December 31, 2010 and directed that the Code thereafter be applied and administered as if EGTRRA “had never been enacted”. Therefore, beginning on January 1, 2011, the federal estate tax was to return with a top marginal rate of 55%.

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TRA § 302 amends Code § 2001(c), setting the top marginal estate tax rate at 35% (applicable to amounts greater than $500,000), TRA § 302(f) applies the 35% rate to the estates of decedent’s dying after December 31, 2009, and TRA § 101 postpones EGTRRA’s sunset until December 31, 2012. Together, these sections create a 35% estate tax rate that is effective from 2010 and through 2012.

(b) Statutory analysis of GST tax rate. Pursuant to Code § 2642(a), the GST tax rate tracks and is equal to the federal estate tax rate. EGTRRA did not change this. However, as discussed above, EGTRRA § 501 did create Code § 2664, which caused subtitle B of the Code (containing the GST tax statutes) not to apply to GST transfers occurring after December 31, 2009, thereby repealing the GST tax with respect to such transfers. Meanwhile, EGTRRA § 901 scheduled the GST repeal to sunset on December 31, 2010, after which the Code was to be applied and administered as if EGTRRA “had never been enacted”. The result was that while there was to be no GST tax (and, in fact, no GST tax provisions in effect) in 2010, beginning January 1, 2011, the GST tax provisions were to come back into effect, and the GST tax rate would again track the federal estate tax rate (becoming 55%).

TRA § 301(a) amends the Code to read as if EGTRRA and Code § 2664 had never been enacted. Alone this would have caused the GST tax rate to track the federal estate tax rate without interruption through 2012, but, as discussed later in this summary, TRA § 302(c) sets a special GST tax rate for 2010. As a result, the GST tax rate is 0% in 2010 and 35% in 2011 and 2012.

(c) Statutory analysis of federal gift tax rate. Prior to 2009, the federal gift tax rate tracked the federal estate tax rate under Code § 2502(a). However, under EGTRRA § 511(d), a separate 35% gift tax rate was created for gifts

Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010

made in 2010 (as compared to no estate tax in 2010). EGTRRA § 901 scheduled this 35% gift tax rate to sunset on December 31, 2010 such that beginning on January 1, 2011, the gift tax rate would again track the estate tax rate as if EGTRRA had “never been enacted” (becoming 55%).

Effective January 1, 2011, TRA § 302(b) restores Code § 2502(a) to its pre-EGTRRA language. The result is that the 2010 gift tax rate remains 35% under EGTRRA § 511(d), and in 2011 and 2012 the gift tax rate is also 35%, tracking the 35% estate tax rate pursuant to the TRA.

(3) Portability of Estate Tax Exemption Amount. For the first time ever, a surviving spouse is allowed to receive the unused portion of a decedent spouse’s federal estate tax exemption. This concept, called “portability”, permits a surviving spouse’s estate tax exemption amount to be increased by the amount unused by the deceased spouse. The estate of the first spouse to die must file a timely estate tax return in order to elect portability and preserve the unused exemption, even if the estate would not otherwise be required to file. Portability is effective with respect to deaths in 2011 and 2012. Portability is not cumulative in that it applies only to the surviving spouse’s last deceased spouse.

TRA § 303 amends Code § 2010(c) to create portability of the federal estate tax exemption amount between spouses.

(4) Deduction for State Death Taxes. A federal estate tax deduction for state death taxes actually paid remains in effect through 2012.

EGTRRA § 531 amended Code § 2011 to terminate the state death tax credit with respect to the estates of decedents dying after December 31, 2004 (see Code § 2011(f), originally Code § 2011(g)) and also created new Code § 2058 to

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permit a state death tax deduction in its place. EGTRRA § 501(a) scheduled the deduction to be repealed with the estate tax for 2010, while EGTRRA § 901 scheduled the repeal to end after December 31, 2010 and directed that the Code thereafter be applied and administered as if EGTRRA “had never been enacted”. The result is that there was to be no estate tax and no state death tax deduction with respect to 2010 deaths, and beginning January 1, 2011, the state death tax credit was to return with the estate tax.

The TRA does not affect the state death tax deduction or credit except for TRA § 101’s postponement of EGTRRA’s sunset until December 31, 2012. As a result, the state death tax deduction does not sunset on December 31, 2009, and instead remains effective for 2010 through 2012.

(5) Basis Step-Up. Property passing as a result of a death occurring on or after January 1, 2010 through 2012 receives a step-up in basis.

Pursuant to Code § 1014, the basis of property passing at death is the fair market value of the property at the date of the decedent’s death. Under EGTRRA §§ 541 and 542, “step-up basis” was generally eliminated with respect to the estates of decedents dying in 2010 in favor of “carry-over basis” for all property. More specifically, the estate of a decedent dying in 2010 was allowed to allocate $1.3M in basis increase to estate property and an additional $3M in basis increase to estate property passing outright to a surviving spouse or into a QTIP trust. EGTRRA § 901 caused §§ 541 and 542 to sunset after December 31, 2010. The result is that estates of decedents dying in 2010 were subject to EGTRRA’s new carryover basis regime, but the estates of those dying in 2011 or later were subject to the prior step-up basis regime under Code § 1014.

TRA § 301(a) amends the Code to read as if EGTRRA and Code §§ 541 and 542 had never

Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010

been enacted. As a result, the step-up basis regime is effective with respect to estates of decedents dying during 2010, 2011 or 2012.

(6) Change in Gift Tax Calculation Method. The gift tax calculation under Code § 2505(a) includes subtracting the amount of the unified credit available. The amount available is calculated by subtracting the amount of credit already used with respect to prior gifts. Under TRA § 302(d)(2), the gift tax rate applicable to the current gift is to be used to calculate the amount of credit used on prior gifts. The effect of this change is to correct for the situation where an individual earlier paid gift tax at a higher rate, using more of his or her unified credit than he or she would have under the TRA’s 35% rate. The estate tax calculation is similarly changed under TRA § 302(d)(1) (also to account for changing gift tax rates).

(7) Special Provisions for Transfers Occurring in 2010. The above notwithstanding, the TRA includes special provisions with respect to generation skipping transfers occurring in 2010 and the estates of decedents who died in 2010. These provisions ascribe a 0% GST tax rate to generation skipping transfers made in 2010, permit the personal representative of the estate of a decedent who died in 2010 to choose between the TRA’s 35% estate tax/step-up basis provisions and EGTRRA’s zero-estate tax/carry-over basis provisions, and extend the due dates for filing certain gift or estate tax returns, paying estate or GST tax, or making a qualified disclaimer to no earlier than nine months after the TRA’s date of enactment.

(a) Statutory analysis of 2010 GST tax applicable rate. Under TRA § 302(c), the GST tax applicable rate is 0% with respect to generation skipping transfers made in 2010. The remaining substantive GST provisions remain intact for 2010, including the ability to allocate GST exemption on a timely filed gift or estate tax return to transfers made or deemed

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to have been made in 2010.

(b) Statutory analysis as to electing out of the TRA. As discussed above, under the TRA, the default estate tax rules for 2010 deaths include a $5 million estate tax exemption amount, a top estate tax rate of 35%, and a basis step-up. However, TRA § 301(c) provides that, as an alternative, a decedent’s personal representative may elect out of the TRA so as to apply EGTRRA’s no estate tax/carry-over basis regime. Instructions from the Secretary of the Treasury on how to make the election are forthcoming. Once made, such election is revocable only with the consent of the Secretary.

(c) Statutory analysis of filing extensions. Under TRA § 301(d)(1), with respect to deaths occurring in 2010 before the TRA date of enactment (December 17, 2010), the due date of estate tax returns, payment of estate tax and for making qualified disclaimers is extended to no earlier than nine months from the date of enactment, resulting in September 19, 2011 as the earliest possible due date (September 17, 2011 is a Saturday). Under TRA § 301(d)(2), the gift tax return due date with respect to generation skipping transfers made after December 31, 2009 and before December 17, 2010 is also extended to no earlier than September 19, 2011.

Select Income Tax Provisions

(8) Charitable Distributions from an IRA. Through 2012, individuals who are 70½ years of age or older may continue to make qualified charitable distributions from an IRA. An individual may direct up to $100,000 of his or her required minimum distribution from the IRA directly to a public charity. The amount directed will not be included in the individual’s taxable income.

Under Code § 408(d)(8)(F), the ability to make

Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010

qualified charitable distributions directly from an IRA was scheduled to sunset on December 31, 2010. TRA § 725 postpones this sunset until December 31, 2012, thereby extending this charitable giving technique.�

(9) Ordinary Income Tax Rate. The top federal marginal ordinary income tax rate will remain at 35% through 2012.Over several years, EGTRRA § 101(a) reduced the top federal income tax rate from 39.6% to 35% beginning in 2006. EGTRRA § 901, however, scheduled this rate reduction to sunset on December 31, 2010 and return the top federal income tax bracket to its pre-EGTRRA rate in 2011. TRA § 101 postpones EGTRRA’s sunset until December 31, 2012, thereby extending the 35% top federal income tax rate.

(10) Capital Gains & Dividend Income Tax Rate. The top federal marginal tax rate for long-term capital gains and qualified dividends will remain at 15% through 2012.

JGTRRA §§ 301 and 302 reduced the top tax rate for long-term capital gains and qualified dividend income to 15% for tax years ending on or after May 6, 2003, and beginning after December 31, 2002, respectively. Although JGTRRA § 303 scheduled these rates to sunset on December 31, 2008, TIPRA § 102 postponed the date of sunset to December 31, 2010. Now, TRA §§ 101 and 102 further postpone the date of sunset to December 31, 2012, thereby extending the applicability of the 15% long-term capital gains and qualified dividend income tax rate.

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§408(d)(8)as“ineffectforthetaxableyear”.This“ineffectfor

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408(d)(8)(F)andtheextensionofthistechnique.

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New Massachusetts Homestead Act, Effective March 16, 2011By 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”),� 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

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theActontheStateLegislativewebsite.Pleasenotetheactualtext

of the final version of Senate Bill 2406 (186thSession2009-20�0)

is set forth at House Bill 4878 (186thSession2009-20�0),pursuant

toaHouseAmendment.ThenewActissetforthatSessionLaws,

20�0,Chapter395,ANACTRELATIVETOTHEESTATEOF

HOMESTEAD.

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. Spinelli2 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

2 38Mass.App.Ct.655(�995).

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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

New Massachusetts Homestead Act, Effective March 16. 2011

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

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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.

New Massachusetts Homestead Act, Effective March 16. 2011

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.

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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.

New Massachusetts Homestead Act, Effective March 16. 2011

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Gifts to GRATs and Sales to Defective Grantor TrustsTuesday, April 12, 2011, 12:30-1:30 pmBoston Bar Association-16 Beacon Street, Boston

Speaker Amiel Z. Weinstock, Nixon Peabody LLP, will provide a review and comparison of two specific types of estate planning transactions that include grantor trusts: gifts to grantor retained annuity trusts (“GRATs”) and sales to defective grantor trusts.

Situs Considerations for TrustsTuesday, May 10, 2011, 12:30-1:30 pmBoston Bar Association-16 Beacon Street, Boston

Speaker William M. Parizeau, Wilmington Trust FSB, will provide a review of how Massachusetts’ law compares with other trust jurisdictions (such as Delaware, New Hampshire, Alaska, Nevada, and South Dakota) with a particular emphasis on asset protection.

Divorce Issues in an Elder Law PracticeTuesday, May 17, 2011, 12:30-1:30 pmBoston Bar Association-16 Beacon Street, Boston

Elder law attorneys are called on to advise clients in protecting assets from the cost of long-term care. Part of this planning requires an understanding of divorce issues that effect elders and their children. Speaker Doris F. Tennant, Tennant Lubell, LLC, will focus on how irrevocable trusts, QDRO’s, and the division of marital assets are affected by a divorcing client or child of a client.

Upcoming Events

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Section Leadership 2010-2011Section Co-Chairs

Peter M. ShaplandDay Pitney LLPOne International Place17th FloorBoston, MA 02110617-345-4766 pmshapland@daypitney.com

Christopher PerryNorthern TrustOne International PlaceSuite 1600 Boston, MA 02110617-235-1835cdp7@ntrs.com

Ad Hoc Spousal Elective Share

Colin Korzec U.S. Trust 100 Federal Street Boston, MA 02110 617-434-1806 colin.korzec@ustrust.com

Deborah J. Manus Nutter McClennen & Fish LLP Seaport West155 Seaport Boulevard Boston, MA 02210 617-439-2637 dmanus@nutter.com

Ad Hoc Uniform Trust Code

Melvin Warshaw Financial Architects Partners 111 Huntington AvenueSuite 710Boston, MA 02199 617-259-1900 mwarshaw@fiarch.com

Marc BloosteinRopes & Gray LLPPrudential Tower500 BoylstonBoston, MA 02199617-951-7216marc.bloostein@ropesgray.com

CLE

Christine P. KeaneNutter McClennen & Fish LLPWorld Trade Center West155 Seaport BoulevardBoston, MA 02210617-439-2496ckeane@nutter.com

Andrew D. RothsteinGoulston & Storrs, P.C.400 Atlantic AvenueBoston, MA 02110617-574-4089arothstein@goulstonstorrs.com

Elder Law & Disability Planning

Steven M. Cohen Cohen & Oalican, LLP 18 Tremont Street Suite 903 Boston MA 02108 617-263-1035 scohen@cohenoalican.com

Matthew J. MarcusColucci Colucci Marcus & Flavin, P.C.424 Adams StreetMilton, MA 02186617-698-6000mjm@coluccilaw.com

Estate Planning Leiha MacauleyDay Pitney LLPOne International Place 17th FloorBoston, MA 02110617-345-4602lmacauley@daypitney.com

Susan L. AbbottGoodwin Procter LLPExchange Place53 State StreetBoston, MA 02109617-570-1787sabbott@goodwinprocter.com

Estate Planning Fundamentals

Kelly AylwardBove & Langa, P.C.10 Tremont StreetSuite 600 Boston MA 02108617-720-6040aylward@bovelanga.com

Scott E. SquillaceSquillace & Associates, P.C.306 Dartmouth StreetSuite 305Boston, MA 02116617-716-0300scott@squillace-law.com

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Fiduciary Litigation

Joshua S. Miller Holland & Knight LLP 10 St. James Avenue 11th Floor Boston, MA 02116 617-305-2056 joshua.miller@hklaw.com

Mark E. SwirbalusDay Pitney LLPOne International Place17th FloorBoston, MA 02110617-345-4753meswirbalus@daypitney.com

New Developments Allison M. McCarthyRiemer & Braunstein LLPThree Center Plaza6th FloorBoston, MA 02108617-880-3453 amccarthy@riemerlaw.com

Kristin T. AbatiChoate Hall & Stewart LLPTwo International PlaceBoston, MA 02110617-248-5266kabati@choate.com

Newsletter

Adrienne PentaBrown Brothers Harriman & Co.40 Water StreetBoston, MA 02109617-772-6728 adrienne.penta@bbh.com

Kerry L. SpindlerGoulston & Storrs, P.C.400 Atlantice AveBoston, MA 02110617-574-3504kspindler@goulstonstorrs.com

Pro Bono

Nancy E. DempzeHemenway & Barnes LLP60 State StreetBoston, MA 02109617-557-9726 ndempze@hembar.com

Cameron CaseyRopes & Gray LLPPrudential Tower800 Boylston StreetBoston, MA 02199617-951-7987cameron.casey@ropesgray.com

Public Policy

Matthew R. Hillery Edwards Angell Palmer & Dodge LLP 111 Huntington Avenue Boston, MA 02199 617-239-0289mhillery@eapdlaw.com

Suma V. NairGoulston & Storrs, P.C.400 Atlantic AveBoston, MA 02110617-574-7913snair@goulstonstorrs.com

M. Bradford BedingfieldWilmer Cutler Pickering Hale and Dorr LLP60 State Street Boston, MA 02109617-526-6604brad.bedingfield@wilmerhale.com

ARTICLES WANTEDYou are all invited and encouraged to contribute an article on any subject of interest, particularly if you find yourselves dealing with an unusual or undecided issue in Massachusetts. Please con-

tact Adrienne M. Penta at adrienne.penta@bbh.com or Kerry Spindler at kspindler@goulstonstorrs.com to pursue this further.

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