This article appeared in the July 1999 issue of the
© 1999 Massachusetts Bar Association
Cheryl J. Dunn is an associate in the Springfield firm of Bacon & Wilson. She is a member of the Massachusetts Bar Association's Probate Law Section Council andthe National and Massachusetts academies of elder law attorneys. Hyman G.Darling is a partner in the same firm. He is a member of the National and Massachusetts academies of elder law attorneys, past president of the Hampden County Bar Association and a member of the Hampden County Estate PlanningCouncil. Legislation Chapter 203C
(Approved: 12-4-98; Effective 12-4-98)
[Massachusetts Prudent Investor Act]
This act establishes rules for trustees who manage and invest trust assets. Specifically, the act sets forth the duty and standard of care owed to the trust beneficiaries by the trustee for investment andmanagement decisions and actions relating to trust assets.
Trustees are instructed to exercise "reasonable care, skill, and caution" when performing and acting in a trustee capacity. Specific guidelines are enumerated in Sections (3)(c) (1)-(8) and(10)(a)-(d) relating to investment decisions based on certain circumstancesrelevant to the trust beneficiaries and to the delegation of investment andmanagement of trust assets to a third party investor, respectively.
Chapter 215 (Approved: 12-4-98; Effective 12-4-98)
[Distribution of information to all interested personsregarding probate proceedings.]
Amends G.L. c. 215 by adding § 30A, to require the chief justice of the Probate andFamily Court department to provide a form setting forth certain informationregarding estate administration, including a description of the probate processand the parties' rights under that process.
The act provides that this form shall be furnished by thepetitioner to all ascertained interested parties in a proceeding forguardianship, conservatorship, administration of an estate, and probate ofwill.
Chapter 182 (Approved: 12-4-98; Effective 12-4-98)
[Investment company as trustee]
Amends G.L. c. 182 by adding § 2B providing that aninvestment company when acting as trustee shall be independent anddisinterested in its action and determinations.
Chapter 201 and Chapter 206 (Approved: 11-25-97; Effective 2-23-98)
[Notice to Department of Mental Health regarding certainactions by a conservator or guardian.]
Again, the Department of Mental Health advises the barthat it is no longer necessary to provide the department with notice regardingcertain actions of a conservator or guardian. Specifically, the followingsections eliminate notice requirements as follows:
- G.L.c. 201, §§ 6, 7 and 13 eliminate the need for notice in certaincircumstances to the Department of Mental Health regarding appointments ofguardians and conservators.
- G.L.c. 206, §§ 7 and 24 eliminate the need for notice to the Departmentof Mental Health relative to the termination of a guardianship or a removal ofa guardian, and allowance of accounts.
While some sections of the law have been amended, othershave not. Therefore, the department still requires notice for actions such asintended gifts or transfers under Chapter 201, Section 38.
In addition, the aforementioned relaxed requirements donot eliminate the need for notice to the Department of Mental Retardation incases involving retarded citizens. Likewise, notice must be given to theDivision of Medical Assistance relative to estates or guardianships involvingthe Department of Medical Assistance.
Significant cases Treat v. Commissioner of Revenue,
1998 WL 774168 (Mass.App.Tax.Bd.)
[Surviving spouse does not get step-up basis in 100 percentof joint property held with a spouse.]
In a recent case, the Massachusetts Appellate Tax Boarddetermined that the surviving spouse may not utilize a step-up in basis for 100percent of joint property held with a spouse, thus negating the argument thatthe step-up in basis applies to 100 percent of the property in certain cases atdeath. In Gallenstein v. United States (70 ATFR 2d 92-5683), the Tax Courtdetermined that in a pre-1977 acquisition of property by a husband and wife,the surviving spouse was entitled to the full step-up in basis as of the dateof death provided that proof could be presented to the service that thedecedent contributed 100 percent of the consideration for the purchase. In thismanner, the full value of the estate would be includable under Code Section2033, and pursuant to Sections 1014 and 2040, thus giving the step-up in basisto the surviving joint owner pursuant to Code Section 2031. This issignificantly important since the surviving spouse will receive the property atthe step-up in basis and pursuant to the marital deduction which in this casemay be an unlimited deduction (Code Section 2056), the capital gain will be eliminatedfor the value between the date of acquisition and the date of death. Thisprovides the surviving spouse a significant benefit when selling assetsreceived in this manner, usually the principal residence. The issue does notusually present itself until such time as the property is sold and the gain orloss is reported on the surviving spouse's personal form 1040.
While this procedure and tax benefit continues to beavailable for federal purposes, the recent case in Massachusetts has disallowedthe same result. The board ruled that since the Internal Revenue Service taxlaws have not been totally adopted by the commonwealth, the same tax benefitsshall not be transferred to the taxpayer under the Massachusetts regulations.
The practitioner must now provide the taxpayer with theproper tax basis calculated as of the date of death. Provided the property isheld jointly with the spouse, Massachusetts provides that one-half of theproperty will be allocated to the taxpayer based on the date of death value,and one-half of the tax basis will be determined based on one-half of theproperty value increased by one-half of the improvements to the property madeup until date of death. This "blended basis" must be utilized forMassachusetts tax calculations with the federal tax being calculated based onthe date of death value as ascertained either under one-half basis rules or theGallenstein case, provided that the facts are justifiable to provide theservice with the justification in the event of an audit.
Flannery v. Flannery,
429 Mass. 55 (1999)
[Installment contract between plaintiff and decedent isdivisible and, therefore, plaintiff's claim is barred, in part, by G.L.c. 197, § 9(a) and is enforceable, in part, under G.L. c. 197, § 13]
The plaintiff and the decedent were divorced in 1971.Pursuant to an agreement, the plaintiff received support payments from thedecedent in the amount of $135 per week to cease upon either the death orremarriage of the plaintiff. In May 1987, the plaintiff and the decedent modifiedtheir agreement providing that the decedent would pay $250 per week to theplaintiff for a 10-year period certain beginning on June 1, 1987. Further, themodification provided that the payments would terminate 10 years following themodification, or the death or remarriage of the plaintiff. The decedent madetimely payments to plaintiff following the modification.
Shortly thereafter, the decedent died on Dec. 23, 1987,and no further support payments were made to the plaintiff. On Dec. 29, 1993,the petitioner filed a claim against the decedent's estate pursuant toG.L. c. 197, § 13, as the decedent's estate was not fully settled.The probate court approved the plaintiff's claim in the amount of$122,750, and the estate was ordered to hold sufficient assets to satisfy theplaintiff's claim as allowed by the court. Thereafter, the plaintifffiled an action in the Superior Court seeking 312 weeks of alimony payments andan order for specific performance regarding the remaining four years.
The primary issue presented to the Appeals Court waswhether the one-year statute of limitation of G.L. c. 197, § 9(a) bars theplaintiff's claim under G.L. c. 197, § 13. The statute of limitationunder G.L. c. 197, § 9(a) provides in part that "an executor oradministrator shall not be held to answer to an action of a creditor of thedeceased" that is not "commenced within one year after the date ofdeath of the deceased" while the statue of limitation under G.L. c. 197,§ 13 states that a creditor of the deceased, whose right of action shallnot accrue within one year after the date of the decedent's death, maypreserve a claim against the decedent's estate "at any time beforethe estate is fully administered" and "if the court shall find thatsuch claim is or may become justly due from the estate."
In the instant case, the court found that the contractbetween the plaintiff and the decedent was divisible because the underlyingcontract was payable in installments. Therefore, both statutes of limitationsbarred the plaintiff's claim for the weekly payments that accrued in thefirst year after the decedent's death. However, the plaintiff'sclaim for payments due on or after the first year of the decedent's deathwas not barred by either G.L. c. 197, § 9(a) or G.L. c. 197, § 13.
Fleet Bank, N.A. & another v. Fleet Bank, N.A. &another,
429 Mass. 1003 (1999)
[Trust reformed to reflect settlor's clear intention]
The Massachusetts Supreme Judicial Court allowed thereformation of a trust instrument to accomplish the settlor's clearintent to minimize federal transfer taxes.
The court permitted reformation by allowing the trustee toreform the trust instrument "by adding the words ‘prior to theSettlor's death' at the end of Article III(a) of thesettlor's trust as amended on September 4, 1984."
Other cases of interest Rudow v. Commissioner of the Division of MedicalAssistance,
429 Mass. 218 (1999)
[Guardianship costs deemed "necessary medical andremedial care expenses" deductible for purposes of calculating patientpaid amount]
An action was brought on behalf of two elderly nursinghome residents who lacked mental capacity to pay their nursing home billsand/or apply for Medicaid assistance. Both residents required a nursing homesetting due to their mental condition. Their treating physician certified thatthe residents were mentally incapable of consenting to medical treatment.Subsequently, the Probate Court appointed guardians for the residents andordered that the costs and fees for the guardianship processes be paid from theresidents' income.
The division denied both requests that the costs and feesof the guardianships be paid from the residents' income. Onadministrative appeal, "the referee concluded ‘that the attorneydeserves to be paid for providing her services,' but that a deductionfrom the income of the Medicaid recipient for those services was notallowable."
The two cases were consolidated and reviewed by theSuperior Court. The court ruled "that the guardianship costs ‘mustbe considered medical or remedial and, subject to reasonable limits, must beallowed as a deduction from the plaintiff[s]' income to determine thePPAs [Patient Paid Amount]." The division appealed.
The SJC held that not all guardianship expenses and costsare deductible from a Medicaid recipient's income. However,"[d]eductions from a recipient's income are mandated … incircumstances where a guardian is essential for an incompetent Medicaidrecipient to gain access to or consent to medical treatment." The courtheld that "the division may set reasonable limits on suchexpenses."