Posts Tagged ‘Massachusetts’

Husband’s Interest in Trust Not Divided in Divorce Proceedings

AUGUST 22, 2016 VOLUME 23 NUMBER 31
Carl and Debbie (not their real names) were married, and have two children together. After more than a decade together, Carl filed for a divorce in their home state of Massachusetts.

In the course of the divorce action, the court was required to divide Carl and Debbie’s assets equitably. But what would that mean for the trust established for Carl by his father back in the early years of the couple’s marriage?

Carl’s father had set up the trust to make distributions to Carl, his two siblings, his children, nieces and nephews. Debbie was not named as a beneficiary of the trust, and distributions could not be made to her. Over a two-year period just before the marriage ended, Carl had received over $800,000 in distributions from the trust. At the time of the divorce trial, the trust was valued at almost $25 million; Carl was one of eleven potential beneficiaries of the trust.

The divorce court had to figure out what to do about the trust. Noting that it provided for payments for Carl’s “comfortable support, health, maintenance, welfare and education,” the divorce judge decided that Debbie should be entitled to a share of the trust.

Calculating that Carl’s one-eleventh interest in the trust would be about $2.2 million, the divorce judge assigned 60% of that figure to Debbie. Carl appealed; the Massachusetts Court of Appeals affirmed the divorce judge’s determination. Carl appealed again, this time to the Massachusetts Supreme Court.

The state’s high court disagreed, and reversed the award of an interest in the trust to Debbie. Part of the reason for the reversal: the trust included a spendthrift provision, which should prohibit any claim by third persons against Carl’s interest. The justices also noted that Carl was not one of the trustees of the trust (his brother and one of his father’s lawyers were trustees), that Carl’s interest was not a separate share of the trust (it provided that distributions could be unequal and, in fact, no distributions had yet been made to or for second-generation beneficiaries), and that no distributions had been made to Carl since the divorce petition was filed (though distributions had continued to his two siblings).

Because of the exact nature of the trust, the Massachusetts Supreme Judicial Court ruled that Carl’s interest in the trust was not available to be assigned to his wife in the divorce proceedings. The court did note, however, that when the divorce judge reconsiders the division of property, she might want to assign more of the couple’s assets to Debbie because of Carl’s potential benefits flowing from the trust. Pfannenstiehl v. Pfannenstiehl, August 4, 2016.

Many of our clients are concerned about the scenario in Carl and Debbie’s situation — but from the other side of the equation. If you want to leave some of your property to your child, but worry about the possibility of divorce or other marital problems, what can (or should) you do?

Arizona, of course, is a community property state. That means that everything a married couple acquires during the marriage is presumed to belong equally to both spouses. One huge exception to that general rule: gifts and inheritances.

If you give or leave money to your married daughter in Arizona, it is not community property. It remains her separate property — unless, of course, she converts it to community property by putting her spouse’s name on the title (that’s not the only way to convert it into community property, but it’s the most common one).

What about leaving property to your daughter in a trust? That should help protect it even better against her spouse — and her other creditors. It’s hard to explain the original divorce judge in Carl and Debbie’s case, or the Court of Appeals decision that upheld it, but the final outcome should clearly be the one adopted by the high court in Massachusetts. A trust for your daughter should not figure in her later divorce — though it is possible to imagine that her divorce court judge might award slightly more of the couple’s property to her spouse if she has ready access to a substantial trust account.

Does it make any difference who is named as trustee of your daughter’s trust? The court in Carl and Debbie’s case thought it was worth noting that Carl was not the trustee of his own trust, but the outcome should not have been different if he had been. A trustee has a duty to all of the potential beneficiaries, and therefore can’t just act in their own interest. That means that even if Carl had been trustee (or co-trustee) of the trust established by his father, his access to the trust’s principal would have been limited.

Would it make a difference if there were other compelling financial concerns involved? It should not, and in that regard it might be worth noting that Debbie’s earning potential was found to be substantially less than Carl’s, and that the couple’s daughter is a Down Syndrome child.

Should it matter whether a trust beneficiary has a history of relying on the trust? It probably does not — note that Carl and Debbie more than doubled their earnings in the years in which the trust made distributions.

Are you concerned by the possibility that an inheritance you leave to your child might become an element in a future divorce proceeding? Talk to your estate planning attorney about your options, and don’t be surprised if you find yourself discussing a trust arrangement.

Conservator’s Accounting Approved in Contentious Proceeding

APRIL 11, 2011 VOLUME 18 NUMBER 13
The Montana Supreme Court identifies him as “J.R.” to protect him from public identification, but it is possible to get quite a feeling for him, his family and the two different conservators appointed to handle his finances. In 2006, when the legal proceedings started, J.R. was 78 years old. His wife had died three years earlier, and J.R. had become confused and vulnerable. He had five children (and three step-children); one of them, his daughter Marsha, had filed a petition asking the court to appoint a conservator to handle her father’s assets.

Just before the hearing on the petition another daughter, Robin, arrived from her home in Massachusetts and took J.R. back to live with her. She did not tell either the lawyer representing Marsha or the lawyer appointed to represent J.R. himself. It would not be her final failure to cooperate with the Montana courts.

A probate judge in Helena appointed a local private case manager as J.R.’s conservator. Seven months later she asked the judge to relieve her from the role. She could not discharge her obligations, she told the judge, because persistent family interference and undermining of her actions made it impossible to protect J.R. or his estate.

The new conservator was a Helena CPA, Joseph Shevlin. The judge chose Shevlin partly because he had a long career and excellent reputation in the accounting practice, and he was known for his estate planning expertise.

J.R.’s assets included a Helena condominium filled with his personal property, plus a brokerage and a bank account. Mr. Shevlin was instructed to sell the condo and to use J.R.’s money to help pay for his care. The judge specifically instructed Mr. Shevlin not to provide any of J.R.’s money to his family members unless it was for his direct care.

Two years later several of J.R.’s family members (and J.R. himself) filed petitions seeking to transfer the conservatorship to Massachusetts, to direct Mr. Shevlin to create a trust and transfer J.R.’s assets to the trust, to remove Mr. Shevlin as conservator, and to order him to return fees he had collected during his tenure. The probate judge held three days of hearings on those requests (and Mr. Shevlin’s objections), and ultimately entered orders removing Mr. Shevlin as conservator, appointing J.R.’s brother as successor, approving Mr. Shevlin’s accountings and dismissing claims of breach of fiduciary duty.

J.R. appealed to the state Supreme Court, which affirmed the probate judge’s orders. The appeal raised several legal issues:

  • J.R.’s attorneys’ failure to call an expert witness to testify about Mr. Shevlin’s standard of care. Although every fiduciary is held to a high standard, professionals serving as fiduciaries are required to use any specialized skills. Mr. Shevlin argued that this meant a challenge to a conservator who is also a CPA meant that an expert witness was required to provide testimony as to the standard of care and any breach. The trial judge agreed, but the Supreme Court did not. No expert testimony was required when the complaints, as here, did not touch on specialized skills. Still, the high court noted that J.R. had not met the standard of proof required anyway — and so the probate judge’s misreading of the law was of no moment in his case.
  • The probate judge had removed Mr. Shevlin as conservator, and J.R. argued that by itself demonstrated that he had acted inappropriately. Not so, ruled the appellate court — in this case, the removal was clearly because it was in the best interests of all parties and not because of any wrongdoing by Mr. Shevlin.
  • J.R. complained that Mr. Shevlin had not provided funds for his care; that the condo had been held for too long before sale and ultimately sold at too low a price; that Mr. Shevlin should have agreed to transfer J.R.’s assets to a trust in Massachusetts (to be managed by his daughter Robin and a Massachusetts lawyer retained to help get J.R. qualified for public benefits). The trial judge considered each of those allegations and determined that there were good explanations for Mr. Shevlin’s actions, and that his work was made incalculably more difficult by J.R.’s family’s refusal to recognize the conservatorship or cooperate with him. None of them merited requiring Mr. Shevlin to return his fees, and they were not the basis for his removal. The Supreme Court agreed.
  • More significantly, Mr. Shevlin (a) did not file an inventory, as every conservator is supposed to do within 90 days, and (b) did not file his first annual accounting until 19 months after his appointment, and (c) sold some of J.R.’s personal property (apparently furniture from his condo) to himself. The trial court had disapproved of each of these actions, but ultimately decided that they did not harm J.R. The first conservator had filed an inventory (though it did not include personal property in the condominium) and J.R.’s daughter Robin had demonstrated that she was very familiar with the condo’s contents. The accounting was late, but it included voluminous explanations and backup. The sale of personal property to himself clearly violated a conservator’s duty not to permit conflicts of interest, but the items had been identified as things that might be abandoned or sold rather than shipped to Massachusetts, and Mr. Shevlin did pay full value. All in all, agreed the Supreme Court, these lapses did not rise to the level that would authorize ordering Mr. Shevlin to return his fees or to remove him for cause.
  • J.R. objected both to Mr. Shevlin’s fees and those of the attorney he hired to represent him in the dispute. As to the former fees, the probate judge ruled that his rates were reasonable, the amount of work and time necessary, and his actions appropriate. As to the latter, the probate judge found that it was necessary to retain counsel to deal with a contentious proceeding and that those fees should be paid from J.R.’s estate. The Supreme Court agreed on both counts, noting that “a large number of Shevlin’s fees and those of his counsel were attributable to the failure of some of J.R.’s children to cooperate with or even recognize the existence of the conservatorship.”

In the Matter of the Conservatorship of J.R., 2011 MT 62 (April 5, 2011).

 

Reverse Mortgage Danger Signals

SEPTEMBER 13, 2010 VOLUME 17 NUMBER 28
This week’s Elder Law Issues addresses a problem that is increasingly common in the senior community: the aggressive sale of reverse mortgage arrangements to homeowners who may not really need or benefit from such a financing technique. We saw the following list of danger signals for reverse mortgage sales, prepared by Massachusetts lawyer Frank J. Kautz, II, and we were impressed with his concise but thorough and insightful comments. We reprint it here with his permission; if you want more information about the author or his employer, please check the citations at the bottom of this newsletter.

Reverse mortgages, as useful as they are, can be misused as well.  These are some, not all, of the danger signals that are possible with these loans.  The single biggest danger signal is someone pressuring you to take the loan or to make an immediate decision for any reason other than protecting your home from a foreclosure sale or other similar emergency.  There are other alternatives to reverse mortgages and they should be explored.

  1. You are not getting counseling from a HUD (or state if required) approved housing counseling agency.
  2. Counseling is perfunctory, extremely short, and/or you are not encouraged or given the chance to ask questions.  Counseling is to help you understand the loan, if you do not, let the counselor know.
  3. You are being steered to or directed to see a particular counselor or lender.
  4. You are being discouraged from looking at or discussing all of the various loan products, even if they might not be useful in your case. It is one thing for you to know a loan or product is not useful to you; it is quite another for either the lender or the counselor to not give you all of the facts and let you decide.
  5. You are being discouraged from talking with family, friends, or the counselor regarding the loan, the loan’s terms, or what you intend to do with the money. While you may choose not to do so on your own, no one should discourage you from talking to anyone, particularly those closest to you, about the loan.
  6. The lender is either not licensed or does not have a product approved by either the federal Department of Housing and Urban Development and/or your state.  HUD’s lender list is available online.
  7. You are asked for any money upon applying for the loan or to pay for any fee outside of closing or that is not listed on the HUD1 form used by the closing attorney.  Please note, you may have to pay for an appraisal.
  8. You are told that providing any money, either up front or to be paid outside of closing, to any party will speed up processing of the reverse mortgage.  (Fourteen days is the shortest known, sixty days is typical.)
  9. You are offered a discount to sign by a certain date and/or are being pressured to accept.  (While there are occasionally programs offered for a limited period of time by various lenders, you should proceed with caution.  Check with the lender’s home office to make sure it is a valid program and find out exactly when it ends.  Occasionally, you can even get the offer extended for a short time.)
  10. Insurance premiums and other loan costs are not explained clearly to you or to your satisfaction.
  11. You have signed a contract or agreement with an estate planning service or firm that requires or claims to require, that you obtain a reverse mortgage to use their services.  Avoid offers in which the service provider promises to invest the money from the reverse mortgage.
  12. You are being pressured to use equity in your home to buy a financial product or something else with the proceeds that you do not necessarily need or may not want or that does not benefit you directly.
  13. Taking a spouse’s name off of the deed to make a reverse mortgage work.  You and your spouse may want to do this, but you should be aware and made aware of the consequences of this decision.
  14. Anyone (children, grandchildren, relatives, friends, etc.) is pressuring you to get a loan so that they can use either all or some of the money from the loan.  Even if they promise to pay the money back, or even sign a promissory note, using a reverse mortgage to make such a loan may well deprive you of the means to help yourself.  You must be sure of your own security first and foremost.

Please note, you may always contact a counselor at any time to discuss any or all of these issues privately.  The counselor is not there to make judgments for you or to pass judgments upon what you intend to do, the counselor is there to give you the information you need to make an informed decision on what you want to do.  Ultimately the final choice, like the responsibility, is yours and yours alone.

About the Author: This week’s guest submission comes from Frank J. Kautz, II, an attorney with Community Service Network, Inc., in Stoneham, Massachusetts. The Community Service Network is a “grass-roots, non-profit agency dedicated to acting as a bridge from individual & family crises to the appropriate service or solution” in the communities north of Boston where it is located.

About the issue: Arizona has not seen the same level of aggressive reverse mortgage sales that other states have experienced. Recent downturns in real estate markets have perhaps reduced the frequency of such sales. But economic turmoil has also put additional stress on many senior households, and the danger of inappropriate reverse mortgage sales remains high. We urge anyone considering a reverse mortgage — or the concerned family members of a senior who has been drawn into the concept — to review Frank Kautz’s list of danger signals.

In our experience, reverse mortgages can be a blessing in some circumstances. The classic reverse mortgage candidate is an older senior, able to live at home for a few more years but lacking the financial resources, and owning a home that would easily provide shelter for those years. Younger seniors, those with other resources, and especially those being counseled to purchase annuities with the reverse mortgage proceeds, should be more cautious about getting independent and experienced advice.

Why Do I Have To Complete That Darned Questionnaire?

MAY 31, 2010  VOLUME 17, NUMBER 18
You have made your appointment to discuss estate planning. Our office has sent you a reminder letter, an explanation of what will happen when you get here, a map with parking instructions — and an 8-page questionnaire, asking for all sorts of details about your family, your assets and your wishes. Why do we make you do all that work just to have an initial estate planning appointment? Because of William Bruinsma.

Mr. Bruinsma lived in a subsidized senior housing facility in Massachusetts. He visited his lawyer in 1993 and asked for help in preparing a “simple will.” He was very secretive, and did not want to tell his lawyer about his assets. He did insist that he didn’t want to spend too much money in legal fees, and he wanted his will to be simple.

Estate planning lawyers are very familiar with the type of client. In fact, no estate planning attorney we know has ever heard a client ask for a “complicated” will — everyone thinks their wills should be simple.

What Mr. Bruinsma wanted sounded simple enough. He wanted the income from his assets (whatever they might be) to go to his sister and his long-time friend. After both of them died, the remaining money should go to a group of charities. The simple will his lawyer prepared was just two pages long.

Five years later Mr. Bruinsma died, and it turned out that his estate was about $1.7 million. The will was so simple that his estate did not qualify for a charitable deduction — meaning his estate would pay about $466,733 in federal and state estate taxes that could have been easily avoided if the lawyer had known he needed to prepare a slightly more complex will.

Was that the result Mr. Bruinsma wanted? If he had known that the investment of a few hundred dollars during his life could have dramatically increased the income stream to his sister and friend, would he have made the investment? We will never know, because his lawyer did not know to ask those questions — Mr. Bruinsma had not provided enough information to allow the lawyer to give comprehensive legal advice.

Admittedly, the facts in Mr. Bruinsma’s case are relatively extreme. OK, you’re right — the same thing would not happen today and in Arizona, because there is no federal or Arizona state estate tax in place. But our point is still valid: if we do not have a fairly complete picture of your assets, your family and your intentions, we will not be able to prepare a good will, whether or not it is a simple will. Besides, the estate tax might just return next year at the $1 million level, in which case an Arizona version of Mr. Bruinsma would be making only a $350,000 mistake.

And now you know: if you really want to surprise your estate planning lawyer, just sit down in the first conference and insist that what you are hoping for is a complex will.

Incidentally, the charities in Mr. Bruinsma’s simple will ultimately joined forces with the sister, the friend and even the state Attorney General to ask the courts to reform the will so that the estate tax effect could be eliminated. After spending, presumably, thousands of dollars in legal fees to seek that result, they were all turned down by the Supreme Judicial Court of Massachusetts (the state’s highest court). That court ruled that there is no law permitting reformation of a will to correct an alleged error on the part of the person signing the will. Mr. Bruinsma’s secrecy — and his thrift — ended up costing nearly half a million dollars. Pellegrini v. Breitenbach, May 25, 2010.

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