USA – MASSACHUSETTS Law and Practice Contributed by: Patricia M. Annino, Rimon, P.C.
4. Family Business Planning 4.1 Asset Protection
Donor Advised Funds (DAFs) In addition to trusts, many clients utilise donor advised funds (DAFs) as part of their overall estate planning strategy. DAFs are governed principally by federal law. 3.2 Recognition of Trusts Massachusetts recognises trusts. Case law has respected and supported trusts for centuries. The Massachusetts Uniform Trust Code (MGL c 203E), effective since 8 July 2012, governs the administra - tion of trusts. 3.3 Taxation of Trusts, Foundations and Similar Entities Located in Other Jurisdictions Serving as a trustee for a foreign trust in Massachu - setts can have income tax implications for both the trustee and the beneficiary. Massachusetts generally taxes income derived from sources within Massachu - setts. Even if a trust is administered by a non-Massa - chusetts trustee, if the trust generates income from sources within Massachusetts (such as rental from real estate located in Massachusetts), that income can be subject to Massachusetts income taxes. If the foreign trust has Massachusetts-resident benefi - ciaries, income allocated or distributed to those ben - eficiaries can be subject to Massachusetts income tax, even if the trustee is no longer in Massachusetts. If a non-resident estate or trust accumulates Massa - chusetts-source income, that income is taxable to the estate or trust regardless of whether the beneficiaries are Massachusetts residents or not. 3.4 Tax Consequences of Fiduciary and Beneficiary Roles Grantor as Trustee A grantor’s service as a trustee does not by itself cre - ate a separate Massachusetts tax. Grantor-Trust Status Retained powers may cause the grantor to be treated as the owner for federal and Massachusetts income tax purposes. Different retained powers can cause estate tax inclusion.
The Massachusetts Homestead Law protects the val - ue of a home (which can be a house, manufactured or mobile home, condominium or co-op) from the claims of unsecured creditors as long as the person plans to continue living in the home and using the home as their primary residence. There is an automatic pro - tection of USD125,000 of the value of the home. If a Declaration of Homestead is filed with the Registry of Deeds, up to USD1 million of the home’s value is pro - tected. Owners who are 62 or older, or are disabled, have extra protection. Each owner can file, and each can protect up to USD1 million of the equity. This extra protection applies only to liens and claims placed on the home after the Declaration of Homestead has become effective. It does not protect against secured debts, mortgages, priority debts (such as government taxes, criminal fines, child support, nursing home liens and support for a former spouse). The cost of filing a Homestead Declaration is USD36. Traditional third-party spendthrift trusts (trusts estab - lished for beneficiaries other than the settlor) that include spendthrift language continue to be effective in Massachusetts. If the beneficiary does not have the right to demand distributions or assign them to any - one else, the trusts are protected from the creditors of the beneficiary. Of course, if funds are distributed from the trust, they are then available to the beneficiary and the creditors of the beneficiary. Self-settled trusts created for the benefit of the settlor are treated differently. Generally, the creditors have access to the trust to the extent that the trustee has the discretion to make distributions to the settlor or for their benefit. Those are not permitted in Massa - chusetts – with one exception – a self-settled special needs trust, by which a disabled person puts their own assets into a trust for their own benefit. Under federal law the trust is exempt from being counted as a resource for government assistance. At the death of the settlor, Massachusetts is entitled to be reimbursed for any Medicaid or MassHealth services that were provided during the settlor’s lifetime.
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