USA – MASSACHUSETTS Trends and Developments Contributed by: Patricia M. Annino, Rimon Law
if any (such as right to income, right to exercise a power of appointment, right to decant) are retained in the trust document. If the settlor established the irrevocable trust and transferred assets to it in con - templation of divorce those assets may be vulnerable. If the divorcing party is not the settlor of the irrevocable trust and the trust was settled by a third party such as a parent or grandparent, then other factors come into play. The court will review who the trustee is, who are the eligible beneficiaries (the divorcing party alone or part of a group), whether the standard for distribution is discretionary or subject to a standard, such as health, education, support or maintenance. The court will also review the trust to determine if the divorcing party as beneficiary has the right to compel distributions. Are distributions mandatory? The spendthrift clause will be reviewed. Also important is how the trust has been operated. Are there regular distributions? If the divorc - ing party has made requests for distributions, are they always allowed? Are they ever denied? What was the settlor’s intent when establishing and funding the trust? Uncertainty over how to value some assets (such as a closely held business, vacation home, businesses owned with others, etc) does not exclude a trust inter - est from being a factor in a divorce. Decanting may provide a partial solution. A recent case addressed decanting. In Ferri v Powell - Ferri , the Massachusetts Supreme Judicial Court approved a trust decanting which removed vested withdrawal rights for a beneficiary in an active divorce action (and therefore protected the asset from becoming a countable marital asset), relying on two key facts: (i) the independent trustees decanted without notify - ing the beneficiary, and (ii) an affidavit of the settlor’s intent. This case raises significant other issues such as whether the trustee may have a duty to decant. If there is a desire to remove gifted and inherited assets from a divorce the best protection is for the party to enter into a prenuptial agreement or post- nuptial agreement that removes those assets from the marital estate. Massachusetts does not have a statute that addresses the validity of a prenuptial agreement or a post-nuptial agreement.
Case law has shown that these agreements are valid if they are in writing and executed voluntarily between the parties. There is no requirement that each party be represented by counsel, but it is good practice to do so. Trend: Massachusetts practitioners are modernising existing trusts Increasingly, trusts are viewed not as static documents executed once and filed away, but as long-term gov - ernance structures that require periodic review and adaptation as families, assets and tax laws evolve. The application of trust decanting, judicial modification, ref - ormation, and non-judicial settlement agreements are on the rise. These tools are no longer exceptional rem - edies for defective trusts. They are increasingly used to modernise otherwise valid trusts (rather than establish - ing new trusts) and are increasingly part of normal trust administration. Some of the common reasons include changing trustees or situs; separating investment and distribution authority; responding to divorce, disabil - ity or creditor exposure; adapting trusts holding fam - ily enterprises or concentrated assets; and improving powers of appointment and administrative flexibility. Trend: trusteeship is becoming increasingly sophisticated Massachusetts does not yet have the same com - prehensive directed-trust statutory regime found in some trust jurisdictions. Yet, the central question is no longer only “Who should serve?” but “Which deci - sions should each fiduciary or adviser control, and how should disputes among them be resolved?” Sophisticated documents increasingly divide func - tions contractually, but the drafting must address authority, fiduciary status, standards of review, indem - nification, removal, succession and deadlock. Today’s trusts might have a family member as trustee, an insti - tutional trustee, an investment adviser, a distribution committee, a trust protector, and/or a special trus - tee. Massachusetts lacks a comprehensive statutory directed-trust architecture, yet drafting to contemplate division of skills is increasingly important.
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