Articles Posted in Trusts and Estates

Protecting familial assets from unnecessary taxation upon the death of a spouse, parent, or other beneficiary is one of the primary benefits of effective New England estate planning. Establishing trusts, wills, and other estate planning instruments is essential to protecting assets within a family. A recent decision by the Massachusetts Supreme Court demonstrates the importance of following the proper estate planning procedures to prevent substantial tax burdens to the heirs of a property owner upon their death.

In the recently decided case, the appellants consist of the heirs of a Massachusetts woman who died in 2011. Before her death, the woman’s husband created a qualified terminable interest trust in New York to support his wife after his death. The trust was created to guarantee the wife income from the husband’s assets while reducing the tax burden to the parties’ heirs when the husband and wife eventually passed away. After the husband died in 1993, his estate was not taxed for the value of the trust assets, and the assets remained in trust to benefit the wife until her passing. The wife later moved to Massachusetts, where she lived until she died in 2011. The wife’s estate filed both federal and state estate tax returns after her death, noting the trust assets on the federal documents, but omitting them from the state return, and paying no state estate taxes on the trust assets.

The Massachusetts Commissioner of Revenue selected the estate tax return for an audit, and determined that the value of the trust assets should be assessed for Massachusetts estate tax. As a result of the audit, the estate was required to pay over $1.8 million in taxes and interest. The estate disputed the decision, and the Massachusetts Supreme Court took up the resulting appeal. The high court agreed with the tax commission that the transfer of the assets from the wife to her heirs occurred in Massachusetts and was not eligible for and protection by their inclusion in a qualified interest terminable trust. This was because Massachusetts law only protected such assets if the trust created in Massachusetts, and this property was placed in trust in New York. Because of the high court’s decision, the estate will be required to pay the full amount of Massachusetts estate tax on the trust assets.

Preparation of wills, trusts, and the division of a family estate can be a difficult matter, which often leads to contention after a family member with property passes away. A recently decided case by the Rhode Island Supreme Court demonstrates the importance of having a professionally prepared and unambiguous estate plan in place to prevent confusion and legal battles after a loved one’s passing.

The primary issue in the recently decided case surrounds joint bank accounts that a woman opened with two of her daughters shortly before her death. The woman’s two other daughters, who are the plaintiffs in the action, challenged the probate court’s division of these accounts, which were each awarded to the joint account holder and not divided by the surviving children as remaining property in the decedent’s will.

According to the appellate ruling, the decedent went to the bank with one of her daughters with the intention of opening two accounts that would pass on to each of the joint account holder daughters upon the woman’s death. Under Rhode Island law, these accounts would need to be designated as joint accounts with a right of survivorship in order to pass to the joint account holder and not to other heirs through probate. For an unknown reason, the bank agent failed to designate these accounts as such.

People can decide to change their wills and trusts whenever they choose, but elderly parents can be especially vulnerable to undue influence, particularly near the end of their life. The Rhode Island Supreme Court recently decided an estate administration case involving amendments made to a trust and partnership shortly before a mother’s death. The mother had three daughters and the suit was brought by one daughter against another daughter.

According to the court’s opinion, the mother created a trust agreement to distribute her assets upon her death, and also established a family limited partnership. The mother retained the general interest of the partnership, and two of her children retained an interest for the benefit of their children. She later gifted additional interests in the partnership to her children and grandchildren. Before the challenged amendments, the mother retained a 44.1 percent interest, the defendant daughter held 31.06 percent for herself and her children, and the plaintiff daughter had 24.84 percent for herself and her child. The mother eventually needed additional care and ended up moving to an assisted living facility.

Soon after, the mother tried to commit suicide in part because she said it was “the easiest way to give [her] house to [her children].” She was diagnosed as having bipolar disorder, depression, and mild dementia. In the following months, she transferred her remaining interest in the partnership to the defendant. She also appointed the defendant as trustee and made the other daughters’ interest in the trust conditional on the transfer of interest in the partnership to defendant. The trust was then amended to give two daughters and a granddaughter $2,000, and the rest to the defendant. The defendant also deposited additional money her mother received into her children’s accounts.

The Rhode Island Supreme Court recently decided a case involving an extended Rhode Island probate dispute. According to the court’s opinion, in 2005, the plaintiff was involved in a dispute over the designation of guardianship of her aunt before her aunt passed away. After the plaintiff’s aunt passed, the dispute was over the administration of her estate.

The court named the plaintiff as administratrix of the estate and imposed a corporate surety bond as a condition of the plaintiff becoming administratrix of the estate. The plaintiff also filed for sanctions against opposing counsel. The probate court denied the plaintiff’s motion for sanctions against opposing counsel and her motion to waive the surety bond. In 2012, the plaintiff requested the superior court to authorize another family member to “stand as surety for [the plaintiff’s] conduct as administratrix” and to eliminate the requirement of the surety bond. She also appealed the probate court’s refusal to sanction opposing counsel for “bringing a frivolous guardianship proceeding” before her aunt passed away. The court declined to sanction opposing counsel and also held that the corporate surety was “absolutely necessary” in this case.

A surety bond in a probate case is a means of ensuring that the executor will not commit any wrongdoing. The insurer agrees to compensate the beneficiaries for any money lost if the executor makes a mistake (intentionally or unintentionally) in settling the estate. Section 33-17-1.2 of Rhode Island General Laws provides the circumstances under which a surety bond can and should be imposed. Section 33-17-1.2 allows the probate court to use its discretion in determining whether a corporate surety is required, and it provides numerous factors to consider. Under the current version of the statute, a court can consider facts such as the total number of heirs, the relationship between the heirs, the extent of conflicts between the heirs and over the estate, and the total size and monetary value of the estate. In this case, the court decided that the plaintiff failed to show that her surety or that of her family member was sufficient.

Estate planning is not a topic that anyone wants to have with their loved ones; however, it is extremely important to a family’s financial future and should not be avoided or delayed. While the broader topic of estate planning gets complex fairly quickly, the basics of Rhode Island estate planning law are straightforward.

When someone dies, their property goes through what is called the probate process. During the probate process, a person’s assets are all gathered together and placed into an estate. From the estate, taxes are paid, and the deceased’s debts and other liabilities are settled. Whatever remains in the estate will be distributed according to the deceased’s will. In the event the deceased does not have a will, then their property will be distributed according to the Rhode Island intestate laws.

A will distributes the property of the deceased according to their wishes. However, including property in a will does not avoid the probate process, which can be both costly and lengthy. Although not necessary in every case, some individuals may benefit from creating a Rhode Island trust before their death.

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No one likes to think about what is going to happen with their property after they die; however, by thinking about the issue now, loved ones can be spared the enormous expense and hassle of dealing with the process after the fact. Thus, everyone should create a will to determine how they want their property divided in the event of their death.

If someone dies without a Rhode Island will, they are said to have died “intestate.” Each state has a set of laws that apply when someone dies intestate. In Rhode Island, the intestate laws are contained in Rhode Island General Laws, Chapter 33-1.

Intestate laws can be complicated, and the manner in which a decedent’s property is divided depends on whether they are married and have children or grandchildren. The laws prioritize the spouse and children of the deceased; however, parents and siblings can end up with the entire estate if someone dies unmarried and without children. In many cases, Rhode Island intestate laws may not make sense and may not adequately effectuate the wishes of the deceased.

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Trusts are a common part of estate planning. Essentially, a trust is useful when you want to put aside property for someone else to manage for the benefit of a third party. For example, a grandparent may put money aside for their grandchild to be used for certain purposes or to be released to them at a specific time, such as at a certain age. In between the time the grandparent sets the money aside and the time the grandchild gets it, it will be managed by a third party called a “trustee.” There are more complicated laws and rules that surround the creation and disbursement of trusts. Your skilled Rhode Island estate planning attorney can help you to understand the best way to set up a trust to fit your circumstances.

People Involved in a Trust

Before we can dive it to what happened in this case, it’s important to understand the roles and titles of the different people in the trust. The person who provides the property that will at some point go to someone else is called the “settlor.” As explained above, the person (or entity) who is entrusted with the money is called the “trustee.” Finally, the person or people who will get the property at a specific point or upon the occurrence of certain events (such as the death of the settlor), are called “beneficiaries.

If you are thinking about what will happen to your assets after your death, one of the things that you may have to consider is the estate tax. There is both a federal and state estate tax if your assets are above a certain amount. However, there may be ways for you to avoid certain taxes and fees if you consult an experienced Rhode Island estate planning attorney. A skilled attorney can help you preserve as many of your assets as possible for your heirs or any other beneficiaries you designate.

Estate Tax Basics

Estate tax is an often misunderstood area of the law. The vast majority of people are not subject to an estate tax because the sum value of their assets fall under the limit. However, the tax is still important for everyone to be aware of so they can plan appropriately. Just like you pay both federal and state income taxes, you could be subject to both state and federal estate taxes.

In a recent Rhode Island estate law case, six trust beneficiaries (collectively, ‘respondents’) moved to dismiss the petitioner’s petition for declaratory relief or, in the alternative, to either amend the trust or allow the other beneficiaries to disclaim their interest in the petitioner’s share of the trust. Petitioner sought to permit his adopted son—whom he adopted as an adult—to succeed to his interest in his grandfather’s trust. The court had jurisdiction pursuant to G.L. 1956 § 9-30-1.

The trust was established in 1928 by the settlor. Rhode Island Hospital Trust served as the initial trustee, and thereafter replaced by its successor entity, Bank of America. Following the settlor’s death, the trust directed the trustee to equally divide the remaining net income from the trust to the benefit of his wife, three daughters, and their issue. The trust further provided for its termination 21 years following the death of the settlor’s wife and daughters and two other named individuals (collectively, ‘the R. family’). At the time the case came before the Rhode Island Superior Court, members of the R. family were the only surviving named individuals, both in their nineties.

Petitioner’s mother, one of settlor’s daughters, became a beneficiary of the trust following the settlor’s death. Petitioner and his three sisters succeeded to their mother’s interest in the trust upon her death. In 2001, at the direction of the superior court, the daughter’s interest in the trust was divided into four separate shares—one for each of her children. The 2001 judgment further provided that “[i]f, at any point, a child of [the daughter] is deceased and no issue of that child survives,” then the deceased child‘s share of the trust will be divided evenly among the surviving siblings.