June 14, 2017
I would like to thank Alexander Bove and Melissa Langa for reminding me through Leimberg Information Services, Inc. of the Ferri vs. Powell-Ferri case and the more recent update pertaining to the Massachusetts Supreme Court case (the cite for which is MICHAEL J. FERRI, trustee vs. NANCY POWELL-FERRI, SJC-12070 (Suffolk 3-20-17), which addressed specific aspects of the case.
This case involved a beneficiary of a Massachusetts trust who was going through a divorce in Connecticut. The trustees (one of whom was the beneficiary’s brother) were keenly aware that the beneficiary held a withdrawal power over trust assets, which raised the concern that the beneficiary’s soon-to-be ex-spouse may be able to gain access to the trust assets that would be considered “marital property.” More specifically, the concern was that the trust assets that are considered marital property would then be subject to division in the divorce. The trustees therefore “decanted” the assets (i.e., transferred the potentially exposed trust assets from the existing trust to a new more protective trust). The goal here was clearly for added asset protection.
The Connecticut court asked the Massachusetts court to address whether the trustees of the Massachusetts trust had the authority to decant the trust assets to the new trust. The Massachusetts court suggested that to the extent the existing trust provisions did not appear to restrict such a decanting and so long as the beneficiary’s father’s intent (when he created the trust for his son) was consistent with such decanting, the trustees could validly do so.
The Massachusetts court noted; however, that since it was opining on the narrow questions asked of it by the Connecticut court, the Massachusetts court was not going to address a related issue. That related issue was whether any Massachusetts public policy considerations (that would protect the other “non-beneficiary” spouse’s rights to marital property) would render the new trust invalid as an attempt to defeat such public policy protections.
This brings us to the planning aspects to be considered when trusts are being designed. This case suggests at least two drafting considerations in creating trusts for children. One, the trust should expressly allow the trustees to decant trust assets for any purposes that are in the best interests of the beneficiaries, as determined in the trustees’ sole discretion without needing to confer with the beneficiaries. The second drafting consideration is to make clear under the trust provisions that the assets to be decanted can be transferred to a trust that has its situs in another state or in a foreign jurisdiction that clearly has no overriding public policies that could defeat the validity of the new trust.