The IRS issued a revenue ruling on Irrevocable Trusts last month – attracting some media attention by the Kiplinger Personal Finance and others.
If you have a trust drafted by Dalton & Finegold, YOU ARE OKAY! We anticipated this and our trusts are in compliance with the new IRS ruling. This ruling affects only Irrevocable Trusts – if you have a Bypass Trust or a Revocable Trust that becomes irrevocable when you are deceased, you aren’t affected by this.
Irrevocable Trusts are a terrific way to protect your home from long-term care expenses, such as nursing homes. But they must be carefully drafted. There are two ways to draft this kind of trust.
If the trust is drafted one way, the house will be exempt from estate tax when the owners die. But the heirs will “carry over” the original owners’ purchase price for capital gains tax. If the original owners – usually parents – bought the house in 1980, then the capital gains tax when the kids sell is calculated back to the 1980 price.
If the trust is drafted another way, estate tax will be due on the house. But when the heirs sell the house, the capital gains tax is calculated from the date the previous owner died (so-called “stepped up” basis).
When we draft Irrevocable Trusts, we help our clients to choose one or the other – the estate tax or the higher capital gains tax. Usually, it’s a simple math calculation to decide which is best.
The new IRS ruling confirms that you have to choose – you can’t claim BOTH the estate tax exemption and the favorable capital gains treatment (and a warning to creative attorneys who are trying to draft trusts that accomplish both!).
If you are worried about your Trust, our attorneys would be happy to review it for you. If you don’t have an Estate Plan yet, call us to schedule a free consultation. The first consultation is always free of charge and our Attorneys are ready to assist you!
Lighthouse Property Tax fight Settled Against Hull
By Christopher R. Vaccaro
Special to Banker & Tradesman
Graves Light marks the outer edge of the Boston Harbor Islands and a huge, semi-submerged ledge. But a dispute involving a property tax bill ignited a question: What town is it in?
Graves Ledge is a 10-acre rock formation at the edge of Boston Harbor, miles from the mainland. A lighthouse there has guided ships entering Boston Harbor since 1905. The United States owned and operated Graves Ledge and the lighthouse until it sold them to David Waller in 2013 for almost $1 million.
Waller acquired ownership of Graves Ledge and the lighthouse through a limited liability company, and recorded a deed with the Suffolk County Registry of Deeds. The deed describes Graves Ledge as “the outermost island in the Boston Harbor National Recreation Area, in Suffolk County, Massachusetts Bay.” The U.S. Coast Guard reserved the right to operate navigational aids on Graves Ledge, and the deed requires the new owner to preserve historic buildings. Waller is currently renovating the lighthouse and related structures.
After the purchase, Waller received a real estate tax bill from the Town of Hull, located in Plymouth County. Waller contested Hull’s jurisdiction in the land court. The court offered the municipalities of Boston, Winthrop and Nahant opportunities to assert jurisdiction over Graves Ledge, but they hastily renounced any claim to it, probably hoping to avoid responsibility for providing municipal services to the remote ledge. Last month, after a trial involving scores of documents and expert testimony from surveyors, the court ruled that Graves Ledge lies outside of Hull’s municipal boundaries.
Early Colonial Records Consulted
The land court’s decision relied on historical records for the Boston Harbor Islands and Hull. In 1641, the Massachusetts Bay Colony established a fishing community known as “Nantascot” on the peninsula and neighboring islands today known as Hull. The town was originally part of Suffolk County. Colonial records show that the Brewster Islands, a small archipelago north of Hull’s peninsula, had been awarded to Hull by 1662. Seventeenth century maps of Boston Harbor show the Brewster Islands as enclosed shapes, and Graves Ledge as a series of x’s northeast of the Brewster Islands.
Hull was annexed to Plymouth County in 1803. Decades later, the Massachusetts legislature created a commission to determine the seaward boundaries of coastal municipalities. The commission issued a report in 1884 setting the marine boundaries of towns in Norfolk and Plymouth Counties, and showed Graves Ledge and the Brewster Islands outside of Hull’s boundaries.
What Counts as an Island?
In 1892, the Massachusetts Supreme Judicial Court considered Hull’s marine boundary and the 1884 report in Russ v. Boston, where the city of Boston attempted to assess taxes on one of the Brewster Islands. The SJC ruled that although the report concluded that the island was located north of Hull’s marine boundary, the island itself remained part of Hull because of the seventeenth century colonial grant.
During the 20th century, numerous maps and documents were produced by private parties and government agencies regarding coastal municipalities near Boston Harbor. Many of these showed Graves Ledge within Plymouth County, but some showed it in Suffolk County. Because of these inconsistencies, the court focused on the seventeenth century colonial grants involving the Brewster Islands.
The court observed that colonial maps and later maps labeled Graves Ledge separately from the Brewster Islands, and that no documents from colonial times included Graves Ledge in the Brewster Islands. The court cited Hull’s own records, which only mentioned four islands among the Brewster Islands, none of which was Graves Ledge. These records also described a “meadow” located on the northernmost Brewster Island. There are no meadows on rocky and barren Graves Ledge, which lies well north of the vegetated Brewster Islands.
The court noted that Graves Ledge apparently was not considered an island during colonial times. Early maps do not label Graves Ledge as an island, and show it as a series of X’s, while showing the Brewster Islands as enclosed shapes designated as islands. The court also discussed Graves Ledge’s remoteness from the Brewster Islands, its uninhabitability before the lighthouse was built, and its location beyond the traditional outer boundary of Boston Harber running between Nahant and the Hull peninsula. Given these findings, the court ruled that Graves Ledge was outside of Hull’s corporate boundaries.
As to Boston, Winthrop and Nahant renouncing claims to Graves Ledge, the court speculated on whether it is possible for land within the boundaries of Massachusetts to be outside the boundaries of all cities and towns. The court declined to answer that question, because its rejection of Hull’s claim to Graves Ledge disposed of the case at hand. If the question arises later, the city of Boston may end up as a reluctant party to its resolution.
Maintaining control over lifetime decision-making and your estate
As a practicing estate planning and elder law attorney for thirty-five (35) years, the best advice I can give to any client is that if you want to maintain control over your future and want your wishes to prevail regarding your future care during lifetime and your post-death estate distribution, then preplanning for your lifetime needs is critical. Establishing simple legal documents does not have to be elaborate or expensive and can save you and your family significant costs and potentially a lot of anguish and crisis planning later.
Further, you will maintain control over who will act in the roles of your decision-makers in the future, in the event you are unable to act on your own behalf during lifetime. Simple planning can protect you from Court intervention and from others, who may not be your choice of persons to control your future decisions or your estate.
The first step in any estate plan should include documents related to life-time planning and protections, such as a Durable Power of Attorney and Health Care Proxy. These documents insure that during lifetime an individual’s financial and medical needs, intentions and wishes are followed. These documents take care of you during lifetime (while other documents, such as Wills and Trusts relate to division of your belongings and other assets after your death, which is of course important as well, but not as important as taking care of you personally and maintaining control during your lifetime).
The following are suggested planning to be considered in establishing or reviewing an estate plan to meet your individual goals.
IN MY OPINION THE DURABLE POWER OF ATTORNEY AND THE HEALTH CARE PROXY ARE THE TWO (2) MOST IMPORTANT LEGAL DOCUMENTS FOR LIFETIME PLANNING AND PROTECTION TO MAINTAIN CONTROL OVER YOUR FUTURE DECISION-MAKING, however, I have also included other important estate planning suggestions to consider.
DURABLE POWER OF ATTORNEY: A Power of Attorney is a very simple and inexpensive legal document that allows you to designate an individual who is authorized to act in your place during your lifetime, to conduct and participate in financial transactions on your behalf. This person, called your agent or attorney-in-fact, should be able to conduct any financial transaction in your place if you are either unable to do so, or if it is simply not convenient for you to do so, either temporarily or permanently. By executing a Power of Attorney, you avoid the risk of the Court appointing a Conservator to manage your affairs if you were to become unable to do so.
HEALTH CARE PROXY: The Health Care Proxy is the single most important legal document that any individual can have. It is a simple and inexpensive legal document that appoints the person of your choice as your health care agent, to speak on your behalf for medical decision-making ONLY in the event you are not legally competent or conscious to do so. It is important to name agents to avoid a Court appointed Guardianship, which is costly and can take weeks or months when a decision might be needed urgently.
HIPAA RELEASE: Separate and apart and in addition to a Health Care Proxy, a HIPAA release will allow your medical team to release information to those you name on the HIPAA release, whether you are competent or not at the time. Remember the Health Care Proxy will ONLY allow the release of information to your Health Care agent in the event you are not competent or conscious.
WILL: Determine if you need a new Will, or if you need to update or amend a current Will so that your post death wishes will be followed regarding distribution of your estate.
TRUSTS: Determine if a Trust is right for you. A Trust may be advisable if there is a specific need for holding assets in Trust, such as protecting assets for minor children or disabled individuals, or to avoid probate, or for tax planning, or in some cases an Irrevocable Trust for long term care planning.
BENEFICIARY DESIGNATIONS: Review and update all assets that allow you to designate a beneficiary, such as Life Insurance, Annuities, IRAs, 401ks, Retirement plans, etc. Assets with beneficiary designations are NOT controlled by your Will.
REVIEW OWNERSHIP OF BANK AND INVESTMENT ACCOUNTS: Bank accounts and investment accounts generally allow for PAYABLE ON DEATH (POD) or TRANSFER ON DEATH (TOD) designations. This form of ownership is generally advisable, as opposed to adding children or other relative’s names to joint ownership on your accounts. Joint ownership is generally ill advised, since your assets would then be exposed to the risks of other joint owners, such as their accidents, divorces or other financial risks and liabilities.
LONG-TERM CARE PLANNING: Is there any planning advisable or recommended for you in case long-term care is needed or imminent? While pre-planning is advised, in the long-term care category many folks believe that planning must be completed five (5) years prior to the need for long term care.
However that is NOT always the case. Often planning can be beneficial even at the last minute when someone is already in nursing home care.
DO NOT PRESUME IT IS TOO LATE FOR LONG TERM CARE PLANNING IF YOU DID NOT PLAN FIVE (5) YEARS IN ADVANCE.
Remember that every individual’s situation is unique, whether related to assets, health issues, or family situations. It is important that you receive personal advice related to your specific situation and estate planning needs from qualified professionals. Nothing contained in this article is intended as legal advice specific to your personal situation. Please consult an estate planning or elder law attorney of your choice to review your personal planning and circumstances.
Our estate planning attorneys will be happy to explain the estate planning process. The first consultation is always free of charge.
Estate Planning can feel very overwhelming! Call us to talk about your estate taxes or estate planning in general. The first consultation is always free and our Attorneys are ready to assist you!
District Court Allows Discrimination Suit to Proceed
By Christopher R. Vaccaro
Special to Banker & Tradesman
Landlords of apartment buildings in Malden and Canton hired a Texas company to screen tenant applications automatically, prompting a pair of rejected tenants to file a court challenge.
Last month the U.S. District Court of Massachusetts fired a warning shot toward tenant-screening firms, in Louis v. SafeRent Solutions LLC.
Mary Louis and Monica Douglas are self-described Black women. They both hold Section 8 housing vouchers guaranteeing most of their rent payments. Louis applied to Metropolitan Management Group LLC for an apartment at Granada Highlands in Malden. Douglas applied to a different property manager for an apartment at Millside at Heritage Park in Canton. Their applications were forwarded to SafeRent Solutions LLC, a Texas-based firm offering tenant-screening services to landlords and real estate professionals nationwide.
SafeRent applies a proprietary algorithm to rental applications, using credit histories, bankruptcy records, past due accounts, payment performance and eviction histories. The algorithm generates a “SafeRent Score” that is intended to assess the likelihood of an applicant’s lease default. The SafeRent Score disregards the benefits of tenant housing vouchers.
Metropolitan rejected Louis’s application based on her SafeRent Score. Louis challenged the rejection, offering employment and landlord references, but without success. Douglas’s application was initially rejected because her SafeRent Score reflected credit history and landlord-tenant problems, but it was later accepted after she appealed with assistance from a housing advocacy group.
Louis and Douglas filed a putative class action lawsuit in federal court against SafeRent and Metropolitan for violations of federal and state antidiscrimination laws. They alleged that SafeRent’s algorithm generated lower scores for Blacks, Hispanics and voucher-holders, who often have less income and poorer credit histories, resulting in denials of rental housing applications based on race and use of vouchers. They also sued SafeRent for unfair and deceptive practices in violation of Massachusetts General Laws Chapter 93A. Community Action Agency of Somerville Inc. (CAA), which provides housing services to underprivileged individuals, joined the suit as a plaintiff.
SafeRent and Metropolitan moved to dismiss the lawsuit, arguing that Louis and CAA lacked standing, and that the plaintiffs failed to state actionable claims against them. Defendants often file motions to dismiss early in litigation, but the tactic rarely succeeds, because judges hearing those motions must assume, for purposes of the motion, that the plaintiffs’ factual allegations – but not legal conclusions – are true.
Court Finds Disparate Impacts
Federal and state laws prohibit discrimination in the sale and rental of housing because of race, color, religion, sex, familial status, and national origin. Massachusetts law also prohibits discrimination against voucher holders. The court easily found that Louis had standing to file suit, because she alleged that the defendants’ actions caused her application to be wrongfully denied, requiring her to accept costlier but less desirable housing in a neighborhood with a higher crime rate. The case for CAA’s standing was trickier because CAA itself was not denied housing by the defendants. Nonetheless, the court ruled that CAA had standing because SafeRent’s practices, if found to illegally discriminate, impaired CAA’s efforts to fulfill its mission of locating housing for its clients.
SafeRent also argued that antidiscrimination laws do not apply to it in this case, because SafeRent is not a landlord and it does not ultimately decide whether to accept or deny rental housing applications. The court disagreed, noting that SafeRent’s screening service influences housing decisions and, according to the plaintiffs’ complaint, causes prohibited discrimination.
The court next discussed disparate impact claims under anti-discrimination laws. Such claims are actionable under federal and Massachusetts law, when directed at practices that have disproportionately adverse effects on protected classes, without legitimate rationales. The court summarized the plaintiffs’ allegations that SafeRent’s reliance on credit history is misplaced, has a disparate negative impact on Blacks, Hispanics and voucher-holders, and limits their housing opportunities. The court ruled that these allegations were sufficient for the plaintiffs to proceed with their housing discrimination claims against the defendants. However, the court dismissed the plaintiffs’ Chapter 93A claims, ruling that their allegations did not suggest that SafeRent’s conduct was egregious enough to support a claim under that statute.
The court denied the defendants’ motions to dismiss the housing discrimination claims, but there is no certainty that judgment will someday be entered against SafeRent and Metropolitan. There remains much work to do. The plaintiffs must prove that SafeRent’s algorithm employs data with little relevance to whether applicants are worthy tenants, causing impermissible discriminatory impacts. SafeRent and Metropolitan will strive to prove that SafeRent’s algorithm reliably and fairly predicts whether applicants are likely to default, without significant adverse impacts on protected minorities.
While the parties gather data for their experts, SafeRent might want to revisit its methodology.
Shrewsbury Tenant Argued “Frustration of Purpose” Doctrine
By Christopher R. Vaccaro
Special to Banker & Tradesman
As the effects of the COVID pandemic wane, courts continue to review lawsuits prompted by business shutdowns and whether they excuse tenants from lease obligations.
Many disruptions from the COVID pandemic are now behind us, but litigation related to those disruptions continues to work its way through Massachusetts courts.
Last month, the Appeals Court decided Inland Commercial Real Estate Services, LLC v. ASA EWC, LLC, involving a commercial tenant’s failure to pay rent. The tenant signed a 10-year lease in 2016, to operate a “European Wax Center” in Shrewsbury. Three years later, in March 2020, Gov. Charlie Baker issued COVID-19 Order No. 13, requiring non-essential businesses, including the wax center, to close. The tenant complied with the order and did not reopen until July 2020, after the governor issued a new order ending the shutdown.
After the tenant failed to pay rent and water charges for March through September 2020, the landlord sent it a notice to quit, claiming over $55,000 in delinquent rent, some of which accrued during the three-month shutdown period. The tenant made a partial payment, but did not bring the rent current. The landlord terminated the lease and filed suit in superior court to evict the tenant.
In contesting the eviction, the tenant argued that it should not have to pay rent for the three-month period when the COVID shutdown order prohibited it from doing business. The tenant supported this argument with the often-invoked, but rarely successful, frustration of purpose doctrine.
The Supreme Judicial Court summarized the frustration of purpose doctrine in a 1991 decision, as follows: “Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.” When considering this defense, courts look at whether unforeseen circumstances effectively negated the value of the contract to the party who invoked the defense.
Unforeseen Circumstances Can Negate Contracts
In the case of the Shrewsbury wax center, the Superior Court judge rejected the tenant’s frustration of purpose defense, and entered judgment awarding the landlord possession of the leased premises and $86,841 in damages. The tenant appealed, and the Appeals Court offered a useful analysis of the doctrine, before affirming the Superior Court’s judgment.
The Appeals Court noted that the frustration of purpose doctrine excuses a party from performing its contractual obligations “where unanticipated supervening events require it.” For the doctrine to apply, the purpose that is frustrated must be so intrinsic to the reason for the contract, that the contract makes little sense without it. Courts are generally reluctant to apply the doctrine, preferring instead to preserve the certainty of contracts.
The Appeals Court also noted that most courts decline to apply the doctrine to temporary business closures caused by government shutdown orders. When evaluating frustration of purpose defenses in government shutdown cases, courts consider the duration of the forced closures, the length of the lease term, how far into the lease term the closure occurred, whether tenants could reopen after restrictions were lifted, whether tenants remained in possession of the premises during the shutdown and whether tenants could use their premises for purposes not barred by the shutdown order.
Temporary Shutdown Not a Dealbreaker
Taking these factors into account, the Appeals Court found the tenant’s frustration of purpose argument unpersuasive. It noted that the tenant did not show that its temporary closure substantially frustrated the purpose of the lease. The tenant was already three years into its lease when the shutdown occurred, the three-month shutdown was relatively short compared to the 10-year lease term, the tenant remained in possession of the premises during the shutdown and could sell goods from the premises, and the tenant was able to resume its business after the shutdown was lifted.
The Appeals Court also rejected the tenant’s argument that a temporary frustration of purpose should excuse the tenant from paying rent during the shutdown period. The court found that the doctrine provides relief to parties who see the anticipated benefits of their bargains destroyed by unforeseen events, not merely interrupted on a temporary basis.
The Appeals Court went on to state that even if the doctrine were available on a temporary basis, the tenant’s obligation to pay rent during the shutdown period would only be suspended, not discharged altogether. The court affirmed the Superior Court’s judgment.
This decision shows that the tenants who invoke the frustration of purpose doctrine to avoid rent payments will most likely be frustrated by unfavorable court rulings.
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New IRS ruling on Irrevocable Trusts
Lighthouse Property Tax fight Settled Against Hull
Stay in control of your estate
