Originally published at bryancavefiduciarylitigation.com
Big news out of Massachusetts this week, as the Supreme Judicial Court ruled in Bird Anderson v. BNY Mellon, N.A. that a Massachusetts law that had significant implications for trusts and estates planners, fiduciaries, and especially adopted children was unconstitutional as applied to the trust case before it.
Let’s take a look at the law.
The rights of adopted children as “heirs” under Massachusetts law have a long history.
Prior to 1958, Massachusetts had a statute prescribing a rule of construction for certain types of instruments relating to inheritance that provided that unless the contrary “plainly appear[ed] by the terms of the instrument,” an adopted child was excluded from the definition of “‘child,’ or its equivalent” unless the child had been adopted by the person creating the testamentary instrument.
In 1958, the statute was amended in a way that effectively reversed the presumption concerning adopted children and issue: the term “child” or its equivalent was redefined to include an adopted child generally (i.e., not only where the settlor, grantor, or testator was the adopting parent), unless a contrary intent “plainly appear[ed]” in the instrument. By its terms, however, the 1958 amendment applied only to wills, trusts, and the like executed after its effective date: August 26, 1958. Simple enough, right?
Well, in 2009, the Massachusetts legislature enacted another amendment to this statute that was effective July 1, 2010, and that made the 1958 amendment applicable to all testamentary instruments regardless of when executed. In other words, the amendment made the 1958 amendment retroactive. And that was the problem for the Supreme Judicial Court.
The legislature can enact retroactive statutes, but such statutes must meet a test of reasonableness. The statute here failed. In the case before the court that led to the ruling, retroactive application would have significantly decreased the income distribution of the testator’s biological great-grandchild from 50% to 16.6% if she had to share the income with her adopted brothers. The biological great-grandchild’s interest in the trust vested prior to the effective date of the 2009 amendment. Adding her adopted brothers to the class of “issue” entitled to be trust beneficiaries cut down her vested interests significantly.
Likewise, the statute undermined the intent of testators and grantors. At the time the amendment was enacted in 2009, long-deceased testators and grantors were unable to change their estate plans in response to the new presumption. In Massachusetts, testators and grantors are entitled to rely on the state of the law at the time of execution of a will or trust instrument.
The Massachusetts court did recognize that other states have decided this issue differently. Notably, Maryland, Illinois, North Carolina, and Rhode Island have all reached results different from Massachusetts. The court did note that Colorado and Georgia had reached results similar to that which it reached.
The court did also note that the decision was focused on the factual situation before it, what it held in this case ”presumably applies to others who, like the plaintiff, have significant interests in pre-1958 trusts or other grants or devises, subject only to divestment by predeceasing an existing beneficiary or to dilution through the birth of others.”
The court also provided some comfort to fiduciaries: “our decision does not make unreasonable any distribution to adopted beneficiaries made in reliance of the 2009 amendment between July 1, 2010, and the date of this opinion, nor does it make unreasonable a trustee’s declination to make such distributions.”