BridgeTower Media Newswires
Over the last decade, New Hampshire has been modifying its trust laws in an effort to entice estate planning attorneys into bringing their trust business to the Granite State.
The tactic has proven quite successful, as estate planners in nearby states, including Massachusetts, are increasingly turning to New Hampshire’s trust laws to help clients achieve their goals.
One area of focus has been offering flexibility in repairing so-called “broken” trusts, such as those that no longer achieve intended tax results because of a change in the law.
For example, one statutory provision grants trustees the power to modify trust terms for specific purposes, such as preserving favorable tax treatment for the trust or beneficiaries, and another recognizes the authority of trustees to “decant” a trust.
Decanting, which involves the distribution of assets from an existing trust into a new trust with new terms, is regarded as an important tool for fixing broken trusts.
New Hampshire has also abolished the rule against perpetuities (which has definite appeal for wealthy clients), provided for the enforceability of no-contest clauses, adopted procedures for non-judicial dispute resolution, and recognized asset protection trusts. And New Hampshire offers the well-known advantage of having no income or estate tax.
It’s time for the Legislature to follow the lead of states such as New Hampshire.
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In contrast to those estate-planning-friendly provisions, Massachusetts offers a far less attractive alternative. For example, while New Hampshire explicitly authorizes “decanting” by statute, in Massachusetts the authority of trustees of an irrevocable trust to decant assets to a new trust with different terms has been recognized only at common-law, in a Supreme Judicial Court decision from 2013.
In addition, Massachusetts does not recognize asset protection trusts, whereas just last year New Hampshire law was revised to provide that a New Hampshire trustee is not required for an asset protection trust to withstand creditors (although estate planning lawyers say they generally would recommend a New Hampshire trustee for an out-of-state resident establishing such a trust).
The local estate tax also puts Massachusetts at a disadvantage. While a number of other states have recently raised their lifetime exemption or lowered or even eliminated their estate tax, Massachusetts’ estate tax kicks in at $1 million. And the tax doesn’t just apply to the excess over the threshold — all assets in excess of $40,000 are taxed. That means a lot of middle-class taxpayers who aren’t particularly wealthy but who own homes in towns close to Boston can find themselves faced with an estate tax bill.
All this suggests it’s time for the Legislature to follow the lead of states such as New Hampshire, take a careful look at the trust laws, and determine where revision and updating is appropriate.
