In Furman v. Gossels, Case No. 10-1603-BLS1, 2011 Mass. Super. LEXIS 84 (Super. Ct. May 24, 2011), a decision that was just recently reported, the Superior Court addressed a business dispute that turned on the nature of the rights held by a beneficiary of a trust.
Siblings Elaine, Jerome and Walter were the members of a limited liability company, with each owning a one-third interest. The operating agreement of the LLC provides that only descendants of the siblings' parents shall be members. The operating agreement also contains a restriction on the transfer of a membership interest, providing in part that a membership interest can be transferred only (1) to a descendant of the siblings' parents or (2) to a trust in which all of the beneficial interests are owned by another member or a descendant and the trustee of which is a member. If a membership interest is transferred to an impermissible transferee, then the operating agreement gives the LLC the right to purchase that interest at a discounted price.
When Walter died in 2010, his membership interest passed through his estate to a family trust. Under the terms of the trust, his widow Miriam disclaimed her interest in the LLC and declined to act as trustee. The result of these actions was that Walter's children, who (unlike Miriam) are descendants of the siblings' parents, became the beneficiaries of Walter's membership interest through the trust and Walter's daughter Rebecca became the trustee.
The question presented in the litigation was whether Rebecca holds an ownership interest in the LLC and thus is a member, fulfilling the requirement that a membership interest can be transferred only to a trust of which a member is the trustee.
Elaine and Jerome argued that the trust is an impermissible transferee of Walter's membership interest because Rebecca is not a member of the LLC. The Court disagreed, ruling that Rebecca and her siblings, as the beneficiaries of the trust, hold equitable interests in Walter's membership interest and thus are the "real owners." Accordingly, the trust is a permissible transferee because Rebecca, the trustee, is a member of the LLC.
The Court based its ruling on the following trust-law principles: "A trustee of a trust holds the legal title to trust property with the power to administer it for the benefit of the beneficiaries, in accordance with the terms of the trust instrument.... A beneficiary, on the other hand, is the owner of the trust res, has an equitable interest in the trust property, and is considered the real owner."
Day Pitney Partner Angela Titus McEwan authored an article, "The UTC and the Duty to Inform and Report," published in Trusts & Estates.
Keith Bradoc Gallant and Rebecca Iannantuoni authored an article, "When a Client Lacks Legal Competency, Who Files for the Divorce?," for Family Advocate, a publication of the American Bar Association Section on Family Law.
Day Pitney Newsletter
Clifford Nichols wrote an article, "When Addressing Cybersecurity and Data Breach, Don't Forget eDiscovery," for New Jersey Law Journal. The article is about how companies should consider eDiscovery and litigation response issues when making policy or infrastructure changes to address cybersecurity and data breach risks.
Day Pitney Press Release
Rick Sanders is quoted in an article, "Business Groups Encouraged by Legislators," in NJBIZ, which addresses political activity behind a bill to phase out New Jersey's estate tax. Under the bipartisan bill, the estate tax, which currently applies to inheritances valued at $675,000 or more, would be eliminated gradually over a five-year period. "It affects such a small part of the population," Sanders said. "It just strikes me as unusual that all of a sudden, this bill came. I think it's not coincidental that the governor was campaigning for president at the time he called for the repeal. For years and years, there's been proposals to increase the exemption to $1 million and it never got any traction in New Jersey."
Boston, Mass., January 20, 2016 – Day Pitney is pleased to announce Jillian Hirsch, a partner in Day Pitney’s Litigation Practice, has been selected as one of Massachusetts Lawyers Weekly’s 2015 Lawyers of the Year. Honorees were nominated by their colleagues, clients and other legal professionals for their outstanding professional accomplishments.
Boston, Mass. November 11, 2015 – Day Pitney is pleased to announce Leiha Macauley, a partner in Day Pitney’s Individual Clients Practice, has been selected as a 2015 Boston Rising Star by The National Law Journal.
Jillian Hirsch was quoted in an article, "Trust divisible in divorce despite possible new beneficiaries," in Massachusetts Lawyers Weekly. In the article, Hirsch, who represented the wife in the matter, explains why the Appeals Court's decision of Pfannenstiehl v. Pfannenstiehl is significant.
"It confirmed that an interest in a trust with an ascertainable standard--specifically one with a history of distributions woven into the fabric of the marriage--is a vested, presently enforceable interest and therefore properly included in a marital estate for purposes of equitable division of property in a divorce," she said.