Recent Ruling Elevates Privacy of Holdings in Massachusetts Trusts

AAFCPAs and AAF Wealth Management would like to make clients aware of a recent ruling that makes Massachusetts an attractive jurisdiction for clients looking to create a trust for future generations while still keeping its holdings private. This could be especially beneficial for older generations looking to create a trust for younger generations without disclosing possible future inheritances.

The Background

The Massachusetts Appellate Court, on July 7, 2023, affirmed the trial court’s judgment that a trustee of a trust, while required under common law to maintain books and records of the trust’s activity, need not provide these accountings to nonqualified remainder beneficiaries.

This ruling arose after a settlor, prior to his death, created a trust and named his wife trustee and beneficiary during her lifetime. This settlor’s children from a previous marriage, who were the plaintiffs in the case, were named remainder beneficiaries of the trust and thus entitled to any trust property upon his wife’s death. The trust included a specific privacy provision in which the trustee, i.e., his wife at the time of his passing, could exclude any information that the trustee deemed not directly applicable to the beneficiary receiving that information.

When the children, as remainder beneficiaries, requested that the wife provide them with a full accounting of the trust’s assets, she refused. They followed with a lawsuit requesting information and an injunction to compel her to provide them with a complete inventory and accounting of all assets in the trust. The trial court agreed with the trustee and ruled in her favor. The children appealed this decision.

The Appeal

During the appellate case, it was argued that the Massachusetts Uniform Trust Code (MUTC) states that a trustee has a duty to provide an accounting to qualified beneficiaries. The MUTC had been effective since July 8, 2012, which is six years prior to the effective date of the trust. At issue, though, was whether the children are qualified beneficiaries and thus entitled to this accounting. Because the trust was clear that the wife was the beneficiary entitled to trust property during her lifetime, she is the only qualified beneficiary. The children, who are entitled to trust proceeds upon her death, are remainder or nonqualified beneficiaries and therefore not entitled to an accounting of the assets under the MUTC.

The appeals court also addressed the children’s claims that the trustee has a common-law duty to provide an accounting to them by citing prior case law in Massachusetts. While the appeals court did state that the trustee has a duty “to keep clear and accurate accounts with respect to the administration of [a] trust,” the duty only extends to maintaining them and does not extend  to disclosing them to nonqualified beneficiaries, see Colecchia, 100 Mass. App. Ct. 7 at 522-523, quoting Akin v. Warner, 318 Mass. 669, 674 (1945). The Court affirmed that this duty to provide required trust accounting extended only to qualified beneficiaries, just as the MUTC stated, and not non-qualified remainder beneficiaries. The Court stated that legislation could have included a duty to provide an accounting to nonqualified beneficiaries, as many other states have, but chose not to, and that the appeals court does not intend to expand the MUTC legislation.

What we advise.

The appeals court ruling makes it clear that a trust established in Massachusetts is not required to disclose any information to a nonqualified remainder beneficiary unlike other states. Clients looking for a strong asset protection strategy have the ability to create a Massachusetts trust for future generations while maintaining the privacy of holdings.

AAFCPAs will continue to monitor this case along with future related court rulings and legislation. If you have questions, please contact Christopher Consoletti, Esq., Consulting Tax Attorney at 774.512.4180 or cconsoletti@nullaafcpa.com—or your AAFCPAs Partner.

AAF Wealth Management is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where AAF Wealth Management and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by AAF Wealth Management unless a client service agreement is in place.