In the case of Harry De Prins v. Michael J. Michaeles (SJC-12865), the Supreme Judicial Court (SJC) decided the following issue of first impression certified to the court by the U.S Court of Appeals for the First Circuit: Are the assets of a self-settled discretionary spendthrift irrevocable trust governed by Massachusetts law protected from a reach and apply action by the deceased settlor’s creditors?
The SJC held that the assets were not protected and could be reached post-death by the settlor’s creditor after the death of the settlor.
The analysis of this case rested on both the court’s review of the Massachusetts Uniform Trust Code (MUTC) and Massachusetts common law. While G.L. c. 203E, § 505 (a) (1) and (a) (3) provide that the assets in a self-settled revocable trust are reachable by a creditor during the settlor’s lifetime and after the settlor’s death, (a) (2) refers only to the ability of a creditor to reach the assets held in a self-settled irrevocable trust during the settlor’s lifetime. The statute does not address the issue of the ability of a creditor to reach the assets held in a self-settled irrevocable trust after the death of the settlor.
Absent statutory authority for its decision, the court noted that G.L. c. 203E, § 106, provides that the MUTC is to be supplemented by the “common law of trusts and principles of equity.” The court then cited Massachusetts case law supporting the well-established principle that a settlor cannot place property in trust for the settlor’s own benefit and keep it out of the reach of the settlor’s creditors.
In addition, the court noted that its decision was based on the circumstances presented by the case under consideration only. In this case, the settlor set up the trust for his own benefit during his lifetime and for the benefit of his child following his death. Shortly after establishing the trust, the settlor murdered the parents of the plaintiff. The plaintiff sued the settlor’s estate in a wrongful death action and obtained a judgment that he then sought to satisfy from the trust’s assets. The court noted that it would be inequitable to allow the decedent’s child to benefit from his criminal behavior while preventing the child of the settlor’s victims from reaching the assets the settlor had set aside for the settlor’s own offspring.
Sheila Giglio is the chair of the Trust and Estates Department at Conn Kavanaugh Rosenthal Peisch & Ford LLP. Giglio counsels clients on all aspects of estate planning and the administration of trusts and estates, with a focus on preserving assets and family relationships while minimizing taxes.