Supreme Judicial Court of Massachusetts Explains How to Properly Interpret Massachusetts Irrevocable Trusts in 2017 Case of Ferri v. Powell-Ferri

In Ferri v. Powell-Ferri, 476 Mass. 651 (2017), the Supreme Judicial Court of Massachusetts (“SJC”) had been asked to answer questions of Massachusetts trust law by the Connecticut Supreme Court.  While the Connecticut case was a divorce case, the questions involved how to properly interpret a Massachusetts irrevocable trust under Massachusetts law.  This case is particularly helpful for Massachusetts elder law attorneys who regularly have to confront unreasonable positions on trust interpretation taken by the Office of Medicaid, and later defended in court with further unreasonable positions by the Office of the Attorney General, which is required to defend the agency in appellate court matters.

The lawyers’ briefs can be found at http://ma-appellatecourts.org/search_number.php?dno=SJC-12070&get=Search , and the oral arguments can be seen at http://www.suffolk.edu/sjc/archive/2016/SJC_12070.html.

This decision has lots of helpful info for Massachusetts elder law attorneys sprinkled throughout. Here are some quotes from the case with my comments below:

SJC:  “The interpretation of a written trust is a matter of law to be resolved by the court.”

An agency is entitled to deference on issues of fact, but not on issues of law, so the Office of Medicaid’s trust interpretation claims should not receive any judicial deference. (Unfortunately, some Superior Court judges do not seem to handle their interpretation role appropriately; some merely defer to the agency on all issues, even though trust interpretation is not an issue of fact.

SJC:  “The rules of construction of a contract apply similarly to trusts; where the language of a trust is clear, we look only to that plain language. …In deciding whether there is ambiguity, “the court must first examine the language of the contract by itself, independent of extrinsic evidence concerning the drafting history or the intention of the parties.” … If a court concludes that such ambiguity exists, “[w]hen interpreting trust language, … we do not read words in isolation and out of context.  Rather we strive to discern the settlor’s intent from the trust instrument as a whole and from the circumstances known to the settlor at the time the instrument was executed.” “

Trusts must be read as a whole.  If there is any possibility of ambiguity, then extrinsic evidence of intent must be considered.

SJC:  “[E]xtrinsic evidence may be admitted when a contract is ambiguous on its face or as applied to the subject matter.  The initial ambiguity must exist, however. … [E]xtrinsic evidence cannot be used to contradict or change the written terms, but only to remove or to explain the existing uncertainty or ambiguity.”

If the trust has no ambiguity in its terms, it must be honored.  If a Trustee incorrectly administers the trust, that action may not affect the trust’s validity.

SJC:  “In determining the meaning of a contractual provision, the court will prefer an interpretation ‘which gives a reasonable, lawful and effective meaning to all manifestations of intention, rather than one which leaves a part of those manifestations unreasonable, unlawful or [of] no effect'”

A power of the Trustee to distribute principal from an irrevocable income-only trust cannot be imputed based on an isolated view of some of the trust’s terms.  A prohibition against distributing principal cannot be overridden by a mere investment power.

SJC:  “It is one of the fundamental characteristics of trusts that the full and exclusive legal title is vested in the trustee”

The grantor/donor/settlor of the trust does not have legal title to the assets owned by the trust.  Thus, partial control does not allow the grantor/donor/settlor to obtain legal title to the trust’s assets.

SJC:  “The statements in the settlor’s affidavit further support the settlor’s evident intention ….  Because the intent of the settlor is “paramount,” Morse, 466 Mass. at 98, and the settlor’s affidavit evidences the settlor’s intent at the time of execution, the settlor’s affidavit should be considered. … We also cited the Restatement (Third) of Property as further support for the use of postexecution affidavits as affirmative evidence.  See id.; Restatement (Third) of Property:  Wills and Other Donative Transfers § 10.2 & comment g (2003) (“In seeking to determine the donor’s intention, all relevant evidence, whether direct or circumstantial, may be considered, including the text of the donative document and relevant extrinsic evidence”).  See also Loring & Rounds, supra at Introduction (“In the case of an irrevocable inter vivos trust, the settlor’s intentions at the time of funding are what determine its terms.  That having been said, postfunding statements of the settlor might be admissible to clarify what those intentions were” [emphasis in original; footnote omitted]).  Indeed, this court has allowed the reformation of a trust instrument to conform to the settlor’s intent, and has permitted the introduction of an affidavit by the drafter to show that the language of the instrument was inconsistent with the intent of the settlor.  See Walker v. Walker, 433 Mass. 581, 587 (2001).”

An affidavit of intentions by the grantor/donor/settlor of the trust, as well as the lawyer who drafted it, will be respected by the court. Perhaps elder law attorneys should have all of their clients with irrevocable income-only trusts prepare and execute these affidavits now on all major trust issues being raised by the Office of Medicaid.  Perhaps the upcoming decision by the SJC in the Daley and Nadeau cases will change the agency’s overall position about these trusts, but, given the extreme positions and tactics that have been taken by the agency, I am skeptical that anything written by the SJC will stop the Office of Medicaid from taking unreasonable positions against trusts.