Estate Taxes and Trustees
Trusts and Trustees
The question sometimes arises as to whether, when one of multiple trustees dies and the surviving trustees conveys out, there are death tax liens that need to be reckoned with. On the federal level the answer is easy: Federal death tax liens would be divested against the real state once the surviving trustee conveys out (Title Standard No. 3, par. 3).
On the Massachusetts level, the answer is a bit more complex. G.L.c. 65C, §14 provides some protection against the historical "conveyance in contemplation of death" scenario (where the decedent has conveyed title by deed recorded before his death, retaining no possession or enjoyment for himself and the transferee thereafter transfers the title), but there is no “safe harbor” in this provision for property passing by joint ownership, which is the manner in which trustees hold their title, and it’s subsequent transfer. However, under the Massachusetts statute another provision is applicable: the Massachusetts gross estate in the first place is defined as (with certain exceptions) the federal gross estate, and “property held by the decedent as trustee or guardian or some other fiduciary will generally not be included in the decedent's [federal] gross estate [and] the interest of the decedent must be a beneficial interest to result in inclusion.” Annino, Massachusetts Practice - Estate Planning with Forms (West Publishing, Second Edition, 1997), §6.9. This means that in the ordinary case, the death of a trustee will not raise a death tax lien simply because the trustee, as such, does not have a beneficial interest and the property is therefore not included in the taxable estate. Because the interest would not be included in the federal gross estate it would not be included in the Massachusetts gross estate, which is tied to the federal definition.
Where the trustee is also a beneficiary, there may be Massachusetts estate tax lien issues because then the trustee would in fact have a beneficial interest.