Questions and Answers
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices Winter 2003, Volume 2, Number 1
Questions and Answers
by Pamela Butler O'Brien, Underwriting Counsel
Question: I represent an elderly lady who owns two lots of land as a tenant in common with her sister. Both lots are granted to the two ladies on one deed. My client wants to deed her interest in one of the lots to her nephew. The nephew would like to purchase an Owner's Policy of Title Insurance for his interest in the lot. I know that you like to review unusual transfers between family members before insuring. May I issue an owner's policy to the nephew?
Answer: You are correct in thinking that a tenant in common may freely alienate his or her interest in real estate. This right, however, is a right to transfer all of his interest. Tenants in common hold title to the entire parcel of real estate in common with the other owners. If there are two parcels on one deed, they do not each own one of the parcels, or even a specified portion of each parcel. Rather they are both owners of the whole. To transfer less than all of the interest would have the same effect as attempting to partition only a portion of the estate. This was the case in Barnes v. Lynch, 151 Mass. 510, (1890). In that unfortunate case a gentlemen by the name of Benjamin G.Boardman, Jr. bought four lots of land owned by his father at tax sale. He sold one of the lots to a Mr. Harrigan who in turn sold that lot to Mr. Lynch. The tax sale was later declared void. Mr. Boardman Sr. died and Mr. Boardman, Jr. inherited the four lots as tenant in common with his three siblings. The siblings attempted to recognize the sale to Mr. Lynch and filed petitions to partition each of the four lots naming Mr. Lynch as a cotenant in the parcel he had purchased. The court held that the effect of validating the transfer of the parcel that finally vested in Mr. Lynch would have the same effect as dividing the common estate into lots and partitioning only one of the lots. Your case is similar. One of the tenants in common is seeking to convey less than her entire interest in the estate and that transfer may be treated as void by the other tenant in common. Consequently, a deed from only one of the elderly ladies of only one parcel to the nephew creates an estate in the nephew that is not insurable.
Question: I am doing a refinance for a person who has just finished an extensive remodeling project. The property now is worth $650,000. The borrower has an owner's policy issued by another company in the amount of $185,000. Can I issue a new Stewart Owner's Policy in the amount of $650,000? How do I figure the premium?
Answer: After undergoing extensive renovations, or even if it has been a number of years since the original owner's policy was issued it is wise to determine whether or not additional insurance is needed. Bear in mind that if the insured is significantly underinsured and there is a loss, the insured may be considered a co-insurer in any loss. It is usually preferable to return to the original insurer and increase the existing policy. The increase is handled by means of either endorsement of the existing policy or of cancellation and issuance of a new policy. In the event of cancellation the original policy must be surrendered to the underwriter before the new one is issued. Either method is usually coupled with a date down of the policy. Occasionally an owner insured by another company chooses to obtain the increase from Stewart. This can be done upon request to our legal department. Generally, we require an affidavit similar to the one required for an increase to a Stewart policy. The affidavit reflects that the owners are unaware of any potential claims against the property arising during their period of ownership or of any violations of easements, covenants, restrictions, agreements or zoning affecting the property. The policy is then written to reflect that any duty to defend or loss must first be applied to the original policy. For example, if there is a loss amounting to $200,000 the original insurer pays $185,000 and the Stewart policy covers the $15,000 loss in excess of the original policy. In the event you are asked to provide additional insurance when the original policy is not written with Stewart please contact your friendly underwriter for the exact language. With respect to premium, it is figured based upon the increase amount. The first $185,000 of coverage has been billed by the first insurer. We are, therefore, only collecting premium based upon the $465,000 increase and not on the full $650,000.
Question: After January 1, 2003 can I still use an Estate Tax Affidavit to release property from the Massachusetts Estate Tax Lien?
Answer: Good question. Pursuant to the 1998 amendment to G.L.c. 65C, §14 (a), Massachusetts eliminated the need for obtaining an M-792 if the decedent's gross estate did not necessitate filing a federal estate tax return and the date of death was after January 1, 1997. The M.C.A. promulgated a form of Estate Tax Affidavit in compliance with §14 (a) to be executed by the fiduciary, joint owner, or person in possession of the subject property stating that the gross estate did not necessitate the filing of a federal estate tax return and that there was, therefore, no Massachusetts estate tax lien on the property. On July 25, 2002, the legislature amended G.L.c. 65C, §2A by means of Ch. 186, §28 and Ch. 364, §10 of the Acts of 2002 , "decoupling" the Massachusetts filing threshold amounts from the federal amounts for years after December 31, 2002. Consequently, the estate of a decedent dying on or after January 1, 2003 may not be federally taxable but may be a taxable estate in Massachusetts. The Massachusetts filing thresholds will revert back to the threshold amounts under the Internal Revenue Code (IRC) as of December 31, 2000, which are as follows:
The provisions of §14 (a), including the release-by-affidavit provision, were not amended or otherwise addressed by this legislation. This left a question whether the release-by-affidavit provision of §14 (a) would still be an option. Technical Information Release 02-18 from the D.O.R. simply stated that estate tax returns would be required for estates in excess of the filing thresholds listed above. Our last conversation with the Estate Tax Bureau of the D.O.R. confirmed that, as of this writing, the D.O.R. is gearing up to process estate tax returns and M-792 requests again, but they will not process M-792 requests for estates that are not taxable because no filing is required and will instead instruct anyone requesting an M-792 on a non-taxable estate to file a §14 (a) affidavit. Therefore, unless and until the statute is amended and/or official guidelines are promulgated to the contrary, for estates that do not require a Massachusetts estate tax return filing because the gross estate would not have required a federal filing under the IRC provisions in effect on Dec. 31, 2000, it is Stewart Title's position that an estate tax affidavit similar to the one you have been using may still be used, but it will have to be modified to attest to the value of the estate and its non-filing status in accordance with the filing threshold provisions of the IRC in effect on Dec. 31, 2000. A revised form is available by request to the legal department. For estates requiring a Massachusetts Estate Tax Return filing under c. 65C, §2A, as amended, an M-792 will be required.