By Jay Fitzgerald, Special to the Journal
A move by the sons of New England Patriots owner Robert Kraft to modify a three-decades-old family trust may have a far-reaching tax impact on thousands of other trusts across the state.
The trust case before the state Supreme Judicial Court, which last week heard arguments from attorneys representing the trust’s longtime trustee and the four adult Kraft sons, is considered to be narrow in scope and somewhat routine on its own. But the Boston Bar Association has filed an amicus brief seeking a more broad ruling by the SJC about similar family trusts in Massachusetts.
The Kraft trustee, 81-year-old businessman Richard Morse, and the four adult Kraft sons — Kraft Group executives Jonathan Kraft and Daniel Kraft, as well as Boys & Girls Club of Boston CEO Joshua Kraft and David Kraft — are seeking to move the assets of a trust established by their parents in 1982 into a new trust that would give them more direct and individual control over assets.
No details were provided about the value of the original Kraft trust or its assets — including whether the assets include a stake in the Kraft Group, the company that controls a number of paper and packaging businesses and the Patriots and the New England Revolution sports franchises.
Attorneys for Morse, who plans to retire soon and give up his role as trustee of the Kraft trust, say they need guidance from the SJC about whether any trust modifications might trigger an onerous “Generation Skipping Tax.” This slaps a 40 percent federal tax on assets above $10.5 million transferred to the children of trust beneficiaries — in this case, the grandchildren of Robert and the late Myra Kraft — at the time such a transfer takes place.
All family trusts that were created before 1985 — including the original 1982 Kraft trust on behalf of the Kraft sons, who today are now all in their 40s — are exempt from this federal tax. In effect, the Krafts are asking whether the newly worded trust would retain its grandfathered exemption from the tax.
According to legal industry experts, it’s routine for the Supreme Judicial Court to hear specific cases about various trusts, since the Internal Revenue Service has to abide by the ruling of any state’s high court when taxing assets of private trusts.
“The Kraft case may be interesting because of the family but it’s kind of narrow on its merits,” said Rick Breed, a partner and estate planner at Boston law firm Tarlow Breed Hart & Rodgers. “But where the rubber meets the road is the Boston Bar Association brief and the GST implications.”
The Boston Bar Association is asking the SJC to make a more broad ruling that would apply to other trusts across the state, not just the Kraft trust. That could include thousands of trusts collectively worth billions of dollars.
A broader ruling would affect other family trusts established before the generation-skipping-tax law was modified in 1985 — and whether they can retain their GST exemptions after modifications. It could also affect other trusts and how they distribute assets “in further trust,” or transferring assets from one trust to another newly worded trust.
Andrew Rothstein, a Goulston & Storrs attorney who helped draft the BBA’s brief, said trust lawyers and many beneficiaries have long sought more clarification from the SJC about the power of trustees to distribute assets “in further trust.”
Such transfers are often considered because the original wording of many older trusts may not suit the needs of aging beneficiaries years later, often after their parents or trust benefactors have died. In the case of the Kraft sons, the motion filed by attorneys for Morse cited the fact that the original 1982 trust was written when the sons were just boys. The sons today, the attorneys say, are capable of controlling the trusts without a “disinterested” trustee, as originally was required in the 1982 trust.
The proposed Kraft trust changes — apparently agreed to by all parties in the case, including Morse, the four sons and Robert Kraft — say the assets will be narrowly used for the sons’ health care, education and other carefully worded purposes that will keep assets within their own individual estates.
The attorneys for Morse and the Krafts declined to comment, except to say that there’s an amicable consensus among all parties in the case that modifications to the original 1982 trust were necessary. “This is not a hostile, adversarial case,” said Jonathan Bernstein, an attorney for the Kraft sons at Morgan Lewis Bockius.
Patricia Annino, an attorney at Boston law firm Prince Lobel Tye, said there’s intense legal interest in general across the nation about the ability to “decant,” or transfer assets from one trust entity to another, due to the originally strict wording on how and who can control assets as stipulated in original trusts. Original trust restrictions may be technically outdated years later, legal experts say, although modifications must stay within the general intent of original trusts. “A lot of trust lawyers are looking at all types of decanting issues across the country,” Annino said. “It’s a big issue.”
Source: Boston Business Journal
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