Litigation Update: Bird Anderson v. BNY Mellon

Thursday, September 06, 2012
Bird Anderson v. BNY Mellon, N.A., No. SJC-11122 (Mass. Aug. 28, 2012)

Author:
Heidi A. Seely, Esq. – Pratt, Bator & Popov, LLP

In Bird Anderson v. BNY Mellon, N.A., the Massachusetts Supreme Judicial Court held that the 2009 Amendment to G.L. c. 210, § 8 including adopted children in the definition of “child” under trusts and wills cannot be applied retroactively to instruments executed prior to 1958.

Facts: In 1941, Anna Child Bird (“Anna”) executed a will and testamentary trust for the benefit of her son and issue (“ACB Trust”). At the time the will was executed, G.L. c 210, § 8 (“Section 8”) provided that, subject to clear intent to the contrary, adopted children were excluded from the definition of “child” in testamentary instruments. In 1958, Section 8 was amended to provide that the term “child” would include adopted children in all such instruments executed thereafter (“1958 Amendment”). In 2009, Section 8 was further amended to provide that the word “child” would include adopted children in all testamentary instruments, regardless of when such instrument was executed (“2009 Amendment”).

Under the ACB Trust, the income of the trust is distributed to Anna’s issue and, upon termination, all trust principal will be distributed to Anna’s issue by right of representation. Plaintiff Rachel Bird Anderson (“Rachel”), is Anna’s great-granddaughter. In 2007, Rachel began receiving a portion of the income of the trust. Rachel’s two adopted brothers, Marten and Matthew, did not receive income from the ACB Trust. The Trust fell under the pre-1958 rule stating that adopted children were excluded from the definition of “child” and, therefore, they were ineligible as beneficiaries.

In 1981, Julia Bird (grandmother of Rachel, Marten and Matthew), established a charitable lead trust. Upon termination, the trust principal was distributed to Marten, Matthew and Julia’s great-grandchildren, specifically including the children of Marten and Matthew. Rachel was not a beneficiary of this trust.

On July 19, 2010, the Trustees gave notice that in light of the 2009 Amendment, Rachel’s adopted brothers, Marten and Matthew, were now considered Anna’s “issue” for purposes of the ACB Trust and, therefore, qualified as beneficiaries.

Analysis: The Court dismissed arguments regarding the legislative history of the 2009 Amendment and whether Section 8 is an evidentiary rule raising no constitutional concerns when applied retroactively. The Court focused its analysis on whether retroactive application of the 2009 Amendment to pre-1958 trusts is unreasonable and therefore, unconstitutional.

The Court first considered the public interest of equalizing the inheritance rights of adopted and biological beneficiaries motivating the 2009 Amendment. The Court questioned whether that interest was reasonably served by the statute due to the fifty-two year gap between the passage of the 1958 Amendment and the 2009 Amendment. This gap allowed grantors and testators time to make compensatory plans to equalize their estates between adopted and biological beneficiaries. The Court inferred that such deliberate equalization prompted Julia Bird to establish the charitable lead trust for the benefit of Marten and Matthew while specifically excluding Rachel. The Court concluded the 2009 Amendment only weakly served the public interest it sought to protect.

The Court then evaluated the nature of the rights affected. As plaintiff, Rachel was required to show she has a substantial, vested interest which was significantly harmed by the retroactive application of the 2009 Amendment. In determining Rachel’s right as a beneficiary, the Court followed the reasoning of Billings v. Fowler, 361 Mass. 230 (1972) and measured “the likelihood that the person claiming a vested right will eventually come to enjoy that right.” Where there is a substantial likelihood of enjoyment, the Court considered the right vested even if it could be defeated or diminished by biological events. Here, the Court found Rachel had a vested interest in the ACB Trust even though it could be diminished by the birth of siblings or destroyed by death. The Court concluded that the retroactive application of the 2009 Amendment would significantly harm Rachel’s vested interest in the ACB Trust by reducing her share from 50% to 16 2/3% of the income and principal of the trust.

In addition to the vested interests of the beneficiaries of the ACB Trust, the Court explored the rights of all testators, settlors and grantors who had relied on the law in effect at the time they executed testamentary instruments. The court reasoned it was likely most testators and grantors are advised by council regarding current law when executing such instruments. Retroactively changing any rule of construction affecting property rights would significantly impact the rights of such testators and grantors to rely on the law then in existence when creating their estate plans.

Finally, the Court balanced the public benefit and the significant harm to Rachel’s vested interest in the ACB Trust and the presumptive reliance interests of Anna and Julia as testators due to the retroactive application of the 2009 Amendment. The Court acknowledged the goal of ensuring equality between biological and adopted children, but found that the 2009 Amendment caused significant harm to Rachel, Anna and Julia’s substantial rights and was therefore unreasonable.

The Court made two significant final points. First, the Court recognized that other states have decided this issue differently, but pointed out that this case is in line with Massachusetts common law. The Court indicated that the other Courts had given insufficient weight to the substantiality of the interests held by current beneficiaries and ignored the “bedrock principal” that a testator is entitled to rely on the state of law at the time of execution of a testamentary instrument. Second, the Court clarified that given the uncertainty of the law caused by the 2009 Amendment, any Trustees who either made distributions or declined to make distributions to adopted beneficiaries in reliance on the 2009 Amendment had not abused their discretion or acted in a manner inconsistent with their responsibilities as Trustees.

 

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