Ferri v. Powell-Ferri

• Citation: 72 N.E.3d 541,476 Mass. 651
• Decision Date: 20 March 2017
• Docket Number: SJC-12070
• Parties: Michael J. FERRI, trustee,& others v. Nancy POWELL-FERRI& another.
• Court: United States State Supreme Judicial Court of Massachusetts

476 Mass. 651

72 N.E.3d 541

Michael J. FERRI, trustee,¹ & others²

v.Nancy POWELL-FERRI& another.³

SJC-12070

Supreme Judicial Court of Massachusetts, Suffolk..

Argued November 8, 2016.

Decided March 20, 2017.

Charles L. Solomont ( Nathaniel Bruhn also present), Boston, for the plaintiffs.

Jeffrey J. Mirman for Paul John Ferri, Jr.

Kenneth Walton ( Patricia B. Gary , also present), Boston, for Nancy Powell-Ferri.

Present: Gants, C.J., Botsford, Lenk, Hines, Gaziano, & Budd, JJ.⁴

GAZIANO, J.

In this case we are asked to answer three questions certified to us by the Connecticut Supreme Court concerning the authority of a trustee to distribute (i.e., to decant) substantially all of the assets of an irrevocable trust into another trust. The questions, arising out of divorce proceedings pending in Connecticut between Nancy Powell-Ferri and her husband Paul John Ferri, Jr., the beneficiary of a Massachusetts irrevocable trust, are as follows:

"1. Under Massachusetts law, did the terms of the Paul John Ferri, Jr. Trust (1983 Trust) ... empower its trustees to distribute substantially all of its assets (that is, to decant) to the Declaration of Trust for Paul John Ferri, Jr. (2011 Trust)?

"2. If the answer to question 1 is ‘no,’ should either 75% or 100% of the assets of the 2011 Trust be returned to the 1983 Trust to restore the status quo prior to the decanting?

"3. Under Massachusetts law, should a court, in interpreting whether the 1983 Trust's settlor intended to permit decanting to another trust, consider an affidavit of the settlor ..., offered to establish what he intended when he created the 1983 Trust?"

For the reasons we discuss, we answer the first question and third questions yes, and do not answer the second question.

1. Facts and procedural history . We recite the relevant facts presented in the Connecticut Supreme Court's statement of facts for certification to this court.

The Paul John Ferri, Jr. Trust, dated June 24, 1983 (1983 Trust), was settled by Paul J. Ferri for the sole benefit of his son, Paul John Ferri, Jr. (Ferri Jr. or beneficiary), when Ferri Jr. was eighteen years old. The trust was created in Massachusetts and is governed by Massachusetts law.

The 1983 Trust establishes two methods by which trust assets are distributed to the beneficiary. First, the trustee may "pay to or segregate irrevocably" trust assets for the beneficiary.⁵ Second, after the beneficiary reaches the age of thirty-five, he may request certain withdrawals of up to fixed percentages of trust assets, increasing from twenty-five per cent of the principal at age thirty-five to one hundred per cent after age forty-seven.

Ferri Jr. and Powell-Ferri were married in 1995. In October, 2010, Powell-Ferri filed an action in the Connecticut Superior Court to dissolve the marriage. See Ferri v. Powell-Ferri , 317 Conn. 223, 225, 116 A.3d 297 (2015). In March, 2011, the then trustees of the 1983 Trust, Michael J. Ferri and Anthony J. Medaglia, created the Declaration of Trust for Paul John Ferri, Jr. (2011 Trust). They subsequently distributed substantially all of the assets of the 1983 Trust to themselves as trustees of the 2011 Trust.

As with the 1983 Trust, Ferri Jr. is the sole beneficiary of the 2011 Trust. The 2011 Trust is a spendthrift trust; under paragraph 1(a), the trustee exercises complete authority over whether and when to make payments to the beneficiary, if at all, and the beneficiary has no power to demand payment of trust assets. The spendthrift provision, in paragraph 4(b), bars the beneficiary from transferring or encumbering his interest and, as with similar provisions in the 1983 Trust, shields the trust from the beneficiary's creditors. The trustees decanted the 1983 Trust out of concern that Powell-Ferri would reach the assets of the 1983 Trust as a result of the divorce action. They did so without informing the beneficiary and without his consent.

At the time of the decanting, pursuant to art. II.B of the 1983 Trust, Ferri Jr. had a right to request a withdrawal of up to seventy-five per cent of the principal. During the course of this action, his vested interest matured into one hundred per cent of the assets the 1983 Trust.

In August, 2011, the plaintiff trustees of the 1983 Trust and the 2011 Trust (trustees) commenced a declaratory judgment action against Powell-Ferri and Ferri Jr. in the Connecticut Superior Court, seeking a declaration that (1) the trustees validly exercised their powers under the 1983 Trust to distribute and assign the property and assets held by them as trustees of the 1983 Trust to the 2011 Trust; and (2) Powell-Ferri has no right, title, or interest, directly or indirectly, in or to the 2011 Trust or its assets, principal, income, or other property. Powell-Ferri moved for summary judgment, and the trustees file a cross motion. In support of their cross motion, to demonstrate the intent of the settlor of the 1983 Trust, the trustees filed an affidavit from Paul J. Ferri, Sr., dated July 11, 2012.

In August, 2013, the trial judge granted Powell-Ferri's motion for summary judgment and denied the trustees' cross motion, after first having allowed Powell-Ferri's motion to strike the affidavit. In a subsequent memorandum of decision explaining the reasons for the allowance of Powell-Ferri's motion, and awarding specific remedies, the judge ordered restoration of seventy-five per cent of the assets of the 2011 Trust, as they were held in the 1983 Trust; an accounting of the 2011 Trust from inception to the date of restoration; and an award of reasonable attorney's fees to Powell-Ferri.

2. Discussion . The interpretation of a written trust is a matter of law to be resolved by the court. See Mazzola v. Myers , 363 Mass. 625, 633, 296 N.E.2d 481 (1973). 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. See Harrison v. Marcus , 396 Mass. 424, 429, 486 N.E.2d 710 (1985). "Determining the existence of a contract ambiguity [also] presents a question of law for the court; when a trial judge undertakes the interpretation of an unambiguous contract, the judge's ruling is subject to plenary review on appeal." Bank v. Thermo Elemental Inc ., 451 Mass. 638, 648, 888 N.E.2d 897 (2008), and cases cited.

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." Id . at 648, 888 N.E.2d 897, citing General Convention of the New Jerusalem in the U.S. of Am., Inc . v. MacKenzie , 449 Mass. 832, 835–836, 838, 874 N.E.2d 1084 (2007) (analyzing indemnity provision in lease of real property held in trust). Language is ambiguous "where the phraseology can support a reasonable difference of opinion as to the meaning of the words employed and the obligations undertaken." Bank , 451 Mass. at 648, 888 N.E.2d 897, quoting President & Fellows of Harvard College v. PECO Energy Co ., 57 Mass.App.Ct. 888, 896, 787 N.E.2d 595 (2003). 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." Hillman v. Hillman , 433 Mass. 590, 593, 744 N.E.2d 1078 (2001), citing Pond v. Pond , 424 Mass. 894, 897, 678 N.E.2d 1321 (1997).

"It is fundamental that a trust instrument must be construed to give effect to the intention of the donor as ascertained from the language of the whole instrument considered in the light of circumstances known to the donor at the time of its execution." Watson v. Baker , 444 Mass. 487, 491, 829 N.E.2d 648 (2005), quoting Powers v. Wilk in son , 399 Mass. 650, 653, 506 N.E.2d 842 (1987). "[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." General Convention of the New Jerusalem in the U.S. of Am., Inc ., 449 Mass. at 836, 874 N.E.2d 1084. "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’ " (citation omitted) Siebe, Inc . v. Louis M. Gerson Co ., 74 Mass.App.Ct. 544, 550 n.13, 908 N.E.2d 819 (2009).

We first authorized the trustee of an irrevocable trust to decant a trust in Morse v. Kraft , 466 Mass. 92, 99, 992 N.E.2d 1021 (2013).⁶ In that case, we allowed the trustee to decant four subtrusts into four new subtrusts, one for each of the named beneficiaries, who had been minors when the first trust was created and who had reached the age of majority before the trust was decanted. Id . at 93, 992 N.E.2d 1021. In doing so, we relied on specific language in the trust, which did not explicitly authorize decanting, and the trustee's broad powers under that trust instrument. Id . at 97, 99, 992 N.E.2d 1021. We declined, however, to recognize an inherent power allowing a trustee to decant irrespective of the language of the trust. Id . at 99, 992 N.E.2d 1021. Accordingly, a trustee's decanting authority turns on the facts of each case and the terms of the instrument that establishes the trust. Id . at 97, 992 N.E.2d 1021.

With these standards in mind, we turn to consideration of the questions certified by the Connecticut Supreme Court.

a. Question 1 . The term decanting ordinarily is "used to describe the distribution of [irrevocable] trust property to another trust pursuant to the trustee's discretionary authority to make distributions to,...