Between 1923 and 1931, William and Annie Barrell created six trusts for the benefit of their descendants and funded the trusts with stock in their manufacturing company, the Adams Innersole Company. In the mid 1950s, the company sold its manufacturing operations and the sale proceeds were added to the trusts. Each of the trusts provided that half of the principal be held for the benefit of the Barrell’s daughter and her descendants and the other half for benefit of the Barrell’s son and his descendants.
The trusts were to terminate and the principal distributed to then-living issue 20 years after the death of the last of the named beneficiaries who were living when the trusts were created. One of the Barrell’s great granddaughters died in 1989 (although her death did not cause the termination of the trusts), and her share of the income of the trusts passed to her children, including her son, John.
John and his daughters petitioned for early termination of the trusts and outright distribution of their share of the assets alleging that: (1) the trusts had no remaining purpose; (2) John’s interest in the principal of the trusts had vested; (3) John’s interest could be severed from the other interests; (4) all of the beneficiaries consented to the termination of his portion of the trusts; and (5) there was a risk that John’s share of the principal of the trusts would be subject to generation- skipping transfer taxes and that risk could be avoided if his share were distributed in 2010 (during temporary repeal of the generation-skipping transfer tax under the 2010 Tax Act). The trustee filed a motion for summary judgment dismissing the complaint. The trial court granted the trustee’s motion, and John and his daughters appealed.
On appeal, the Massachusetts Court of Appeals affirmed the trial court’s decision denying termination on the grounds that: (1) the settlors fixed the time for termination and required the trusts to remain intact until that time; (2) the spendthrift provisions in five of the trusts indicated the intent to provide continuous financial support and stability for their descendants until termination; and (3) because of this clear intent for continued financial support, a valid purpose for each of the trusts remained rendering termination improper.
The court also rejected the argument that the interests had vested, and noted that the beneficiaries’ interests in the principal had not yet vested because the trust was to terminate 20 years from the death of the named beneficiaries, several of whom were still living. Consequently, the trust property would not vest in the beneficiaries for at least another 20 years. Because John’s interest in the trusts was not severable and not vested, his consent alone was not enough to terminate his interest in the trusts. Further, not all beneficiaries had consented to termination (including unborn and unascertained beneficiaries) and several named beneficiaries expressly denied their consent.
Lastly, the court noted that because the trusts were created prior to September 25, 1985, the trusts were grandfathered as exempt from the GST tax, and therefore there was no reason to terminate the trusts for the purpose of avoiding the GST tax.