Legal Terrain

When considering the establishment of an estate or trust to hold title to real property, it is important to segregate potentially contaminated property from other assets  Unfortunately, once title vests in an estate or trust of which a contaminated site is a part, the estate or trust becomes the “owner” within the meaning of the Massachusetts Oil and Hazardous Material Release Prevention and Response Act, MGL c. 21E, Section 2.  Subject to some exceptions, under Section 5 (a) (1) of the statute, as such an owner, the assets of the estate or trust (and as spelled out below, potentially other assets) will also “inherit” the joint, several and strict clean-up cost liability imposed by the statute on owners of sites.[1]  Hardly a gift.

As part of estate and business succession planning, particularly where the estate or trust will include business or industrial property, grantors and their advisors should carefully evaluate the condition of any real property that may be included.  This does not necessarily call for a formal environmental assessment. In fact, such assessments themselves may result in discovery of a reportable release of oil or hazardous material, which might otherwise remain unknown, which will effectively defeat any attempt to segregate suspect property.  Short of an environmental assessment, owners of these types of properties can evaluate the potential for a release based upon historical site use and other indicators which can inform their potential condition and, thus, prudent disposition of the property.  The owner and their counsel can then isolate questionable properties for special treatment, so as not to impair the balance of the estate or trust.  What is not smart is to simply lump all property together in one general grant, because the entire estate or trust can be impaired by one bad site.

Isolating a potentially contaminated property is not always the entire solution.  In some cases, grantors may have engaged in conduct prior to transfer to render them a liable party under the law. For example, a person who “operates” a site at or from which there has been a release of oil or hazardous substances is liable under the statute. The statute is clear that owners or operators cannot absolve themselves from liability by transferring the site or establishing an estate or trust “if such estate or trust is intended to be a device to avoid, reduce or postpone such liability or such person’s ability to pay for such liability.”  The statute also anticipates that an estate may not be sufficient to defray the costs of responding to contamination. In such cases, the liability for any response costs is attributed to the grantor or settlor of the trust.  In those cases, the state and other parties who have incurred response costs or suffered property damage may have claims against the estate to discharge the liability of the grantor or settlor.

Also, timing of the segregation of a potentially problematic site is important. As noted above, a transfer made after the grantor or settlor has knowledge of a reportable release will be ineffectual. Moreover, if a transfer occurs after the fiduciary of the estate or trust gains knowledge of the contamination, the assets of the estate or trust holding title to the site are deemed to include assets conveyed out of the estate or trust for less than full and fair consideration and are deemed to include assets conveyed by the grantor into another estate or trust.

In sum, in these critical estate planning measures, an ounce of prevention is worth a pound of cure. The Private Client and Environmental practitioners at Burns & Levinson are available to work with families to frame and execute successful succession planning and estate management.

[1] Fiduciaries, including trustee and executors of such estates, are generally not personally liable under the statute provided that they follow the detailed requirements set forth in Section 2 (b).