Connecticut Estate Taxes Part 1

For Connecticut residents who die on or after January 1, 2005, Connecticut imposes a state estate tax. This is in addition to the federal estate tax. Connecticut residents who died before that date were subject to a different scheme of state “death taxes” that are not covered in this article.

Estate tax is complex; rates and deductions vary depending on the date of death. For that reason, readers are cautioned that the scope of this article is limited to general information. You should draw no conclusions about your specific situation without consulting a qualified estate planning or tax attorney, or accountant.

The Connecticut estate tax is calculated based on the value of all the assets in which the person who passed away had an ownership interest. For example, if the person who passed away owned Connecticut real estate in survivorship with another person, one-half the fair market value of that real estate would be used to calculate the gross taxable estate.

Certain allowable deductions may be subtracted against the gross estate to arrive at the amount of the deceased person’s estate that is taxable. For Connecticut residents who die between January 2011 and the present, there is a $2 million exemption. This means that the first $2 million of each Connecticut resident who dies during that period is not subject to Connecticut estate tax.

To illustrate how the date of death affects the Connecticut estate tax, for those who passed away between January 1, 2005 and December 31, 2009, the $2 million exemption only applied to estates with a taxable value of $2 million or less. If an estate had a taxable value of $2,000,001, the exemption would not apply at all and the entire value of the estate would be subject to Connecticut estate tax. So, an estate with a taxable value of $2,000,001 has a Connecticut estate tax liability of approximately $100,000. This bizarre outcome was eliminated for Connecticut residents passing away on or after January 1, 2010 following a change in the law.

All transfers between spouses are not subject to the estate tax, even if they are in excess of the current personal exemption, which is $2 million. Charitable bequests, real estate located outside of Connecticut, and tangible personal property located outside Connecticut (for example, motor vehicles located and registered in another state) are just a few of the allowed deductions.

The Connecticut estate tax is progressive, similar to the federal income tax: the rate of the tax increases as the value of the taxable estate increases. These rates are different for different years, based on the year of death. For example, for those who passed away between January 1, 2005 and December 31, 2009, the lowest marginal rate is just over 5%, with the top marginal rate being 13.6%. For those who passed away beginning January 1, 2011 the lowest marginal rate is 7.2%, with the top marginal rate being 12%.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE. FOR ADVICE AS TO YOUR SPECIFIC SITUATION PLEASE CONSULT WITH A QUALIFIED ATTORNEY.

Copyright © 2017 Domenick N. Calabrese. All rights reserved. No part of this article may be disseminated, reproduced or used without the express written consent of the author.

 

For more articles and presentations by Dom Calabrese, visit his website at http://www.domcalabreselaw.com

Advantages of Living Trusts: Connecticut Estate Tax Planning

This last article in my series on the advantages of living trusts looks at how living trusts can be used in planning for Connecticut estate taxes. Connecticut estate taxes may be due after a Connecticut resident passes away. For Connecticut residents who passed away in 2011 until the present, there is a $2 million Connecticut estate tax exemption: the first $2 million of each Connecticut resident’s estate is exempt from Connecticut estate tax liability when that person dies.

However, between a married couple, the exemption is unlimited: any amount could be transferred to the surviving spouse upon the death of the first spouse with no Connecticut estate tax liability, even if the transfer to the surviving spouse exceeds $2 million. This unlimited spousal exemption comes at a price: when the first spouse dies, their $2 million exemption may be “lost” unless there is a plan to preserve it. A trust can be established to “save” the Connecticut estate tax exemption – $2 million – upon the death of the first spouse.

Let’s look at a simplified, fictitious example of how this might work. Edgar and Florence Poe, a Connecticut married couple with three adult children, own $4 million in combined assets. Edgar’s will and Florence’s will each provide that upon the death of the first of them, all assets go to the survivor.

Edgar is the first to pass away. Under Edgar’s will, all of his assets go to Florence. There is no Connecticut estate tax due because of the unlimited spousal exemption, and Florence now owns $4 million in assets.

When Florence passes away, if Connecticut estate tax laws don’t change, only one $2 million exemption will be available for Florence if she doesn’t remarry. If Florence’s estate is valued at $4 million, $2 million will be subject to Connecticut estate taxes. Edgar’s $2 million Connecticut estate tax exemption is essentially “lost” in this example.

Next, let’s look at the same couple – Edgar and Florence, with $4 million in combined assets. In this example, Edgar and Florence create living trusts designed to preserve the estate tax exemption. In Edgar’s will, there is a provision that, upon his death, $2 million goes directly to Florence; the other $2 million is transferred to a trust for Florence’s benefit. Because of the $2 million Connecticut estate tax exemption, assets passing into the trust are not subject to Connecticut estate tax. Because of the unlimited spousal exemption, the $2 million passing directly to Florence is not subject to Connecticut estate tax.

When Florence passes away, the $2 million in Edgar’s trust may be distributed to the Poe’s children, grandchildren, or anyone else provided for in the trust. Because the assets in Edgars’ trust may not be subject to Connecticut estate tax, there may be no Connecticut estate tax due for trust assets when Florence passes away. Florence’s estate can apply the $2 million Connecticut estate tax exemption for the $2 million remaining in Florence’s name.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED UPON AS LEGAL ADVICE. CONSULT A QUALIFIED ATTORNEY FOR ADVICE REGARDING YOUR SITUATION.

 COPYRIGHT © 2016 DOMENICK N. CALABRESE. ALL RIGHTS RESERVED. NO PART OF THIS ARTICLE MAY BE PUBLISHED, COPIED, DISSEMINATED OR REPRODUCED WITHOUT THE AUTHOR’S EXPRESS WRITTEN PERMISSION.

Advantages of Living Trusts Part 3: Providing for Children

I recently had a discussion with a married couple with two small children. They were interested in providing for their children if something were to happen to both parents.

One way to accomplish this would be with a living trust. The parents could create a living trust, place assets into the trust, and name a trustee in addition to or in place of the parents. If both parents were to pass away while their children were still young, the trust could provide money to pay for the children’s education, medical care, housing, clothing, or anything else for the children’s benefit.

Once the children attained a certain age – it could be any age – 18, 25, 30, or some other age – anything left in the trust would then be turned over to children in their adulthood.

The trustee – the person responsible for managing the trust – would use the trust money to pay for whatever of the children’s expenses the trust was designed to cover. The trustee would be bound by the terms of the trust to be sure the trust assets were properly invested, and the trustee would be liable if he or she wasted trust assets.

Providing for the management of assets for minor children is important – if it’s not done with a trust or custodial account, a guardianship estate might need to be established in the probate court.   In addition to “youth” – those under the age of 18 – there are other reasons why managing assets for the benefit of an adult may be needed. For example, it can be very challenging for a young adult to responsibly manage a significant asset. Likewise, adults in their 30s or older may lack the sophistication or maturity to responsibly manage a significant asset. Perhaps providing support for someone with serious creditor issues, or someone who is easily taken advantage of by the unscrupulous is a goal. A parent or grandparent with adult children or grandchildren in difficult marriages may want to ensure that a potential “ex” spouse doesn’t end up with some or all of assets intended for their own child or grandchild. In all of these cases, a living trust could provide for the management of assets and support of loved ones without giving them the asset outright.

Trusts can be funded with any of a variety of assets – real estate, financial accounts, life insurance proceeds, and bequests in a will are just a few potential sources of trust assets.

In my next article, I’ll review how living trusts can be used to reduce Connecticut estate tax liability.

Living trusts are not appropriate for everyone. Only after consulting a qualified, ethical attorney who will take the time to understand your situation and objectives, and explain your options, is it possible to make an informed decision as to whether a living trust is appropriate for you.

Copyright © 2017 Domenick N. Calabrese. All rights reserved. No part of this article may be disseminated, reproduced or used without the express written consent of the author.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE. FOR ADVICE AS TO YOUR SPECIFIC SITUATION PLEASE CONSULT WITH A QUALIFIED ATTORNEY.

For more articles and presentations by Dom Calabrese, visit his website at http://www.domcalabreselaw.com

 

 

Advantages of Living Trusts Part 2: Legal Incapacity

Living trusts offer many advantages. One of them is providing for the management of assets when the person who created the trust is incapacitated. However, this is only true for assets that are moved into the trust first. Simply creating a trust without moving assets into the trust will not provide this benefit.

Let’s look at how this might work. Mary Jones creates a living trust, naming herself and her son William as co-trustees of the trust. William’s reliability must be beyond question; unreliable co-trustees could easily mismanage or even steal from the trust.

Mary then moves some or all of her assets, including her financial accounts, into the trust – a very important step. She also arranges for her regular income to be automatically deposited into the trust accounts.

A few months later, Mary suffers a stroke and becomes incapacitated. She can’t write or communicate, and has a very limited understanding of what’s going on. Because she moved her financial accounts into the trust, William (as co-trustee) is able to manage Mary’s finances through the trust. He may use the money in trust accounts to pay Mary’s bills. If Mary’s income automatically gets deposited into trust accounts, William will also be able to manage that income.

If Mary hadn’t established the trust and moved her financial accounts into it, institutions where Mary’s accounts are located might not work with William or other family members. Even if Mary appointed an attorney in fact through a durable power of attorney, it’s possible that the financial institutions might choose to ignore the power of attorney.

This could create a number of problems. No one would know the value of Mary’s assets; it would be difficult or impossible to manage Mary’s affairs. There would be no access to Mary’s assets to pay her bills. Mary’s bills, such as insurance, mortgage, taxes and utilities might not get paid, resulting in foreclosure, interest and penalties for unpaid taxes, termination of insurance coverage, utilities being shut off, or collection action against Mary. Family members would not know what Mary could and could not afford.

Without the trust in these circumstances, a family member might need to make an application to the probate court to appoint a conservator of the estate for Mary so that her bills could be paid and her assets managed. Involuntary conservatorship proceedings in the probate court can be time consuming and expensive. This adds to the stress that Mary’s family must deal with in addition to the significant challenges posed by Mary’s stroke and resulting legal incapacity.

Living trusts are not appropriate for everyone. Attending “free seminars” promoting “one size fits all” living trust packages is NOT a good reason to pay for a living trust. Only after consulting a qualified, ethical attorney who will first carefully examine, understand and explain your options, can you make an informed decision whether a living trust is appropriate for you.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE. FOR ADVICE AS TO YOUR SPECIFIC SITUATION PLEASE CONSULT WITH A QUALIFIED ATTORNEY.

Copyright © 2015 Domenick N. Calabrese. All rights reserved. No part of this article may be disseminated, reproduced or used without the express written consent of the author.

For more articles and presentations by Dom Calabrese, visit his website at http://www.domcalabreselaw.com

Advantages of Living Trusts Part 1

Recently a friend asked me about living trusts. A family member of his placed their assets in a living trust. When they passed away, my friend was impressed at how quickly that family member’s assets were transferred after death without involving the probate court. My friend asked whether a living trust would be right for him, and the differences between a living trust and a will.

There is a great deal of confusion about trusts. This is partly due to the claims some purveyors of living trusts make in order to sell more of their “one size fits all” living trust packages.

Like anything else, living trusts have advantages and disadvantages. It is only after these advantages and disadvantages are understood that an informed decision can be made as to whether a living trust makes sense for a particular person. Too often people believe that because a friend or relative had a living trust that it would be appropriate for them to have one as well. Everyone’s situation is different, and each person has different priorities. These differences are why it’s essential that an attorney takes the time to understand his or her client’s situation and objectives before discussing options, including living trusts, for estate planning. I attended a living trust seminar where the presenter stated that anyone owning assets that exceeded a certain value should have a living trust. Just because someone’s assets exceed a certain value is not, all by itself, a sufficient basis for deciding whether or not a living trust is appropriate.

A trust is simply a means of owning assets, such as accounts in financial institutions, stocks, bonds, real estate, motor vehicles, and other assets. A trust may be the named beneficiary of a life insurance policy.

A will is a document that outlines how a person wants their solely-owned assets distributed after they pass away. A will has no utility during someone’s lifetime; it only has legal effect after the person passes away and the will is admitted to the probate court. Without these two events, a will is simply a piece of paper and does not determine what happens to someone’s assets during their lifetime.

To review all the different kinds of trusts would take many pages. In this series of articles, I’m going to briefly discuss just a few features of trusts. A living trust is created and usually funded by someone while they are alive. Testamentary trusts, on the other hand, do not come into existence until someone passes away and their will, which contains a trust, is admitted to the probate court, and an acceptance of trust is filed with the court.

In my next article, I’ll begin to review some of the advantages of living trusts.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE. FOR ADVICE AS TO YOUR SPECIFIC SITUATION PLEASE CONSULT WITH A QUALIFIED ATTORNEY.

Copyright © 2015 Domenick N. Calabrese. All rights reserved. No part of this article may be disseminated, reproduced or used without the express written consent of the author.

The Importance of Having a Healthcare Representative

Some time ago, Joan Rivers, a well-known television personality, had to be placed on life support after it was reported that she experienced complications during a surgical procedure. When I originally wrote this column, a newscaster mentioned that decisions regarding continuing that life support might need to be made. It’s easy to understand that these kinds of situations are extraordinarily stressful. The situation is even more difficult if the family doesn’t know the patient’s wishes.

Ms. Rivers’ unfortunate situation highlights concerns that many of us have about our own health care: what happens if we can’t communicate with our health care providers and are unaware of what’s going on? Medical and surgical treatment always requires decisions to be made. Sometimes our health care provider recommends a particular treatment, or provides options for different treatments. The health care provider acts on the patient’s direction, which may include authorization for a particular treatment, or the decision to not have a treatment. Examples of these types of decisions include the use of life-saving interventions such a cardiopulmonary resuscitation (CPR), and intubation if the patient cannot breath on their own. Life-sustaining treatments might include feeding the patient through a tube or intravenously.

If a patient can’t communicate decisions to their health care provider, what options are available? One tool that adults in Connecticut can use in such a situation is the appointment of a health care representative. A health care representative may make medical decisions on behalf of the patient when the patient is unable to do so. There is no inherent limit on those decisions – they are not limited to life-saving or life-sustaining interventions, but may include any and all health care decisions for a person who is incapacitated to the point where they can’t actively take part in decision-making and cannot direct their health care provider regarding their medical care.

The ability to make health care decisions when the patient is incapacitated is one important way health care representatives are different from health care agents. The authority of health care agents is limited to conveying the patient’s wishes to medical providers; they have no authority to make decisions. Effective October 1, 2006, Connecticut law was changed to permit the appointment of health care representatives. The difference between health care agents and health care representatives is especially important for those who executed an appointment of health care agent several years ago. The change in the law gives adults in Connecticut a potentially more effective tool in planning for incapacity. A health care representative retains authority to make health care decisions even if the person who appointed them is under an involuntary conservatorship, unless a court order says otherwise.

The next column will examine advance medical directives. Advance medical directives, also known as “living wills,” are commonly used in conjunction with the appointment of a health care representative as part of a legal strategy to plan for potential incapacity.

Copyright© 2014 Domenick N. Calabrese. All rights reserved.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE, AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE. FOR INFORMATION REGARDING YOUR SPECIFIC SITUATION, PLEASE CONTACT A QUALIFIED ATTORNEY.

The New Connecticut Uniform Power of Attorney Act: Part 4 – Honoring Powers of Attorney

A common shortcoming of powers of attorney is that Connecticut had no requirement for third parties (for example, financial institutions) to honor them. This is a serious issue because powers of attorney are frequently created to allow the person to whom the power of attorney is granted (called the agent) to manage accounts in financial institutions on behalf of the account owner (called the principal), particularly when the principal becomes incapacitated.

Some financial institutions would refuse to recognize valid powers of attorney unless they were drafted on the financial institution’s own POA form. Frequently, these “forms” amounted to nothing more than an indemnity of the financial institution for following the POA. This approach by certain financial institutions effectively thwarted a valid POA when it was needed most – when the principal became incapacitated. In those cases, families often had to institute conservatorship proceedings in the probate court. With the 2007 revision of the conservatorship laws, conservatorship proceedings in Connecticut probate courts have become complex, time-consuming, and expensive.

The new Connecticut Uniform Power of Attorney Act addresses this issue by instituting penalties for third parties that refuse to recognize valid powers of attorney. It also provides third parties with options that address concerns they may have about the validity of a power of attorney.

The new law provides that if the power of attorney is acknowledged by a notary public or attorney, it’s presumed to be valid, and a third party may rely on it.

There are protections in the new law for third parties asked to honor or rely upon a power of attorney. For example, a third party may request that the agent answer certain questions it may have about the agent, the principal, or the power of attorney document. The third party may also request an affidavit stating that the power of attorney is in full effect and has not been revoked.

A third party may request an opinion of counsel as to any matters of law, but must state the reason for the request. These requests must be in writing and made within seven days of when the power of attorney is presented to the third party. This minimizes opportunities for the third party to delay honoring a valid power of attorney under the premise of requesting additional information. The principal is responsible for expenses of complying with these requests. Beyond the seven-day period in the new law, the cost of complying with such requests may be the responsibility of the third party.

There are also six “safe harbors” defining circumstances under which it is permissible for a third party to refuse to honor a power of attorney.

If a third party refuses to accept or honor an acknowledged power of attorney, without falling under the safe harbor provisions, it will be subject to an order by a court mandating acceptance of the power of attorney.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE, AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE. FOR ADVICE AS TO YOUR SPECIFIC SITUATION CONSULT A QUALIFIED ATTORNEY.

COPYRIGHT 2016 DOMENICK N. CALABRESE. ALL RIGHTS RESERVED. THIS ARTICLE MAY NOT BE USED, DISTRIBUTED OR REPRODUCED WITHOUT THE EXPRESS PERMISSION OF THE AUTHOR.

The New Connecticut Uniform Power of Attorney Act: Part 3 – Authorities of the Agent

One of the many new features of the Connecticut Uniform Power of Attorney Act is the new authorities that the person creating the power of attorney (called the “principal”) may grant to someone else (called the “agent”). Technically, even before Connecticut’s new law was enacted, a power of attorney could be drafted to include many powers not in the statutory short or long form template. Most of these “new” powers are related to estate planning and asset management.

Under the new law, the agent may be given power to create, revoke or terminate a living trust. This provision can be useful to help in management of assets such as real property and bank accounts, as well as in estate planning.

In the realm of estate planning, the agent might also be granted the authority to disclaim property. With a disclaimer, someone who is entitled to receive property from an inheritance or as a named beneficiary in a life insurance policy, to name just two examples, could refuse to take that property. When that happens, the next person in line to receive the disclaimed property would be entitled to it. Disclaimers are often, but not exclusively used when a relative passes away leaving assets (such as a bank account or real estate) to their husband, wife, son, daughter, grandchildren, or someone else.

Another power that the agent might be granted is the authority to make gifts from the assets of the principal. For example, the principal may have a tradition of giving gifts to relatives at birthdays or holidays, or gifts for a specific purpose, such as college tuition. Authority to make gifts could allow the agent to continue these types of traditions, especially if the principal becomes incapacitated.

Changing rights of survivorship is another area that an agent might be granted authority. It’s common for real property, particularly residential real estate, to be owned in survivorship. One advantage of survivorship property is that upon the death of one of the owners, the remaining owner or owners would automatically receive the deceased owner’s share of the property without probate proceedings. However, probate applications would still be necessary in such a situation to obtain release of Connecticut estate or succession tax liens and release of lien for Connecticut probate fees.

Related to changing rights of survivorship is the authority to change beneficiary designations. Beneficiary designations operate in a similar way to survivorship, except that a beneficiary essentially has no right to the asset until the owner passes away. Life insurance policies and accounts in financial institutions are two examples of property that commonly has a beneficiary designation.

The new law provides for other powers that may be granted under a power of attorney.

For information and advice as to your particular situation, consult a qualified attorney who has experience with estate planning and powers of attorney.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE RELIED UPON, AS LEGAL ADVICE. CONSULT A QUALIFIED ATTORNEY FOR ADVICE REGARDING YOUR SITUATION.

COPYRIGHT 2016 DOMENICK N. CALABRESE. ALL RIGHTS RESERVED. COPYING, DISSEMINATION AND DISTRIBUTION WITHOUT THE EXPRESS WRITTEN PERMISSION OF THE AUTHOR IS STRICTLY PROHIBITED.

The New Connecticut Uniform Power of Attorney Act Part 2: Advantages of Powers of Attorney

Preserving powers of attorney as an inexpensive means of incapacity planning that is flexible and private is one of the objectives of the new Connecticut Uniform Power of Attorney Act. But just how are powers of attorney “inexpensive,” “flexible,” and “private”?

The best way to deal with legal incapacity is to plan for it before it occurs. Nearly all the tools to plan for future legal incapacity – powers of attorney, trusts, health care representatives, changing ownership of assets, and advance directives – require the person creating them to have legal capacity to put them into place. Unfortunately, most people fail to plan for legal incapacity, and when it strikes, these options are not available.

One of the few options to manage the affairs of an incapacitated adult who has not planned for incapacity is through the appointment of an involuntary conservator in the probate court. The person for whom the conservatorship is being sought must have legal representation, which they must pay for unless they are indigent. The person making the application should also retain legal counsel to represent them before the probate court; this is particularly important where there is conflict between family members. This adds up to significant preparation and cost, in addition to the stress and emotional toll of adversarial court proceedings. Conservatorship proceedings and most documents are accessible to the public. An effective power of attorney may preclude the need for a conservator.

Trusts can be a very effective way to plan for management of assets during incapacity. However, creating a trust and transferring assets into it (a necessary but often overlooked step) is costly.

Powers of attorney are far less expensive and time consuming than these other options. The new Connecticut Uniform Power of Attorney Act preserves key elements of powers of attorney that make them inexpensive, flexible and fairly expeditious to create. How does the new law accomplish this?

It provides a suggested form for a power of attorney, making it efficient to draft compared with a trust. This greatly reduces an attorney’s billable time, translating to lower costs for clients.

The power of attorney can grant a number of authorities to the agent, or very narrow authority to an agent – for example, authority over a single financial account. The power of attorney may be drafted so it expires on a particular date, or it may have no expiration date. This feature makes a power of attorney very flexible.

Powers of attorney are private documents not subject to public inspection, since they don’t need to be filed in the probate court or on the public land records.

A power of attorney is just one part of a comprehensive estate plan. It’s not necessarily a substitute for a trust or other documents. When lay people attempt to draft their own estate planning documents, the results can be disastrous. Planning for incapacity should only be accomplished through a qualified attorney.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE, AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE.  CONSULT A QUALIFIED ATTORNEY FOR ADVICE REGARDING YOUR SPECIFIC SITUATION.

COPYRIGHT 2016 DOMENICK N. CALABRESE.  ALL RIGHTS RESERVED.  THE USE, COPYING OR DISSEMINATION OF THIS ARTICLE WITHOUT THE EXPRESS WRITTEN PERMISSION OF THE AUTHOR IS STRICTLY PROHIBITED,