Beware! POAs, Trusts and Liability

Having just completed my sixteenth year as a Connecticut probate judge, I’ve noticed an increase in litigation against fiduciaries; several of these have resulted in criminal prosecution of the guilty parties.

Fiduciary Defined

Most everyone has heard the word “fiduciary” but I suspect most don’t understand what a fiduciary is and the serious personal liability inherent in serving as one.

A fiduciary is a person or organization (such as a financial institution) required to place the interests of another person above theirs.  It’s a very high legal standard.

In probate, examples of fiduciaries include lawyers, executors, administrators, guardians, conservators, trustees, health care representatives and agents under a power of attorney.

Common Mistakes

A significant mistake – one that frequently leads to litigation – is the failure of the fiduciary to understand their powers and responsibilities.

Sources of Fiduciary Powers and Responsibilities

Fiduciary powers and responsibilities come from 3 sources: court orders, the law, and a document, such as a trust, will, or power of attorney.   Under the new Connecticut Uniform Power of Attorney Act, complex powers of attorney have become more common.  While this complexity is designed to increase the flexibility of powers of attorney, it can make the agent’s authority and limitations difficult to understand and carry out without the services of an experienced trusts and estates attorney.

Don’t Get Caught in This Trap

Wills and trusts can be complex.  It’s not unusual for a trust to be 60 pages or more in length.  Serving as an administrator, executor or trustee should not be done without hiring an experienced trusts and estates lawyer; it’s virtually impossible for the average layperson to understand a trust, and even difficult for a general practice attorney with minimal trust experience to do so.

Maintain Complete Records…or Else

All fiduciaries engaging in financial transactions – paying claims and expenses, managing income and assets – must keep complete and accurate records.  A fiduciary must be prepared to submit accountings to the court, even if the legal document establishing their authority excuses accountings.  If the fiduciary’s dealings are called into question, it is the fiduciary’s responsibility to establish by clear and convincing evidence that their actions were proper and within the law. Failure to do so will likely result in a finding of breach of fiduciary duty.

A fiduciary who has breached their duty can be ordered to pay the estate they were responsible for (under a trust, will, power of attorney, conservatorship or guardianship) from their own personal funds.  Criminal prosecution of fiduciaries who breached their duty happens frequently, and long prison sentences have been ordered in some cases.

Who is Benefiting: Conflicts of Interest

Another area rife for litigation is conflicts of interest.  An example is when a widower gave his girlfriend authority over his finances under a power of attorney.  If the girlfriend used the widower’s assets to pay her own expenses, or to pay the expenses of another (for example, the girlfriend’s children), a court could find that she breached her fiduciary duty.  The consequences could include restitution, and even criminal charges.

There’s Much More

There are many more areas of importance for fiduciaries to be aware of that cannot be covered here.

Get an Estates and Trusts Lawyer!

Because of the complexity and potentially serious consequences, I strongly recommend anyone serving as a fiduciary retain an experienced trusts and estates lawyer to advise and protect them. While some fiduciaries may exercise their duties without a lawyer, the stakes are too high to risk something going wrong.

DISCLAIMER: 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 contact a qualified attorney.

Dom Calabrese has been a Connecticut Probate Judge since 2003, and since 1995 has practiced law in Connecticut with offices currently in Watertown and Stamford. He practices in the areas of estate planning, probate, asset protection and business counsel.

Copyright 2019 Domenick N. Calabrese.  All rights reserved.  The use, copying or dissemination of this article without the express written consent of the author is strictly prohibited.

How Often Should You Review Your Estate Plan?

Estate plans are created at a specific point in time. Having an estate plan is important for many reasons. Some of these reasons include ensuring your wishes are followed for who will receive your assets after you pass away; providing for loved ones; minimizing estate taxes and maximizing family wealth for future generations; maintaining your independence should you become incapacitated; avoiding conservatorships; avoiding court intervention; minimizing family conflict; asset protection; and ensuring that your wishes for end of life health care are honored in the event you are unable to communicate with your healthcare professionals.

It’s been said that the only constant in life is change. This truth has significant implications for estate planning. Changes in your circumstances – death of a spouse, marriage, divorce (yours or your children’s), birth of a child or grandchild, significant changes in your health or financial circumstances, or moving to another state – may require an update to your estate plan.

The law is in a constant state of change. Here in Connecticut, major changes to the Connecticut estate and gift tax will become effective on January 1, 2018. In 2016 and 2017, Connecticut law governing powers of attorney have seen the most dramatic changes in many years. These changes may affect your estate plan – the only way to know for sure is to have a qualified attorney review your estate plan.

It’s also important to review your estate plan every 3-5 years.

If you have no estate plan, it’s important to make an appointment with an estate planning attorney to discuss creating an estate plan.

It’s easy to forget about estate planning. Most people put off estate planning entirely. After all, there are no consequences to not having an estate plan until a dramatic life event – such as incapacity or death occurs. Unfortunately, once those events take place, there are very few options available compared to those at the disposal of those who plan well in advance of such events.

There is a common – and erroneous – perception that estate planning is only for the very wealthy. That is an unfortunate fact. In my 15 years on the bench as a Connecticut probate judge, I see people from all walks of life who would have been much better off had they put an estate plan in place.

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 https://DCalLaw.com

Fiduciaries Part 3: Removal

In my previous article in this series on fiduciaries, I examined situations where a fiduciary (trustee, executor, administrator, guardian of the estate or conservator of the estate) may be removed. This article continues the discussion on removal of fiduciaries.

Connecticut law includes one more situation that may result in the removal of a fiduciary: where all the beneficiaries request that the fiduciary be removed, the court agrees it’s in the best interest of the beneficiaries to remove the fiduciary, and there is a suitable successor fiduciary available.

It’s also important in that situation to determine that removal of the fiduciary isn’t contrary to an important term of the will or trust. Sometimes, the person who creates a trust chooses a specific trustee or group of trustees for their expertise, maturity, or reliability. Perhaps the trust beneficiaries lack financial sophistication, have creditor issues or lack maturity. The purpose of the trust for those beneficiaries might be to provide a reliable income stream for a set period of time, usually many years.

However, the beneficiaries may “want their money now” and are unwilling to wait for the trustee to make distributions in accordance with the trust. A television commercial from a few years ago comes to mind; in it, people are yelling from their windows and front porches “It’s my money and I want it now!” In that case, there could well be conflict between the beneficiaries, who may want the trustee to make distributions to them, and the trustee, who is unwilling to make distributions in excess of what the trust allows.

Another example of a situation where this might happen is when the fiduciary doesn’t communicate with the beneficiaries, file documents with the court in a timely way, or make required distributions to the beneficiaries.

In addition to state law, a trust document usually includes provisions for when a trustee may be removed. Trusts and wills can be very complex; a fiduciary only has the authority to perform the tasks and responsibilities that are in the trust or will.

Likewise, how a trust may be managed is usually in the trust document. Whenever there is a question about a trust, the trust document should be the first place to look for guidance.

It’s common for the trust to create a mechanism for removal of a trustee. Such provisions are usually highly customized, depending on the purpose of the trust, the preferences of the trust’s creator, and requirements of federal and state law.

Anyone who is a fiduciary should consult with a knowledgeable estate planning attorney for guidance. As a probate judge for 15 years, I’ve seen fiduciaries create problems because they didn’t understand their responsibilities and acted contrary to the provisions of the trust, will or law. Nearly all of them chose not to retain an attorney to guide them.

Being a fiduciary is a serious responsibility, and it’s all too easy for well-meaning people to create problems because they failed to retain competent legal counsel. Breach of fiduciary duty can have serious financial consequences: fiduciaries have personal liability. In some cases, there can be criminal liability for breach of fiduciary duty.

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 https://DCalLaw.com

Fiduciaries Part 3: Removal

In my previous article in this series on fiduciaries, I examined situations where a fiduciary (trustee, executor, administrator, guardian of the estate or conservator of the estate) may be removed. This article continues the discussion on removal of fiduciaries.

Connecticut law includes one more situation that may result in the removal of a fiduciary: where all the beneficiaries request that the fiduciary be removed, the court agrees it’s in the best interest of the beneficiaries to remove the fiduciary, and there is a suitable successor fiduciary available.

It’s also important in that situation to determine that removal of the fiduciary isn’t contrary to an important term of the will or trust. Sometimes, the person who creates a trust chooses a specific trustee or group of trustees for their expertise, maturity, or reliability. Perhaps the trust beneficiaries lack financial sophistication, have creditor issues or lack maturity. The purpose of the trust for those beneficiaries might be to provide a reliable income stream for a set period of time, usually many years.

However, the beneficiaries may “want their money now” and are unwilling to wait for the trustee to make distributions in accordance with the trust. A television commercial from a few years ago comes to mind; in it, people are yelling from their windows and front porches “It’s my money and I want it now!” In that case, there could well be conflict between the beneficiaries, who may want the trustee to make distributions to them, and the trustee, who is unwilling to make distributions in excess of what the trust allows.

Another example of a situation where this might happen is when the fiduciary doesn’t communicate with the beneficiaries, file documents with the court in a timely way, or make required distributions to the beneficiaries.

In addition to state law, a trust document usually includes provisions for when a trustee may be removed. Trusts and wills can be very complex; a fiduciary only has the authority to perform the tasks and responsibilities that are in the trust or will.

Likewise, how a trust may be managed is usually in the trust document. Whenever there is a question about a trust, the trust document should be the first place to look for guidance.

It’s common for the trust to create a mechanism for removal of a trustee. Such provisions are usually highly customized, depending on the purpose of the trust, the preferences of the trust’s creator, and requirements of federal and state law.

Anyone who is a fiduciary should consult with a knowledgeable estate planning attorney for guidance. As a probate judge for 15 years, I’ve seen fiduciaries create problems because they didn’t understand their responsibilities and acted contrary to the provisions of the trust, will or law. Nearly all of them chose not to retain an attorney to guide them.

Being a fiduciary is a serious responsibility, and it’s all too easy for well-meaning people to create problems because they failed to retain competent legal counsel. Breach of fiduciary duty can have serious financial consequences: fiduciaries have personal liability. In some cases, there can be criminal liability for breach of fiduciary duty.

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 https://DCalLaw.com

Fiduciaries Part 2: Removal of Fiduciaries

In my first article on fiduciaries, I explained the role of executors and administrators in decedent’s estates. This next article in the Fiduciaries series examines situations that may require a court to remove a fiduciary under Connecticut law.

One such situation is where the fiduciary (trustee, executor, administrator, guardian, conservator or agent under a power of attorney) is no longer capable of performing their job, or simply stops doing what is required. There can be a number of reasons for this. Perhaps the fiduciary has a serious illness that prevents them from performing their fiduciary duties. Maybe the circumstances of the fiduciary have changed (caring for an ill family member, a change in jobs, moving to a distant state or even another country) that have made it difficult or impossible for the fiduciary to do their job. I’ve also seen situations where the fiduciary simply becomes unresponsive for unknown reasons and doesn’t communicate with the parties or the court. All of these may require the fiduciary to be removed and replaced.

Some trusts – notably but not exclusively irrevocable living trusts – commonly give one trustee the authority to replace the independent trustee.

Another reason why a fiduciary may be removed is if they waste the estate. Almost all fiduciaries are responsible for assets. There are many scenarios where a fiduciary could illegally waste the estate. For example, if they use some or all of the estate for their own enrichment, make poor investment decisions, fail to follow the requirements of the will or trust that governs the estate, or fail to properly safeguard the assets in their charge (perhaps they’ve failed to properly insure real property that subsequently is damaged or destroyed).

Failure to furnish a court-ordered bond is another reason for a fiduciary to be removed. A bond is similar to an insurance policy that protects heirs, beneficiaries and creditors of an estate. If the fiduciary wastes an estate for which there’s a bond, the parties may be made whole by the surety (usually the insurance company that issues the bond) for losses due to the fiduciary’s mismanagement.

Another situation where a fiduciary may be removed is where there are 2 or more fiduciaries, and they are not cooperating with each other. If the lack of cooperation “substantially impairs the administration of the estate” a court may remove one or more of the fiduciaries. Generally in such a situation, the conflict among the fiduciaries causes even the simplest fiduciary functions to take an unreasonably long time to the detriment of the parties and the estate.

In 15 years on the bench, I’ve seen a lot of conflict among parties who appear before me. It’s important that parties put their differences aside to get the work at hand done. This can be particularly challenging when the parties in conflict are fiduciaries. For that reason, Connecticut law recognizes the gravity of those situations and gives courts the ability to remove fiduciaries.

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

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.

Fiduciaries Part 1: Executors

 

Fiduciary is a term used to describe someone who serves in a role where they must put the interests of another person or persons above their own. Examples of fiduciaries include executors, administrators, conservators, guardians, trustees, health care representatives, and agents under a power of attorney. Certain financial advisors may also be fiduciaries.

An executor is someone who is appointed by a court as a result of being named in a will. An executor is responsible for protecting the assets of the estate of the person who passed away. Executors are also responsible for administering the estate of the deceased person through the probate process.

Some people say that they are the executor of a living person’s estate. Such statements are incorrect. No one may be an executor until three things occur: first, they must be named in a valid will to be an executor; second, the person whose will names the executor must have died; and third, the will must be admitted to the probate court and the person named executor must be appointed by the court. Unless and until all those occur, there is no executor. Someone named as executor may decline to serve. In that case, another person must be appointed by the probate court to serve as executor (if the will names an alternate executor), or administrator (if not named in the will).

An administrator is someone who is appointed by a probate court when the person who died had no will, or when the person who died had a will, but the named executors in the will decline or are unbale to serve. An administrator only has authority that the probate court gives them. In contrast, an executor has the authority that the will gives him or her.

How do fiduciary duties apply to administrators and executors?

A fiduciary must perform their job. A fiduciary’s job always includes protecting the assets that are entrusted to their care. If the fiduciary wastes or mismanages the assets entrusted to them, they are subject to removal as well as surcharge (a court order to personally reimburse the estate for the loss).

The authority of a fiduciary is limited by a number of factors.

An executor’s authority is limited by the terms of the will under which they are appointed. If the executor needs to conduct an activity for which the will does not provide, then the executor must get permission from the court before they may carry out that activity. An example of this is where the decedent was the sole member of a limited liability company, and the business of the company needs to be wound up. While a will may provide authority for the executor to continue to conduct a business that the decedent owned, not all wills do so. An operating agreement of the company may also provide this authority, but, unfortunately, many limited liability companies don’t have operating agreements.

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 DCalLaw.com

Living Wills

In a recent post, I discussed health care representatives as a tool that adults may use to plan for incapacity. Another tool that may be used along with an appointment of health care representative is the advance health care directive, commonly known as a Living Will.

Of course, as long as someone is able to understand their medical condition and can communicate with their health care providers, there is no need for a health care representative or Living Will. It’s when someone can’t actively take part in health care decision-making that a Living Will and health care representative may be useful.

Effective October 1, 2006, Connecticut law allows Living Wills to include direction on any aspect of a person’s own health care. Previously, Living Wills were limited to direction regarding life support only.

A Living Will is a written document. It directs a physician or other health care professional to provide or to not provide medical, surgical or other measures should a terminally ill patient become incapacitated.

A Living Will must be prepared and signed well before incapacity strikes. Once someone becomes incapacitated, it’s not possible for him or her to effectively execute a Living Will. Certain formalities must be observed or the Living Will won’t be valid. A “do it yourself” approach is not recommended. I’ve seen situations as a Probate Judge where a well-meaning friend or relative “drafted” a Living Will, which was then signed. Because the Living Will document was not correctly understood, the patient’s “wishes” were the exact opposite of what the Living Will indicated.

In Connecticut, physicians and licensed medical facilities are granted immunity from criminal and civil liability should they remove or withhold life saving or life-sustaining measures for incapacitated patients who are permanently unconscious. In order for this liability protection to apply, however, a number of requirements must be in place. One of them is that the physician or medical facility considers the patient’s wishes.   A Living Will is one way to document and communicate your wishes to others.

In addition to a Living Will, there are other ways you can communicate what measures you would and would not want should you become unconscious. Discuss your wishes with your healthcare provider, and have him or her make a note of it in your medical record. Discuss your wishes with family members before there is a crisis. This can go a long way toward ensuring your wishes are both known and followed, in addition to providing family members with some measure of peace of mind should they need to make such decisions. The best approach to making it more likely your wishes will be followed is to use all of these measures so everyone – your family and health care providers – are well aware of your wishes, and they are documented.

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