estate planning – Connecticut Estate Planning & Probate

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.

Probate Mistakes, Misconceptions and Myths Part 1

This article examines 3 common probate mistakes, misconceptions and myths.

Myth: Probate can be totally avoided by placing assets in survivorship or a living trust.

This myth is often promoted by purveyors of “one size fits all” living trust packages. When a Connecticut resident dies, even if all their assets are in survivorship or a revocable living trust, probate proceedings are still necessary for Connecticut estate tax and probate fee clearance. If probate proceedings don’t take place, there will be a problem when the real estate in which the deceased person had an interest is sold. Property in a living trust or survivorship allows for transfer of ownership independent of the probate court; the probate court has no role determining the legal owner of that property (one element of “avoiding probate”.) However, the Connecticut Department of Revenue Services treats property in a trust or survivorship includible for calculating Connecticut estate taxes and probate fees. The property is clear of Connecticut estate tax and probate fee liens only after the probate court issues a release of lien upon payment of the probate fee and any outstanding Connecticut estate tax.

Misconception: Probate fees and taxes can cost 33% or more of an estate’s value.

Three fees and taxes that may be assessed on a deceased person’s assets are federal estate tax, Connecticut estate tax, and Connecticut probate fees. For anyone dying with less than $2 million in assets in 2016, there will be no federal or Connecticut estate tax liability. Connecticut probate fees are progressive and based on the value of the deceased person’s estate: the greater the value of the estate, the higher the probate fee. In Connecticut, probate fees are established by law, not by probate judges and courts. The courts must strictly adhere to the established fee schedules. Probate fees range from one third of one percent to one half of one percent. For example, if a Connecticut resident dies owning assets valued at $600,000, the Connecticut probate fee will be approximately $2,100. A change in the way probate fees were calculated in 2015 removed the $12,500 “cap” on probate fees and increased the marginal rate for estates valued in excess of $2 million to one half of one percent – a significant increase in probate fees for high value (multi million dollar) estates. However, Connecticut probate fees are far lower than the 33% or more that some people believe.

Mistake: Relying on the advice of a well-meaning bank teller, friend, nurse, social worker or contractor for probate and estate planning advice.

Even after fourteen years as a probate judge, I am still amazed by the people who feel they can dispense advice on probate matters! It’s a highly specialized area of the law, and even very few attorneys are well versed in probate law. Attorneys with substantial probate experience are most qualified to give reliable advice.

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 SITUTATION.

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.

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.

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

Fiduciaries Part 3: Removal

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.

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

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

How To Choose the Right Attorney

One of the strengths of Connecticut Probate Courts is their informality and approachability. For most matters, parties may not need to retain an attorney to represent them. However, in certain cases, parties are at a disadvantage if they don’t have an attorney representing them.

When there is an application to appoint an administrator or executor for a decedent’s estate and the applicant does not have an attorney, I always have a hearing so I can discuss the case with the applicant. During those hearings, I recommend (but don’t require) that the applicant retain competent legal counsel. Frequently the applicant asks me to recommend an attorney.

As a Probate Judge, I don’t believe it’s ethical for me to “steer” parties to specific attorneys, so I never recommend a specific attorney. However, I also understand that choosing an attorney is something most people have little experience with, along with a great deal of trepidation.

In those situations, I suggest how to go about evaluating and choosing an attorney. My hope is that this empowers people to make informed decisions, minimizing the uncertainty and stress choosing an attorney sometimes causes.

This article outlines important factors in the process of evaluating attorneys, helping you make the best choice.

First and foremost, the attorney or attorneys you consider should be qualified. Qualification means two things: for matters in Connecticut Probate Courts, the attorney must be admitted to practice in Connecticut – a member of the Connecticut Bar in good standing.

In addition, an attorney should have significant experience in probate matters. Probate is a highly specialized area of the law; an attorney with little or no probate experience will not be as effective as a highly experienced probate attorney. I have occasionally dealt with attorneys who have no probate experience representing parties before me. Unless these inexperienced attorneys familiarize themselves with probate procedure, they are at a disadvantage in providing effective counsel for their clients.

Another important aspect to choosing an attorney is interpersonal chemistry. Before hiring an attorney, meet with them. Do you feel comfortable with the attorney? Are they able to explain things to you in a way that you understand? Are they approachable? If you retain them, who will perform most of the work on your case – the attorney you meet with? Another attorney? An inexperienced attorney right out of law school? A paralegal? A secretary? What is the firm’s policy for returning inquiries from clients? One of the most common reasons why clients file grievances against attorneys is failure of the attorney to return calls and communicate in a timely manner.

Clients have a right to know what’s going on and to be a part of the decision making process when it comes to substantive matters in their case. A prospective client should also know the attorney’s fees, rates and billing practices before committing to hiring the attorney.

Only with this information can you make the right choice.

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

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%.

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.

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.

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