Trusts & Connecticut Estate Tax

This article on advantages of living trusts examines how trusts may be used in planning for Connecticut estate taxes. Connecticut estate taxes may be due after a Connecticut resident passes away. Beginning in 2011, there is a $2 million Connecticut estate tax exemption. This means that 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 after the death of the first spouse. There would be no Connecticut estate tax liability, even if the value of the estate exceeds $2 million. This unlimited exemption comes at a “price” however: the deceased spouse’s $2 million exemption is lost. 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 fictitious example of how this might work. Edgar and Florence, a Connecticut married couple, have $4 million in combined assets. They also have three adult children. Edgar’s will and Florence’s will each provide that upon the death of the first of them to pass away, all assets go to the surviving spouse.

Edgar is the first to pass away. According to 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 the Connecticut estate tax laws don’t change, only the single $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, with a Connecticut estate tax liability. 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 specially drafted living trusts designed to preserve the Connecticut 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 living trust for the benefit of Florence. Because of the $2 million Connecticut estate tax exemption, the 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.

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

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

 

 

 

Living Trust Advantages

In my last article, I examined the benefits a living trust provides for management of someone’s assets should they become incapacitated. Another advantage of living trusts is providing for the transfer of trust assets after the person who created the trust dies. This advantage only applies to assets that are moved into the trust before the person who created the trust passes away.

Using the example in my previous article of the fictitious Mary Jones who created a living trust and moved some of her assets into the trust, let’s see how this might work. After Mary passes away, the assets in her trust will be transferred according to the terms of the trust. Mary’s trust could provide that upon her death, trust assets pass to family, friends or charities of her choice. The trust could also provide for some or all trust assets remain in the trust for a period of time for the benefit of any person, persons or charities.

Probate proceedings to determine the owner of trust assets would not be necessary. The transfer of trust assets could take place more quickly than if those assets required the probate court to identify the legal owners. Another advantage of living trusts is trusts are usually not subject to public disclosure the way most documents filed in probate court are. For those who place a high value on privacy, this advantage may be significant. Trust assets may not be subject to the claims of Mary’s creditors in the probate court – a third trust advantage.

The probate court would determine the owners of nontrust assets – assets that Mary owned in her name only with no beneficiary, survivorship or payable on death designation. If she had a will that gets admitted to the probate court, Mary’s assets would be transferred to the beneficiaries she named in her will after her creditors and costs of administering her estate are paid. If Mary had no will when she died the probate court would apply Connecticut law to determine the legal owners of Mary’s assets.

Living trusts have additional advantages, as well as disadvantages that will be the subject of future articles.

Living trusts are not appropriate for everyone. This article examines just a few elements of living trusts. 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.

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

Copyright 2016 Domenick N. Calabrese.  All rights reserved.  Use, dissemination, distribution or reproduction of this article without the express written permission of the author is prohibited.

Living Trusts

Recently I was asked about living trusts. Someone told me how a family member 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 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.

 

Beginning in the 1960s, trusts started to become commonly used among the middle class in the United States. Before that time, trusts were used almost exclusively by the wealthy.

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. 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 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.

In the articles to follow I will examine other aspects of living trusts.

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

COPYRIGHT 2016 DOMENICK N. CALABRESE.  ALL RIGHTS RESERVED.  NO PART OF THIS ARTICLE MAY REPRODUCED, USED OR DISSEMINATED WITHOUT THE EXPRESS WRITTEN PERMISSION OF THE AUTHOR.

 

 

 

 

 

 

Involuntary Conservatorships

Involuntary conservatorships are sometimes necessary when an adult is incapable of managing his or her own affairs, or becomes incapable of caring for himself or herself.

In general, proceedings in Connecticut probate courts are less formal than other courts: many people don’t need attorneys to represent them and procedural rules are far more flexible than in Superior Court or federal court.

However, conservatorship proceedings are more formal because someone’s right to make decisions for themselves may be taken away. Conservatorship law is complex; this brief post highlights just a few aspects of conservatorships.

The person for whom the involuntary conservatorship is being sought must be represented by an attorney in all court proceedings. This is to ensure that the rights of the person for whom the conservatorship is sought are properly  protected. Even if the attorney believes that the conservatorship is in the best interest of their client, the attorney must argue against the conservatorship if their client objects to it.

It’s common for a family member to make an application asking the court to appoint an involuntary conservator for a relative who may be having problems. The family member usually sees their role, and the application, as a way to help their relative who is experiencing difficulties managing their finances, making medical decisions, or with some other aspect of their life. The judge determines whether the application will be approved or denied after a hearing.

Conservators of the estate may have authority to manage assets, income or bills of the conserved person. Conservators of the person may have authority over such matters as the conserved person’s healthcare, where they live, keeping them in a safe environment, and taking care of the conserved person’s personal property. The duties of the conservator must be narrowly construed and must be the least restrictive means of achieving their purpose.  If there is another means available to help the person for whom the conservatorship is sought, the judge may require that this tried before a conservatorship is granted.

Connecticut conservatorship law underwent substantial changes in 2007.  One of the requirements under the new law is that the conservator must take steps to help the conserved person achieve independence. The conservator must also take the preferences of the conserved person into account when the conservator is carrying out their duties.

A conservator cannot force the conserved person to do something against his or her will. This is a point of law that sometimes surprises applicants in involuntary proceedings. The conservator also cannot force the conserved person to be admitted into a nursing home unless the conservator first gets such a move approved by the probate court. The court must conduct a hearing on an application to change the conserved person’s residence before his or her residence is changed.

The only exception is if the conserved person is discharged from a hospital to a nursing home; in that case, the conservator must make an application to the probate court within 5 business days of the nursing home admission. The court will conduct a hearing on that application and decide whether the conserved person should remain in the nursing home, or must be discharged to their residence.

It’s possible in some cases, through the use of a durable power of attorney, living trusts and  appointment of a  healthcare representative, to prevent the need for a conservatorship.  Powers of attorney and healthcare representatives sometimes provide a means to manage the affairs of someone who becomes incapable without the need for a conservatorship.  These legal tools must be in place before someone becomes incapable.  Once someone becomes incapable, they cannot sign a power of attorney, appointment of healthcare representative or living trust.

 

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

Copyright 2016 Domenick N. Calabrese.  All rights reserved.  No part of this article may be distributed, reproduced or used without the author’s permission.

 

 

Incapacity, Conservatorships, and the Probate Court

Many people use wills to direct how their assets will be distributed after they die. However, few people plan for legal incapacity, which can occur suddenly and without warning. Wills have no utility while the person who created the will is living. A will has legal significance only after it has been admitted by a probate court.

Imagine that a loved one becomes incapable of managing their affairs – perhaps they cannot communicate, maybe they are unconscious for an extended period of time, or simply cannot understand what is going on around them. Trauma, illnesses such as dementia, or a surgical procedure gone awry are just a few of the real life situations that may give rise to legal incapacity. What medical decisions need to be made? Perhaps decisions on providing or withdrawing life saving or life sustaining medical interventions must be made. Who will make them? What are patient’s wishes in that situation?

If the incapacitated person has not planned for such a contingency, it may be necessary to go to the probate court for the appointment of a conservator. Conservatorship proceedings, particularly when someone is incapacitated, can be time consuming and expensive.

How will the incapacitated person’s financial affairs be handled? Bills may need to be paid. Assets such as a home or automobile may need to be protected and maintained. Financial accounts may need to be managed. Income, such as social security, pension, interest, or insurance proceeds may need to be deposited. Taxes may need to be paid. Perhaps one or more businesses must be managed. Dependents, such as minor children, may need to be supported. These kinds of situations are stressful; family members may not know what to do; financial institutions and healthcare providers may refuse to deal with family members for fear of inappropriately disclosing confidential information. Assets may be wasted or jeopardized.

While some may find it difficult to discuss, planning for incapacity can go a long way toward reducing the stress and uncertainty families face in such situations by having the legal measures in place in advance to manage the incapacitated person’s affairs. Fortunately, there are a number of legal tools available to provide for legal incapacity, so that many or all of these issues can be effectively dealt with without having to go to the probate court. Unfortunately, once a person becomes legally incapacitated, it is too late to create these measures if the incapacitated person hadn’t already done so before they became incapacitated.

The next installment in this series of articles will briefly review powers of attorney as a legal tool available in Connecticut to plan for incapacity. Other legal tools, such as appointment of healthcare representative, advance directives, living trusts, advance designation of conservator, and alternative ways of titling assets, such as survivorship, payable on death, and beneficiary designations will be examined in subsequent articles.

This article is for informational purposes only.  It is not intended to be, and should not be relied upon as legal advice.  Please consult a qualified attorney for advice regarding your particular situation.

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

Incapacity, Conservatorships & the Probate Court

Incapacity Conservatorships & the Probate CourtProbate misconceptions mistakes and myths blog2016Incapacity Conservatorships & the Probate Court Blog

Wills: Myths, Misconceptions & Mistakes

cropped-img_1399.jpgMost people realize having a will is a good idea. It provides for the transfer of your assets after you pass away to the people and institutions of your choice. As an attorney and  probate judge, I’ve seen and heard myths, misconceptions and mistakes in this area.

 

Some people believe it’s effective to simply write a note directing who will receive their assets after they die. This won’t work in Connecticut. Connecticut has strict requirements for how a will needs to be executed. If these requirements are not carefully followed, the note won’t be recognized as a valid will.

 

The same principle applies if someone wants to make changes to an existing will. Crossing out and writing in provisions to an existing will generally won’t be valid. If someone wants to change their will they either need to execute a new will or execute a codicil to the current will. The laws of will execution also apply to how a codicil must be executed in order to be valid.

 

Another misconception is that if someone dies without a will, all their assets will go to their surviving spouse. This is only true if the person who passed away had no children or surviving parents. Otherwise, the children or surviving parent will receive some portion of the decedent’s probate assets. If someone passes away survived by a spouse and children, the surviving spouse receives the first $100,000 and half of everything over $100,000. The children receive one half of everything over $100,000. However, if one or more of the children are not also children of the surviving spouse, the surviving spouse receives 50% of all the decedent’s assets and the other 50% are divided equally among the children. Stepchildren of the decedent are not recognized as heirs at law unless there are no surviving blood relatives of the decedent.

 

Photocopies of a will are not legally valid – only the original signed copy of the will may be admitted to probate. If the original cannot be located, additional proceedings in the probate court are necessary to allow admission of the photocopy.

 

All wills name an executor – someone or an institution (such as a bank or trust company) responsible to administer the estate. However, the executor named in the will does not actually become the executor unless they are willing and able to serve as executor and they are appointed by the probate court. Often people state they are the executor of a living relative’s estate, but that is not the case until their relative dies and they are appointed by the probate court.

 

Wills have no legal authority until admitted to the probate court. If someone becomes legally incapacitated, their will has no effect on the management of their assets while they are alive. Trusts, advance healthcare directives, powers of attorney, appointment of healthcare representatives and advance designation of conservators are legal tools used to plan for incapacity.

Prince: No Will, So What’s the Way?

The old adage, “where there’s a will there’s a way” might not have been intended to apply to wills people have for their estates.  However, wills do provide direction for who gets a person’s assets after they pass away.  But what happens when a person dies without a will?

The recent untimely death of music superstar Prince has drawn attention to what happens when someone dies without a will.  Here’s what’s been reported about Prince so far: he had no spouse; he had no surviving children or grandchildren; he had five siblings who are living, four of them are half siblings.

It’s likely that Prince’s assets at the time of his death were very significant, and right now it appears he had no will.

When someone dies without a will, state law determines who receives the deceased person’s assets and how much of the total estate goes to each person.

Let’s imagine that Prince was a Connecticut resident (which he in fact was not).  Based on the information above, his estate would be divided equally among his siblings – there would be no distinction between full and half siblings: all would share equally after expenses and claims are paid.

Persons who stand in line to inherit from a deceased person when there is no will are called heirs.  Heirs have legal rights.  Even if there is a will, heirs must receive notice of the initial probate hearing to give them the opportunity to attend the hearing and object to or to support the admission of the will to probate.

Wills usually name someone to be the executor of the estate.  The executor, only after appointment by the court,  is responsible for protecting the assets of the estate, administering the estate in probate court, and using the assets of the estate to pay administration expenses, creditors, and beneficiaries.

I sometimes hear people say that they are a living relative’s executor, but that is not an accurate statement. A person does not become an executor unless and until the person who has a will dies, the will is admitted to probate, the person named in the will as executor is willing and able to serve as executor, and  the probate court appoints the executor.

When someone dies without a will, or none of the executors named in the will are able to serve, an administrator will be appointed by the probate court.  The administrator’s role is similar to that of an executor. It’s common for the administrator to be a relative of the person who died.

Some of the speculation as to why Prince had no will involve common reasons why many people should have wills.  Having a family that includes minor children increases the need for someone to have a will.  Among other things, a will allows a parent of minor children to name a guardian for those children in the event both parents pass away.  Since Prince had no surviving children, that reason for having a will likely doesn’t apply in his case.

 

Because Prince had no spouse, tax planning for the benefit of a surviving spouse  does not apply.  However, it’s likely that if Prince’s assets were valued in excess of $5.4 million at the time of his death, his estate will have federal estate tax liability. Federal estate tax liability may be reduced by leaving gifts to charitable organizations in a will or trust.

Proper estate planning increases the likelihood that someone’s assets will go to the people and organizations of their choice. With no will, assets will go to heirs at law. Many people have a limited or even incorrect understanding of what this means for them and their assets after they pass away.  The objectives of estate planning go beyond  providing for a surviving spouse or children, and minimizing federal and state estate tax liability. Proper estate planning should be based on the goals of the person for whom the estate plan is created. Competent estate planning attorneys take the time to understand their client’s asset portfolio and their client’s values and objectives; explain options to the client, and create an effective estate plan customized for each client.

 

This blog is for informational purposes only and is not intended to be, nor should it be relied upon as legal advice.  Please consult with a competent attorney for advice as to your particular situation.

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