Living Trusts for the Benefit of Children

I recently had a discussion with a married couple with two children, ages 4 and 2. 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  reasons why managing assets for the benefit of an adult may be important. 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.

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

COPYRIGHT 2016 DOMENICK N. CALABRESE.  ALL RIGHTS RESERVED.  THE USE, REPRODUCTION OR DISSEMINATION OF THIS ARTICLE OR ANY PORTION OF IT IS STRICTLY PROHIBITED WITHOUT THE EXPRESS WRITTEN CONSENT OF THE AUTHOR.

 

 

 

 

 

 

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.