Trusts – 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.

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

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

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 2: Legal Incapacity

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

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

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

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

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

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

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

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

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

Advantages of Living Trusts Part 1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Disadvantages of Living Trusts

In previous posts to this blog, I reviewed some advantages of living trusts. Like any other estate planning tool, living trusts have advantages and disadvantages. This article will briefly examine some of the disadvantages of living trusts.

Living trusts must be drafted by an attorney to maximize the possibility that your wishes and objectives will be consistent with the terms of the trust. The cost of having a living trust drafted depends on several factors, including the complexity of the trust and the client’s objectives.

Assets must be transferred into the living trust in order to realize many, but not all, of the advantages of the trust. Frequently, family members of someone who recently passed away bring the decedent’s living trust to the probate court. They are unpleasantly surprised to find that nothing was ever transferred into the trust. This defeats the ability of the trust to bypass the probate administration process for assets that may have been in the trust had been transferred into it during the lifetime of the person who created it.

Transferring assets into the trust can be time-consuming and complex. For example, for real estate with a mortgage, the lender may accelerate the mortgage if the property is transferred into the trust without the permission of the lender.

Living trusts do not reduce Connecticut probate fees. Assets in revocable living trusts are included in the calculation of Connecticut probate fees. Unscrupulous purveyors of living trusts have been known to discuss “probate fees” (sometimes using probate fees from states other than Connecticut and including attorney’s fees in the “probate fee”) in their living trust sales pitches. Often, this practice misleads potential clients to believe that living trusts reduce Connecticut probate fees. What’s not disclosed is that attorney’s fees charged to draft the living trust can easily exceed probate fees.

Not all assets may be transferred to a living trust. For example, stock options and community property generally cannot be transferred to a living trust.

It’s possible to accomplish some advantages of living trusts using less complex and less expensive legal tools, such as survivorship, payable on death, beneficiary designation or a durable power of attorney.

Another misrepresentation about living trusts is that anyone with assets valued in excess of an arbitrary number, for example, $75,000, should have a living trust. Such broad statements are designed to encourage the sale of living trusts and are not, by themselves, a reasonable basis for deciding whether a living trust is right for you.

Only after consulting a qualified, ethical attorney who takes time to understand your situation and objectives, and explain your options, can you make an informed decision as to whether a living trust is appropriate for you. Avoid “one size fits all” living trust packages that are sold to attendees of “free” seminars. That approach serves only to benefit high-volume, mass-production sellers of living trust packages.

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 PARTICULAR SITUATION.