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.

Power of Attorney

Recently, I was asked how someone could plan for the management of their finances if they were to become incapable of doing so at some point in the future. They described how an acquaintance with a serious medical condition lost their ability to pay bills and manage their finances. Family members had to intervene, going to the probate court to have a conservator appointed to manage their loved one’s finances. Unfortunately, this is a common occurrence that can be very stressful for families.

I mentioned how a durable power of attorney could allow someone to designate a trusted friend or family member to have the legal authority to manage their finances  in case they became incapacitated.

Depending on the circumstances, a durable power of attorney may prevent the need for the appointment of an involuntary conservator.

A durable power of attorney remains effective even after the grantor becomes incapacitated. For that reason, a durable power of attorney is particularly well suited as part of a plan for legal incapacity. The authority that may be granted under a power of attorney include engaging in banking transactions, real estate transactions, estate transactions, paying bills, gift giving and investment transactions. That’s one of the advantages of a power of attorney – it can be tailored for each person’s needs, including authority for a wide variety of purposes, or for a single, very narrow purpose.

However, as with all legal tools, durable powers of attorney have disadvantages.   As soon as the durable power of attorney is executed, the holder of the power of attorney can engage in the activities allowed by the document. It does not require the grantor to become incapable before it becomes effective.

In the wrong hands, the holder of the power of attorney (known as the attorney in fact) may abuse their authority and steal assets from the grantor. It’s very important that the person or persons granted power of attorney are trustworthy and reliable, and they should keep accurate records of all the transactions they engage in as power of attorney.

Another disadvantage is that the powers granted may be insufficient for unforeseen circumstances. No one knows what the future will bring; even a power of attorney that grants broad authority may fall short of what is needed.

A third disadvantage of durable powers of attorney is that tcropped-img_13991.jpghere is no requirement that third parties, such as financial institutions, recognize a power of attorney. This can render the power of attorney useless under some circumstances. However, third parties may have a good reason for not recognizing a power of attorney. A financial institution may not know whether a power of attorney, particularly one that is several years old, is still valid.

While healthcare decision making authority can be granted with a durable power of attorney, it is best accomplished with a designation of healthcare representative, the subject of another article.

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

Copyright 2016 Domenick N. Calabrese.  All rights reserved.  This article may not be reproduced, distributed or used without the express permission of the author.

 

Welcome to the Connecticut Estate Planning Blog

Welcome to the Connecticut Estate Planning blog.  The information here will help you learn more about estate planning and help to answer questions and dispel common misconceptions and myths.  It’s directed to audiences who don’t have a legal background and  based on my experience as an estate planning attorney for over twenty years and as a Connecticut Probate Judge for 14 years.

Estate planning is a subject that few people consider.  However, failure to plan your estate and plan for potential legal incapacity may have drastic consequences.

Proper estate planning increases the chances that your assets will go to the people and organizations of your choice after you pass away.  It can ensure that your loved ones will be provided for.

The possibility of legal incapacity is more likely than most people realize.  Planning for legal incapacity can provide for the ongoing management of your affairs and healthcare decision making in the event you are unable to do so on your own.  Legal incapacity can strike suddenly and without warning.  This is a very stressful situation for families.  Having the legal tools in place should it occur goes a long way to minimizing the stress that families often deal with in these situations. Proper legal tools can also preclude the need for  conservatorship proceedings in the probate court.  Involuntary conservatorship proceedings can be stressful, time consuming and expensive.

However, there are unscrupulous purveyors of estate planning products who frequently claim or imply unrealistic or even false results.  They often prey on the fear of the unknown, the probate process and unfamiliarity with the law in order to pressure the unwary to spend thousands of dollars on questionable, and sometimes useless products.  This blog will help you understand what these tools are, and more importantly what they can and cannot accomplish to help you avoid being taken advantage of.

Some of the topics that will be explored in the next few weeks include tips on choosing the right attorney; estate planning myths, misconceptions and mistakes; wills; living trusts; pet trusts; incapacity, conservatorships and the probate court; powers of attorney; and Connecticut unclaimed property.

 

NOTICE: The information posted in this blog is for informational purposes only and is not intended to be, and should not be relied upon as legal advice.  Please consult with a qualified attorney for advice as to your specific situation.

COPYRIGHT 2016 DOMENICK N. CALABRESE.  UNAUTHORIZED DISSEMINATION, USE OR REPRODUCTION WITHOUT THE PERMISSION OF THE AUTHOR IS EXPRESSLY PROHIBITED.