Probate – Connecticut Estate Planning & Probate

Six Important Facts if You Find Yourself in the Probate Court

Introduction

While avoiding probate has been a national pastime for decades, in some circumstances, probate is inevitable. This article discusses six key facts for those who find themselves in the probate court – because of the loss of a loved one; because a family member is no longer able to care for themselves; you are an heir at law or the beneficiary under a will; or you are a fiduciary with important responsibilities, such as a trustee, guardian, agent under a power of attorney, administrator or executor.

This article is based on my 15 years as a sitting Connecticut Probate judge in one of the busiest Connecticut Probate Courts, 22 years experience as a practicing Connecticut estate planning and probate attorney, and, just as importantly, my personal experience in probate with my own family.

Informality of Connecticut Probate Courts

One strength of the Connecticut probate system is the relative informality of the probate court compared to other state and federal courts. Many (but not all) probate matters do not require representation by an attorney. The probate clerks will be happy to provide you with information, give you the forms you need, and to answer your questions.

The purpose of the probate court is to give interested parties a way to keep track of what’s going on in a case, to examine filings (such as accountings, inventories and motions) before a decision is made, and to be heard by the judge if you have questions or an objection to what’s before the court on your matter.

With the exception of confidential matters (those involving children, adults with intellectual disability, or matters that are specifically adjudicated to be confidential in part or their entirety), all probate proceedings are open to the public. However, only interested parties may participate in a hearing. So, while the public may attend any hearing on a non-confidential matter, only interested parties may ask questions or make their position known to the judge in the hearing.

All probate documents are open to public inspection with the exceptions above, tax filings, medical records, and records specifically adjudicated to be confidential.

The Role of the Probate Clerk

If you are involved in a probate case and are not represented by an attorney (referred to as a pro se party), it’s important to understand that information a probate clerk gives you (such as forms) is highly dependent on the facts of your case. Seemingly minor changes in the facts of a case can have dramatic consequences for probate proceedings. For that reason, it’s essential that the information given to the probate clerks is accurate and complete.

For example, if real property is owned by a decedent in survivorship with someone who has survived the decedent, the probate proceeding may be completely different than if the decedent owned the real property with another as tenants in common. Only by reviewing the deed recorded with the town clerk in the municipality where the property is located is it possible to know the correct title to real property.

Probate Without an Attorney

For pro se parties, it’s very important to slowly, carefully and completely fill out probate forms. This is not a process that should be done in haste. At least 50% of the forms received at the Region 22 Probate District are either incomplete or incorrect. This results in delays and potentially added cost that can be easily avoided by taking one’s time in filling out the forms and carefully checking them before submission to the court and the interested parties.

Another point to keep in mind is that the probate clerks are there to help you through the probate process. Listen carefully to what they tell you – I suggest writing it down – so that you can refer back to it when you return home. Arguing with the clerk will only add to the frustration and time the process involves.

While the clerks work hard and spend time with pro se parties to help them, there are two things they are not allowed to do: fill out forms and give legal advice. If there’s a question on a form you don’t understand, the clerk will be able to explain what is being asked. Clerks cannot tell you what answer to provide or fill the form out for you. Giving legal advice is something that attorneys and clerks in Connecticut housing courts are allowed to do; no one else – including probate clerks – are allowed to give legal advice.

Common examples of questions for legal advice include “When can I pay the bills (in a decedent’s estate)?”; “Can I distribute the estate now?”; “My 88 year old father is unable to make decisions for himself – what do you suggest I do?” Answers to these questions may only be answered by a Connecticut attorney who has extensive probate experience. I don’t suggest using attorneys who have minimal or no probate experience.

I’m always amazed at the number of people who come to the probate court following the advice of bank tellers, social workers, contractors, nurses, cashiers, family members, and neighbors. The advice of non-attorneys, no matter how well-intentioned, should be avoided. There are also a number of websites that claim to provide legal advice to the public for proceeding through probate without an attorney. While the information on some of those sites may be accurate, it’s no substitute for talking with the probate clerk and retaining a probate attorney.

Probate Matters Requiring an Attorney

Even though many matters in Connecticut probate courts do not require legal representation, there are a number that can rarely be done correctly without an attorney. Examples include full administration decedent’s estates (where an administrator or executor is appointed); applications for appointment of a conservator; change of name of a minor where the parents are not in agreement; when you are a fiduciary – an administrator or executor of a decedent’s estate; an agent under a power of attorney; a trustee; a conservator; or a guardian of the estate of a minor.

In my 15 years on the bench, I’ve seen people get themselves into difficult situations because they did not retain legal counsel. Sometimes these people made serious mistakes that created potential civil and criminal liability, particularly if they were a fiduciary. Those mistakes could have been avoided if a competent probate attorney had been retained.

In addition to the cases listed above, many people still choose to retain legal counsel for other matters in the court – affidavit estates where no fiduciary is appointed, tax purpose only decedent estates, and a variety of other probate matters.

The most common reason I hear as to why a party who really should retain an attorney does not is the perceived cost. For those unfamiliar with probate, there are misperceptions that attorney fees are much higher than they actually are. A role of the probate judge is to ensure that the fees charged by attorneys are reasonable. I have found that the vast majority of attorneys who practice in probate court charge reasonable fees. I have, on occasion, reduced or disallowed attorney’s fees. If you understand your attorney’s billing practices and fee structure before retaining him or her, there will be few surprises when your case is concluded and the attorney presents her or his final invoice. In Connecticut, the Rules of Professional Conduct require an attorney to have a fee agreement in writing with every new client. If you retain an attorney, pay careful attention to her or his fee structure in the representation agreement. If there’s something that you don’t understand, ask the attorney to clarify it.

Because many matters in Connecticut probate courts may be completed without the services of an attorney, some believe that all probate matters can be correctly completed without an attorney. Nothing could be further from the truth.

Probate is a very specialized area of the law. Only an attorney who is a member of the Connecticut bar is qualified to represent parties before Connecticut probate courts. I suggest only considering attorneys with extensive probate experience to represent you in a probate matter.

Often, those who come to the probate court do so because they are facing a difficult situation: the death of a loved one, or perhaps a relative or close friend is no longer able to take proper care of themselves because of a medical condition or trauma. In those cases, having an attorney advise you will go a long way toward providing peace of mind in an already stressful situation.

No Private Communication with the Judge

It’s also important to understand a fundamental concept of our judicial system – ex parte communication. Ex parte communication refers to a situation where a party to a case engages the judge in communication in the absence of the other parties. Such communication can leave the other party or parties at a disadvantage, or, at the very least, create the appearance of bias on the part of the judge.

Except in a very few, narrowly defined circumstances, ex parte communication is strictly prohibited. From a practical standpoint, this means that if you have a matter before the court, you cannot have a private conversation with the judge, or send the judge written (hardcopy or electronic) communication in the absence of the other parties. All oral communication with the judge may only take place during a scheduled hearing where all parties have been noticed. As for written communication, if all parties are not copied on it, a judge may not read it, unless it is read aloud during the course of a scheduled and properly noticed hearing.

Family Conflict in Probate

Another area that frequently manifests itself in probate proceedings is family conflict. Family conflict is ubiquitous – it happens in all or nearly all families. While it can be difficult to set aside these differences, it is absolutely essential to do so in probate matters. In the probate court, parties in conflict often end up prolonging the proceedings, running up attorney fees, and costing everyone – including themselves – more money. Most of that could be avoided if the parties simply decided to put aside their differences if only for the time it takes to complete the probate process.

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 information on Connecticut estate planning and probate, please visit the Connecticut Estate Planning Blog at https://ConnecticutEstatePlanningSite.com

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

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.

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 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

Fiduciaries Part 1: Executors

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Fiduciary is a term used to describe someone who serves in a role where they must put the interests of another person or persons above their own. Examples of fiduciaries include executors, administrators, conservators, guardians, trustees, health care representatives, and agents under a power of attorney. Certain financial advisors may also be fiduciaries.

An executor is someone who is appointed by a court as a result of being named in a will. An executor is responsible for protecting the assets of the estate of the person who passed away. Executors are also responsible for administering the estate of the deceased person through the probate process.

Some people say that they are the executor of a living person’s estate. Such statements are incorrect. No one may be an executor until three things occur: first, they must be named in a valid will to be an executor; second, the person whose will names the executor must have died; and third, the will must be admitted to the probate court and the person named executor must be appointed by the court. Unless and until all those occur, there is no executor. Someone named as executor may decline to serve. In that case, another person must be appointed by the probate court to serve as executor (if the will names an alternate executor), or administrator (if not named in the will).

An administrator is someone who is appointed by a probate court when the person who died had no will, or when the person who died had a will, but the named executors in the will decline or are unbale to serve. An administrator only has authority that the probate court gives them. In contrast, an executor has the authority that the will gives him or her.

How do fiduciary duties apply to administrators and executors?

A fiduciary must perform their job. A fiduciary’s job always includes protecting the assets that are entrusted to their care. If the fiduciary wastes or mismanages the assets entrusted to them, they are subject to removal as well as surcharge (a court order to personally reimburse the estate for the loss).

The authority of a fiduciary is limited by a number of factors.

An executor’s authority is limited by the terms of the will under which they are appointed. If the executor needs to conduct an activity for which the will does not provide, then the executor must get permission from the court before they may carry out that activity. An example of this is where the decedent was the sole member of a limited liability company, and the business of the company needs to be wound up. While a will may provide authority for the executor to continue to conduct a business that the decedent owned, not all wills do so. An operating agreement of the company may also provide this authority, but, unfortunately, many limited liability companies don’t have operating agreements.

For more articles and presentations by Dom Calabrese, visit his website at 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