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June 2016

Life is a constantly evolving journey.  Laws change.  People change.  Relationships change.  Finances change. Children come along, attend college, become adults, have their own children, and grow into their golden years.  Unfortunately, the language in a Will stays the same and may fail to accomplish your goals if not updated to parallel the evolutions of your life.  

So, once you have taken the sensible step of meeting with an experienced estate planning attorney and executing your Last Will and Testament (likely including a Trust Agreement, Durable Power of Attorney, and Appointment of a Healthcare Representative), how often should you update your Will and related estate planning  documents?  

Rule of Thumb is Every Three to Five Years

As a rule of thumb, you should review your Will and Trust documents with your estate planning lawyer at least once every three to five years to make sure that they still comply with your goals and any changes in the law.  Additionally, other situations may arise for which you should update your Estate Planning documents without delay.  The following are some of the common situations that necessitate you visiting your estate planning attorney to update your Last Will and Testament to accomplish your goals.

Marriage or Divorce

Whether a person is starting or ending a marriage, either event will have a significant legal impact on the person’s estate plan.  Additionally, marriage or divorce will most certainly change a person’s goals for the ultimate disposition of property.  State laws affect the terms of a Will by giving an omitted spouse some share of your estate, which share is unlikely to match your intentions.  In the event of a divorce, state laws will treat your spouse as if predeceased, but this might not apply to certain beneficiary designations on assets that pass outside of the probate process.  In either case, you should update your estate plan to make sure your property goes to your loved ones.  

Birth of a Child

The birth of a child is a wonderful event, but it also creates the need to protect your child  if something were to happen to you.  Who would serve as the guardian of your child or manage your child’s money during minority?  Who will pay for your child’s education?  If you have more than one child, does your will include your newborn in the disposition?  Should you update beneficiary designations now that you are a parent?  These are all typical concerns you should address in your estate planning.

Child No Longer a Minor

Children’s needs change as they grow older and become more responsible.  You may want to reevaluate who you have named as the executor under your Will or the agent in your other estate planning documents.  The person you have named may no longer be a good candidate for the administrative burden of being an executor because of age or infirmity.  Your child may now be a better choice to be your executor.  Moreover, now that your child is an adult, you may want to evaluate whether a trust for a minor is still necessary, or whether the child now needs a different trust for asset protection in the event of credit problems, divorce, or lawsuits.  

Empty Nest

Have you sold your home and relocated or downsized to suit your changing needs after your children have all moved out?  Does your Will specifically devise your former home to one individual?  Do you now own a vacation property in another state?  Are you considering adding your children to your deed?  You should review these issues with your estate planning attorney to make sure your Will, Trust and beneficiary designations accurately address these issues and your estate plan does not encounter any unforeseen obstacles.  Placing a child on a deed can affect real estate tax abatements, capital gains taxes, and government benefits.  Additionally, you want to simplify the process for your family and avoid the need and expense of an ancillary probate process if you own real estate in other states.  

A Change in Net Worth

Has your net worth significantly increased or decreased since you executed your Last Will and Testament?  If so, you should update your Will to add tax saving provisions or remove unnecessary tax provisions to simplify your Will.  The current estate tax exemption in Connecticut is two million dollars.  With proper planning a married couple with over two million combined net worth can protect up to four million dollars from estate taxes.  For a couple worth three million dollars, the savings could be over $70,000!

A Spouse, Child, or Executor Passes Away

You executed a Will to address the inevitability of your passing.  Although it is heartbreaking to consider, you may outlive a spouse, child or another loved one who is named in your Will as either a beneficiary or an executor.  You should update your will to make sure you control who will fill these vacancies in your Will.

Spouse or Child Applying for Medicaid

If you or your spouse or your child is in need of Medicaid assistance in the near future you should update your Will to make sure you don’t inadvertently disqualify them from getting assistance.  Meet with an experienced elder law attorney to review the allocation of your assets and make sure that you, your spouse and your children are protected to the maximum extent permitted and not left impoverished by the need for medical assistance.

Purchasing a Home with a Person Outside of Marriage

Cohabitating with a person outside of marriage can create problems for your estate plan.  If that person is not related to you by blood or marriage, then they have no right to inherit from you or serve as your healthcare proxy.  If you live with a person and buy personal property and real estate together you may need to separate that property at some point because of a change in the relationship or the passing of your partner.  How do you determine who owned what?  Do you want your partner to inherit from you?  You should consult a lawyer to document your wishes while your relationship is strong and cooperation is likely. 

There are many reasons to update your Will and estate plan. Don’t hesitate to contact the estate planning attorneys at Cipparone & Zaccaro, PC to keep your estate plan current. 

 

On May 10, 2016, the Connecticut Supreme Court issued a ruling that provides a blueprint on how to use a trust to protect assets for children who may need long-term care in the future. In this case, the Court ruled that the Department of Social Services improperly denied a Medicaid application because they  counted assets in a testamentary trust (a trust created in a will) that should have been considered exempt for Medicaid purposes.  Pikula v. Department of Social Services, 2016 WL 1749666 (2016).  This opinion clarifies the boundaries between a general support trust (which is a countable asset for Medicaid) and a fully discretionary supplemental needs trust (which is an exempt asset for Medicaid purposes).

John Pikula prepared a Will in 1989. The Will contained a trust for the benefit of his two daughters, Marian and Dorothy.  The trust requires the Trustee to pay to or spend for the benefit of Marian and Dorothy as much of the net income and principal as the Trustee deems advisable for their maintenance and support, and to add undistributed income to principal. The trust also granted Trustee “absolute discretion” to disburse trust principal “as he may deem advisable to provide adequately and properly for the support and maintenance of the …beneficiaries … [for] any expenses incurred by reason of illness and disability.” The trust also had some important exculpatory language:

In determining the amount of principal to be so disbursed, the Trustee shall take into consideration any other income or property which such income beneficiary may have from any other source, and the Trustee’s discretion shall be conclusive as to the advisability of any such disbursement and the same shall not be questioned by anyone. For all sums so distributed, the Trustee shall have full acquittance.

John died in 1991. The trust held a house as its only asset for many years.  The Trustee eventually sold the house and the proceeds were kept in trust for Marian’s care.  In 2012, Marian entered a long-term care facility and applied for Medicaid.  The trust value was $169,745.   Marian applied for Title 19 (Medicaid) in 2012.

The Department of Social Services (DSS) denied Marian's application for Medicaid stating that the assets in the testamentary trust constituted a countable support trust putting her over the $1,600 asset limit. In 2013, Marian filed a petition in Newington Probate Court and the judge found that it was a supplemental needs trust that could not be counted as an asset for Medicaid eligibility.

With the probate court decree in hand, Marian appealed DSS's decision arguing that her father intended to create a supplemental needs trust based upon the language used in the Will.  She claimed that she could not compel payments from the trust for her support.  Nevertheless, a fair hearing officer at DSS ignored the probate court decree and found that the use in the trust of the language “maintenance and support” created a general support trust which DSS could count as an asset for Medicaid eligibility determinations.  

Undeterred, Marian appealed to the Connecticut Superior Court. Judge Carl Schuman agreed with the DSS hearing officer and ruled in 2014 that the trust was for her support and, consequently, was a countable asset for Medicaid purposes. Marian appealed the Judge Schuman’s decision to the Connecticut Appellate Court but the matter was taken directly by the Connecticut Supreme Court.

This time, Marian prevailed.  The Supreme Court of Connecticut disagreed with the hearing officer’s determination and reversed the Superior Court’s finding that it was a support trust and countable asset. The Supreme Court reasoned that "the fact that the trustee is only required to use as much income as he 'may deem advisable' to provide for a daughter’s maintenance indicates that the testator intended for the trustee to have complete discretion in determining what, if any, of the income or principal was to be used for her maintenance.”  The Court emphasized that the Trustee’s discretion is conclusive as to the advisability of making distributions from the trust and no one can question the Trustee’s exercise of discretion. Further, the Court concluded, after considering the circumstances surrounding the trust creation, that the use of the terms “maintenance” and “support” did not limit the Trustee’s exercise of discretion in a way that would create a general support trust.  The Court also noted that the amount in the trust was not sufficient to provide for Marian’s support, because it would be quickly exhausted if it were applied to her long-term care expenses. In this way, it distinguished this case from a 2004 case entitled Corcoran v. Dept. of Social Services in which the trust value was $854,307. In that case the Supreme Court found the trust was intended by the settlor to be a general support trust which must be counted for Medicaid purposes.  

In conclusion, the Supreme Court found that the trust under John Pikula’s Will was a discretionary supplemental needs trust and DSS could not count it for purposes of determining eligibility for Medicaid. The Pikula case teaches the importance of estate planning. John protected his daughter by preparing a Will with a discretionary supplemental needs trust. Marian will now receive the long-term care she needs because of her father’s foresight and his attorney’s able drafting.