Estate Planning

The recent changes in Connecticut probate laws that took effect on July 1, 2015, simplify some aspects and clarify other aspects of the probate process. In this blog post, I explain an important change in the probate notification process and what it means for Executors of estates.

When someone dies, many people have an interest in the probate proceedings. Beneficiaries under the will, intestate heirs (those people who would inherit if there was no will) and creditors of the decedent all care about what happens to the decedent’s property. Whenever a charity is a beneficiary, the Attorney General’s Office of the State of Connecticut also has an interest in the probate proceedings. Consequently, it is not uncommon to have up to 30 different parties with potential interest in the probate process.

The Connecticut Probate Rules of Procedure used to require notification by regular mail of every document filed in court to all parties.  A party is any person who has a legal or financial interest in the probate court proceeding. 

This universal notification requirement led to a lot of extra, unnecessary paperwork. For instance, the Executor had to send notifications to people who no longer had an interest in the estate. Let’s say the decedent left $10,000 to their church and the Executor disburses that money to the church prior to filing the Inventory. Under the old law, you still had to send the church a copy of the Inventory, the estate tax return, and the financial reports even after the charity has already been paid its bequest. You could also have a creditor who the Executor pays in full or a creditor whose claim the Executor barred pursuant to state statute.  Nevertheless, the Executor had to continue sending to those creditors a copy of the all the documents filed in the probate court. With all the extra paperwork and mailing costs, you can understand why people dread going through probate.

Now under the new Probate Rules of Procedure, the court may remove a person from the list of persons to whom the court will give notice of future proceedings.  A party removed from the notice list can request special notice; if granted, the party would return to the notice list.  This new provision allows Executors to remove a beneficiary or creditor who has been paid in full from the notice list.  Executors can also remove creditors with barred claims from the notification list.  

In another good change, after sending a copy of the decree admitting a will to probate and the notice, the court is not required to give notice of subsequent proceedings to the decedent’s heirs or beneficiaries under any purported will not admitted to probate.  Thus, intestate heirs do not have to receive notice once the Will is admitted to probate.  The Executor is also excused from the requirement of sending copies of the Inventory, Financial Report, or Affidavit of Closing to any beneficiary of a specific bequest who has acknowledged, in writing, receipt of the bequest. The Executor only has to file a copy of the acknowledgement with the court. These reductions in the paperwork burden save the Executor time and the estate money.  

As probate lawyers and probate judges continue to operate under the Rules of Procedure, they find more ways to simplify probate for Executors.  One of the best improvements this year are the new notification rules. 

Section 30 of the Connecticut Probate Court Rules of Procedure now requires a report called an Affidavit of Closing. While this may sound like extra paperwork, it’s actually a good thing for all involved because it ensures that what was supposed to be done actually got done.

In the Affidavit of Closing, the Executor of an estate must confirm what he or she did with the estate assets after the court approved the Financial Report which essentially says, “Here’s what the estate consists of and here’s what we’re going to do with it.” The Affidavit of Closing answers questions like “Did the beneficiaries receive the assets as proposed in the Financial Report?” and “Did the Executor set up the reserve to pay future legal fees and accounting fees needed to file the income tax returns or collect on a claim after the estate is closed?” As you can see, these are questions the beneficiaries, creditors and the probate court have an interest in making sure get answered satisfactorily. 

In the past, the Affidavit of Closing was not always submitted. Connecticut Probate Courts used to have discretion in determining whether to require an Affidavit of Closing. Some probate courts always asked for Affidavit of Closing and other probate courts didn’t ask. Executors never knew whether the probate court they were dealing with would ask for an Affidavit of Closing or not.  

Estate Executors do not need to wonder any more.  After July 1, 2015, all Executors must file an Affidavit of Closing after approval of the financial report or final account. While this sounds like extra work, it is a good thing because the Affidavit of Closing acts as a sort of protection for both the Executor and the beneficiaries of the estate. It makes sure that the Executor follows the Financial Report that the court approved. Following the court decree will relieve the Executor of liability for the estate. It also confirms to the court that the beneficiaries received the distribution approved by the court. The Probate Court can confirm whether the estate was closed as decreed at the beginning of the estate administration.  If not, the Probate Court will ask for an explanation of the delay in closing the estate.  

One of the benefits of the Rules of Procedure originally enacted in 2013 was that it imposed uniformity among Connecticut’s probate courts. This new rule regarding Affidavits of Closing further ensures that uniformity.

Contact our estate planning law firm today if you have questions about how an Affidavit of Closing or other recent probate rule changes affects your situation.

In Connecticut, we have many estates in which the decedent has a million dollars or more but there is nothing for the court to administer. How can that happen?  First you need to know that the Probate Court only administers property passed from the decedent to the beneficiary by a Will or by the laws of intestacy.  “Intestacy” is the legal term for when someone dies without a Will.  There are 4 situations where assets do not need to go through the probate process. These are when:

1. The decedent’s entire estate consists of property held in a trust
2. Property is owned jointly with another person or entity
3. Investments are in a brokerage account or retirement plan with a designated beneficiary
4. There is a life insurance policy with named beneficiaries

In these situations, the executor of the estate needs to file a “tax purposes only estate” which is different from the typical probate process. Let me explain.

When someone dies with property worth more than $40,000, the Executor usually has to open a formal probate.  Formal probate requires filing 4 reports that have different time requirements for submission:

1. An Inventory of the estate needs to be filed within 2 months of appointment of the executor
2. A Return & List of Claims needs to be filed within 5 months of appointment
3. A Connecticut estate tax return needs to be filed within 6 months of decedent’s death and
4. A Financial Report within needs to be filed 1 year of the decedent’s death.

In Connecticut, every estate no matter how small or whether passing by trust or joint ownership of beneficiary designation, must file an estate tax return.  A Probate Court must then find that no estate tax is due in order to remove the inchoate (“silent”) lien that the State of Connecticut has on all property of a decedent.  However, with a tax purposes only estate, the Executor does not have to file 3 of the 4 reports:  Inventory, the Return & List of Claims, and the Financial Report.

Section 30.22(c) of the 2015 Probate Court Rules of Procedure clarifies that the Executor may petition the court to excuse the requirement of an inventory and final financial report or account by submitting a statement signed under penalty of false statement that the estate has no assets and, if not previously filed, a return of claims. The Executor must send a copy of the statement, at the time of filing, to each party, creditor and attorney of record and certify to the court that the copy has been sent.  This election is now made on Probate Court Form PC-211 when the Will is submitted to the court.

This new Rule recognizes that people can avoid complicated estate probate proceedings by putting all of their property in a trust, holding property jointly with another, and/or a brokerage account, retirement plan or a life insurance policy with a designated beneficiary. Wouldn’t your heirs prefer to avoid most of estate administration by using one of these non-probate methods? If you think that they would, come see us and we can help you create a “tax purposes only” estate.

Definition of Asset Protection Trust 

An Asset Protection Trust is an arrangement in which an independent person or financial institution (“the Trustee”) holds the property of your child or grandchild (“the Beneficiary”) for his or her benefit.  The child or grandchild may also be one of the Trustees if he or she is an adult. The Trustees can distribute funds to the beneficiary as the Trustees deem necessary and advisable. 

Who owns the Asset Protection Trust?  The Trustee.  The child can even be a Co-Trustee.  If the child is going to serve as a Trustee, the child needs an independent Trustee.  If the child is the sole Trustee, his or her creditors will claim that the child has control over the property and can legally turn it over to creditors.  

Who is typically the other Trustee?  A Trustee is usually a family member, a wise friend or a professional such as an attorney , accountant or a trust company.  Siblings, however, are not recommended as Trustees because anything involved in the distribution of money can affect the relationship the child and his or her siblings. 

Examples of How an Asset Protection Trust Works 

1.  A couple has a daughter who graduated from medical school. The couple wants to leave most of their estate to their daughter.  If they leave the estate to their daughter outright, and then if the daughter is sued for medical malpractice, she’s going to lose her inheritance from her parents.  The parents agreed that this type of Trust is the best plan for such a scenario. 

How does an Asset Protection Trust save them in that situation?  The Trustees own the property, not the child.  Therefore, the property is protected and the creditor cannot go after the property in that Trust.  It cannot be subject to the lawsuit. 

2.  Jennifer owned a lovely home in Mystic, Connecticut.  She was divorced.  She had a wonderful teenage daughter named Lisa.  She wanted to leave the home to Lisa.  Jennifer was concerned that if she died, her ex-husband (the daughter’s father) and her (Jennifer’s) meddling sister would take over the house and force Lisa to live elsewhere.  Jennifer transferred her home to a revocable trust that contained an Asset Protection Trust.  Jennifer designated the revocable trust as beneficiary of an account with enough money to cover one year of house expenses. She chose a good friend as Trustee.  Then, unfortunately, Jennifer passed away.  The ex-husband made a claim against her estate for the house repairs he paid during Jennifer’s life.  But, because the house in the revocable trust was not part of Jennifer’s probate estate, he could not involve the house in a legal dispute.  Lisa has a good job now, pays the house expenses, and continues to live in her mother’s lovely Mystic home.

When An Asset Protection Trust Is Not a Good Idea 

An Asset Protection Trust requires a yearly fiduciary income tax return.  Therefore, the Trust might incur tax return preparation fees.  If a professional is appointed as Trustee, the Trust will owe Trustees fees. Because of the annual cost involved, an Asset Protection Trust is usually not recommended if a child or grandchild is an adult and, the value of property transferred to the trust will be less than $100,000.

Most people do not realize that there are many ways to leave property to your children.  For children who do not receive public benefits, these include:

Outright.  Your children receive your property, no strings attached.  It is simple and clean.  It also means that a child can spend it unwisely or fail to properly manage it.  A child can commingle it with other money, and creditors can seize it.  Your grandchildren might never receive it.  If your child dies, the property could pass to the child’s spouse, the spouse could remarry, and all of it could go to the spouse’s new mate. 

Uniform Transfers to Minors Act.  If your child is a minor, you can have your Executor choose a Custodian for the child under the Uniform Transfers to Minors Act (UTMA) and transfer the property to the Custodian.  The Custodian would then put the funds in a UTMA account and spend the funds on the child’s needs as they arise.  At the age of 21, the child receives the balance of the account outright.  Once the child receives the balance, all of the advantages and disadvantages of outright distribution apply. 

Installment Trust.  You can choose to delay the receipt of property until the child reaches a certain age by leaving it for them in trust.  It does not prevent the child from obtaining access to the property; the child can always ask the Trustee for distributions of principal or income.  The Trustee may provide for expenses such as a wedding, purchase a home, or establish a business or profession.  You can give direction to the Trustee on proper distributions from the trust.  When the child reaches the age you chose in the trust document, the Trustee distributes the balance of the trust to the child.  Once the child receives the balance, all of the advantages and disadvantages of outright distribution apply. 

Transparent Trust.  A Transparent Trust holds property in trust for the life of an adult child.  The child would be the sole Trustee of the trust.  The Trustee can make distributions for his or her support in reasonable comfort, maintenance in his or her accustomed manner of living, education, and health.  The child can appoint the property at any time to his or her own children.  Upon your child’s death, all of the property goes to your grandchildren.  The advantage of a Transparent Trust is that it requires the child to keep the funds in a separate account as Trustee and spend it only for the child or his or her children.  If a spouse of a child wants to spend it, the child can say “I am sorry, that money was given to me by my parents for my health, education, maintenance and support, and after I die, it goes to our children.”  The funds in the trust would be subject to claims of creditors because the child has control over the disposition of the funds.  The child would show any income from the trust on Schedule E of the child’s income tax return, so no separate tax return is required. 

Asset Protection Trust.  An Asset Protection Trust protects assets from creditors and spouses during your child’s lifetime.  Either you or your child can appoint an independent Trustee.  A trusted family member, friend, or professional trustee would be the best to choose for an independent Trustee.  As the Trustee deems advisable, the Trustee can spend the funds on behalf of your child.  The child could also borrow funds from the Trust, and the Trustee could buy property for the child’s use.  The child would have the power to remove the Trustee for any reason, but then an independent successor Trustee would have to be appointed.  When a child reaches a certain age, the child can become the Co-Trustee.  The Trustee would have to file a separate income tax return (Form 1041) to report income earned by this trust, unless certain provisions are added to make it a grantor trust under the tax law.  Although an Asset Protection Trust is more cumbersome, it can protect the property and keep it in the family.  

Which is the best way to give to your children?  It all depends.  Make an appointment with an experienced estate planning attorney to discuss how to leave your estate to your children.

For elderly parents, once simple tasks become harder to accomplish.  One of those tasks is financial management. Without help, a parent can become confused and derail his or her retirement plan.  Bills go unpaid.  Dividend checks get lost. Duplicate checks to the same charity or vendor begin to appear. The situation begs for children to step in and organize the parent’s finances.

If your parent is in this situation, you need to take these five steps:

1.  Inventory Assets and Income.  Get a clear picture of the parent’s assets and income. Start by collecting the latest statements from banks, stock brokers, deeds, and the U.S. Treasury.  Create an Excel spread sheet of the date and totals of each account.  Create a separate listing of the name of each financial institution, the contact information of the key person at each financial institution, the account numbers and any online usernames and passwords.

2.  Get a Durable Power of Attorney and Use It.  Have your parent sign a Durable Power of Attorney to manage his or her finances.  It allows you to talk to the parent’s stock broker or banker.  Don’t wait until it’s convenient to get a Durable Power of Attorney.  If your parent is unable to sign the Durable Power of Attorney or acknowledge that it was their free act and deed to sign it, you may lose the power to help them with their finances without court intervention.  It can take several weeks to get it signed.  Visit the parent’s lawyer to get it signed.  Have 4 originals signed because most financial institutions will want to see the original.  Once it is signed, go to the financial institution with the parent and present the Durable Power of Attorney to the financial institution.  The banker or broker will feel confident that the parent wants your help in managing their finances if your parent tells them so.  If it is not possible to visit the financial institution with your parent, have your parent call the banker or broker to assure him or her that your help in managing the account is desired.

3.  List Their Expenses.  Everyone has regular, periodic expenses that require payment.  You need to create a listing of each household expense and when it comes due.  Include the name and contact information of each service provider, the usual amount or payment range, the monthly due date, and any account numbers.

4.  Put Everything on Automatic.  You can eliminate lost and bounced checks by arranging direct deposit of income from annuities, dividends, and bond interest.  You can avoid late charges, utility shutoffs and lost services by paying mortgages, utilities, condo fees, heating oil and other expenses with automatic bill pay through your parent’s checking account.

5.  Report Regularly to the Whole Family.  If you have siblings, they will likely want to know how you are managing Mom or Dad’s finances.  Financial management rarely occurs in a vacuum.  Your parent and siblings may have suggestions on better ways to meet your parent’s needs.  Keep good records and consult them.  Initially, report to your parent and siblings in writing at least every 3 months.  Outline what you have done for them financially.  Send it to siblings by e-mail; go over the report with your parent in person.  Once most of the above steps are completed, you can report less regularly.   

      It is not easy helping a parent manage his or her finances. But if done thoughtfully and reported regularly, you can make a meaningful difference in the future of a parent and maintain good relations in the family.

When many local families take their parents financial information and meet with a caseworker, they are told their parents do not qualify for public benefits because their income is too high. Their parents may have worked for an employer that provided their parents with a pension like the Navy, the State of Connecticut, or Electric Boat.  Because their income exceeds poverty levels, their parents can’t get Title 19 (Medicaid), Veterans Aid & Attendance or the Medicare Savings Program.  Their parents own nothing other than a home and a beat up Buick and yet they do not qualify for benefits?  It leaves those families scratching their heads.

Families want Title 19 because it pays for medical assistance.  Veterans Aid & Attendance can provide a monthly check that helps the veteran and his spouse remain safely at home.  The Medicare Savings Program, sometime referred to as the Qualified Medicare Beneficiary Program, helps a parent pay for Medicare Part B health insurance premiums.

Our message to families is don’t give up.  There is a trust that can reduce your parents income to the level that parents will qualify for Medicaid, Veterans Aid & Attendance or the Medicare Savings Program (QMB).  It is called a Pooled Trust and it is administered by a non-profit corporation in Hartford, CT, called Planned Lifetime Assistance Network (PLAN) of CT.

Let’s take an example.  Dad is 80 and lives at home. He wants to get Medicaid on the Connecticut Home Care Program for Elders.  This program has an asset limit of $1,600 and a monthly income limit of $2,163. Dad has monthly income of $3,200 from his years in the Navy.  He initially was told that he could not get Medicaid because his income was too high.  His daughter set up an appointment with an elder law attorney.  The attorney recommends that Dad create a Pooled Trust and place Dad’s excess income into the Trust on a monthly basis.  Dad places his excess $1,000 into the trust monthly and PLAN as Trustee pays any unreimbursed medical expenses, additional caregiver services, and other living expenses such as his mortgage (if any), property taxes, utilities, etc.  Dad now gets approximately 72 hours of assistance a week through the Program, which includes companion care, homemaker services, and home health aides.  This Medicaid program also covers co-pays, deductibles, and prescription drugs. Problem solved.

If your parent’s income is too high to qualify for public benefits, call Jack Reardon or Joseph Cipparone.  They can help you create a Pooled Trust.

Happy New Year!  Some of you may wonder how much you can give this year without having to file a gift tax return and whether you need to do some estate tax planning.  Here are the key figures to keep in mind for 2015:

Estate Tax Exclusion.     This year, the federal estate tax exclusion is $5,430,000.  Thus, if an estate is worth less than that amount, no federal estate tax will be due.  The estate tax rate is 40% of the amount above estate tax exclusion.  Each spouse has his or her own estate tax exemption and can use a predeceased spouse’s unused estate tax exemption.  This principle is known as the “portability of unused exemption between spouses.”  With portability, couples can now have assets of $10,860,000 without owing any federal estate tax.  A surviving spouse who remarries will lose the prior deceased spouse’s exemption. 

The Connecticut estate tax exclusion remains at $2,000,000.  If an estate is worth less than that amount, no Connecticut estate tax will be due.  The estate tax rate ranges from 7% to 12% depending on the amount above the Connecticut estate tax exclusion.  Like the federal estate tax, each spouse has his or her own estate tax exemption.  Unlike the federal estate tax, however, there is no portability in Connecticut.  The only way for a couple to use their entire $4,000,000 estate tax exclusion is by having a credit shelter trust.

Gift Tax Exclusion.     The annual federal gift tax exclusion is $14,000 for 2015. If a person makes gifts of $14,000 each to 4 different individuals, none of the gifts are considered taxable and none of them have to be reported on Form 709, the federal gift tax return.  In 2015, a taxpayer can split gifts with his or her spouse so that $28,000 can be given to each donee.   A taxpayer, however, must report split gifts on Form 709.  The annual exclusion for gifts to non-citizen spouses is not the same as the annual exclusion for gifts to U.S. citizen spouses.  That is because gifts to non-citizen spouses can be subject to federal gift tax.  Gifts to citizen spouses are not subject to gift tax because of the unlimited gift tax marital deduction.  The annual exclusion for gifts to non-citizen spouses in 2015 is $147,000.

Besides the annual exclusion, each taxpayer also has a lifetime gift tax exclusion.  In 2014, the lifetime gift tax exclusion is $5,430,000.  By applying some of your lifetime gift tax exclusion, a gift with a value in excess of the $14,000 annual exclusion will result in no gift tax owed, but you must file a Form 709 with the IRS.  When you die, your estate tax exclusion will be reduced by the amount of the gift over the annual exclusion.  The lifetime gift tax exclusion is the same for U.S. resident non-citizens and U.S. citizens.  The federal gift tax rate is 40% for the amount above the lifetime gift tax exclusion.

In 2015, the Connecticut lifetime gift tax exclusion is $2,000,000.  Connecticut and the U.S. government have the same annual gift tax exclusion of $14,000.   You have to file a Connecticut gift tax return if you make any taxable gifts.   For example, if you are not married, and you give $50,000 to each of your 2 children, you will have to file a Connecticut gift tax return, even though no gift tax is payable.

Federal and Connecticut gift tax returns are due by April 15 of the year following the gift.

On December 12, 2014, The Centers for Medicare and Medicaid Services (CMS) proposed a regulatory change to ensure that legally married same-sex spouses receive the same rights as opposite-sex spouses in Medicare and Medicaid participating facilities.  These rules apply regardless of whether the state where the facility is located recognizes same-sex marriages. CMS is a federal agency within the United States Department of Health and Human Services. It is responsible for administering the Medicare program and, in partnership with state governments, the Medicaid program.

The new rule would apply to long-term care facilities, hospices, hospitals, ambulatory surgical centers and other health care providers. If the new rules become final, health care facilities and providers would have to recognize all valid same-sex marriages, regardless of whether the state in which the health care facility or provider is located recognizes same-sex marriages.

The new rule was drafted in response to the U.S. Supreme Court’s ruling in United States v. Windsor, 570 U.S.12, 133 S.Ct. 2675 (2013).  That decision declared the federal Defense of Marriage Act (DOMA) unconstitutional. DOMA defined “marriage” and “spouse” to exclude same-sex partners, stating:

In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word “marriage” means only a legal union between one man and one woman as husband and wife, and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife.

In the Windsor case, New York residents Edith Windsor and Thea Spyer, wed in Ontario, Canada, in 2007. The State of New York recognizes that marriage. When Spyer died in 2009, she left her entire estate to Windsor. Windsor then sought to claim the federal estate tax exemption for surviving spouses, but was barred from doing so by DOMA. The U.S. Supreme Court held that DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment.

The proposed rule was published in the December 12, 2014, Federal Register, and can be viewed here: https://www.federalregister.gov/articles/2014/12/12/2014-28268/medicare-and-medicaid-program-revisions-to-certain-patients-rights-conditions-of-participation-and.

The nation's elderly and disabled Social Security recipients will receive a 1.7 percent increase in payments in 2015. This increase will raise the average monthly payment for the typical retired worker by $22. The increase is slightly higher than last year’s 1.5 percent cost-of-living adjustment (COLA). The same COLA will apply to pensions for federal government retirees and to most veterans.

The standard Medicare Part B monthly premium will remain $104.90 in 2015, the same as it was in 2014.  Most Medicare recipients have their premiums deducted from their Social Security payments.   

The COLA by the Numbers

Starting in January 2015, the average monthly Social Security retirement payment will rise from $1,306 to $1,328 a month for individuals and from $2,140 to $2,176 for couples. The 1.7 percent increase will apply to both elderly and disabled Social Security recipients, and individuals who receive both disability and retirement Social Security will see increases in both types of benefits.  The maximum Social Security benefit for a worker retiring at full retirement age, which is age 66 for those born between 1943 and 1954, will be $2,663 a month.

The Social Security COLA also raises the maximum amount of earnings subject to Social Security taxation to $118,500 from $117,000.  This means that those earning incomes above $118,500 will pay no tax on any income above that threshold.

The COLA increases the amount early retirees can earn without seeing a cut in their Social Security checks.  Although there is no limit on outside earnings beginning the month an individual attains full retirement age, those who choose to begin receiving Social Security benefits before their full retirement age may have their benefits reduced, depending on how much other income they earn.

Early beneficiaries who will reach their full retirement age after 2015 may now earn $15,720 a year before Social Security payments are reduced by $1 for every $2 earned above the limit. Those early beneficiaries who will attain their full retirement age in 2015 will have their benefits reduced $1 for every $3 earned if their income exceeds $41,880 in the months prior to the month they reach their full retirement age.

For 2015, the monthly federal Supplemental Security Income (SSI) payment standard will be $733 for an individual and $1,100 for a couple.

For a complete list of the 2015 Social Security changes, go to: http://www.ssa.gov/news/press/factsheets/colafacts2015.html