January 1^st of each year brings changes to several key Medicaid figures, which are adjusted for inflation. Below are the Connecticut Medicaid (also known as Title XIX and Husky) figures that apply as of January 1, 2020:

UPDATED CONNECTICUT MEDICAID FIGURES FOR 2020

 On July 12, 2019, Governor Ned Lamont signed

House Bill 7104, An Act Concerning the Adoption of the Connecticut Uniform Trust Code.  It became Public Act 19-137 (CUTC). It will be effective January 1, 2020. 

Connecticut has never had a comprehensive statute covering trust law.  It relied solely on the Connecticut common law (i.e., judicial decisions) and a smattering of trust statutes to clarify the rules regarding the interpretation and enforcement of trusts.  The Estates & Probate Section of the Connecticut Bar Association tried for decades to pass the Uniform Trust Code in Connecticut.  Starting in 2020, Connecticut trust and estate lawyers will need to consult the new trust law before deciding what course of action to take.  We will attend many talks and seminars learning the new law. 

The Connecticut Uniform Trust Code covers trusts in a Will (i.e., testamentary trusts) and trusts effective during life (i.e., inter vivos trusts).  It covers Connecticut irrevocable trusts as well as revocable trusts.  It affects charitable trusts as well as private trusts.

CUTC allows the creation of directed trusts – trusts that allow the division of trust duties among a group of trustees.  For example, the person who signs the Trust (“the settlor”) can now have one Trustee manage investments and another Trustee with management experience run a business. 

CUTC made Connecticut the 19^th state to authorize domestic asset protection trusts (DAPT).  Starting January 1, 2020, you can put assets in an irrevocable trust with yourself as a beneficiary, and, certain creditors cannot attach or compel a distribution from the trust.  The Trustee must be in Connecticut.  Such a trust will not thwart child support or alimony claims.  The new DAPT cannot circumvent state or federal Medicaid laws.

The new law also allows dynasty trusts.  CUTC extends the rule against perpetuities from 90 years to 800 years.  Connecticut residents can now put their vacation home in a trust and not worry that the trust would terminate in the future.  If properly drafted, such trusts can continue for multiple generations without incurring gift, estate or generation-skipping transfer taxes.

CUTC also clarifies the rights of beneficiaries to notice of changes in a trust, trust accountings, trust administration, or any material facts necessary for the beneficiaries to protect their interests.  For instance, even if a charity is a remainder beneficiary, the Connecticut charitable beneficiary and the Connecticut Attorney General must receive notice.  As this notice provision does not apply to charitable bequests that are subject to powers of appointment, beginning in 2020, more trusts with charitable beneficiaries may include powers of appointment to allow the settlor to change the beneficiary.

 A Trustee has an affirmative duty to respond to a beneficiary’s request for information reasonably related to the administration of the trust.  For trusts created in 2020 and thereafter, Trustees must notify qualified beneficiaries of the trust’s existence, the settlor’s identity, the right to request a copy of the trust, and a

beneficiary’s right to request a trustee’s report. Trustees must report annually, and upon termination of the trust, to current beneficiaries regarding the trust properties, liabilities, receipts, disbursements and the trustee’s compensation.  Upon request of a remainder beneficiary,

Probate Courts Go Digital

 On June 12, 2019, the Probate Court

Administrator’s Office announced that the Probate Courts will start mandatory e-filing in the coming months. Attorneys will no longer file paper copies of petitions and motions in the court. Like Connecticut Superior Courts, attorneys will electronically file petitions and motions, serve them on parties and counsel, receive decrees and notices from the court, view case documents, and pay court fees.  The Probate Courts will use TurboCourt, a software system utilized in 19 other states. The new system is currently in the testing phase in several Probate Court districts. We understand that the statewide launch will not occur until 2020.  Self-represented parties will not have to   e-file, but many will want to do so given its benefits.

The Probate Court Administrator’s Office plans several webinar and live training sessions.  Attorneys will have to master the new Probate Court Rules of Procedure that e-filing will affect.  We are excited about the new e-filing system and the many benefits it will provide.

September, 2019, Issue #25

the Trust must also provide the report to the remainder beneficiary.  A beneficiary may waive the right to trustee reports or other required information.  CUTC also allows the settlor to designate a representative of a beneficiary to receive notice of the existence of a trust, the identity of the trustee, or the right to request a trustee’s report.

The new law may expand the use of inter vivos trusts.  As long as the trust has not become irrevocable, beneficiaries and Trustees of trusts created while the settlor is living can now enter into nonjudicial settlement agreements to avoid seeking probate court approval to (i) bless an accounting, (ii)  grant a trustee a necessary or desirable power, (iii) replace or appoint a trustee, (iv) determine a trustee’s compensation, (v) transfer a trust’s place of administration or (vi) waive trustee liability for certain actions.  Probate courts will retain jurisdiction of all testamentary trusts (i.e., trusts created under a Will and trusts created by the probate court). 

CUTC grants probate courts liberal powers to modify or terminate a trust.  If the Court finds that the settlor, the trustee and all of the beneficiaries consent to the modification or termination of a noncharitable irrevocable trust, the court may approve the modification or termination, even if the change is inconsistent with a material purpose of the trust.  Even if the settlor has died, if all of the beneficiaries consent to the termination or modification of the trust, the court can make the change if it is not inconsistent with the material purpose of the trust.  Courts, however, cannot modify or terminate Special Needs Trusts for disabled beneficiaries as easily as other noncharitable irrevocable trusts.  Courts can only modify Special Needs Trusts to ensure compliance with state or federal law or to change a remainder beneficiary after repayment of all state claims.  Courts, without the consent of all beneficiaries, may modify the administrative or dispositive terms of a trust if it will further the purposes of the trust.  Modifying a trust to conform to changing tax laws would clearly further the purposes of a trust.

For the first time, CUTC sets forth a procedure for making distributions upon termination of a trust.  Beneficiaries must have 30 days to object to the proposed final distribution.  The Trustee may keep a reasonable reserve for the payment of debts, expenses and taxes.  The Trustee may request a release from

liability from the beneficiary, but it will be invalid to the extent that the release was induced by improper conduct of the Trustee, or the beneficiary, at the time of the release, did not know of the beneficiary’s rights or of the material facts relating to the breach. 

The terms of a trust will usually prevail over a statute.  Yet, CUTC sets forth those provisions of CUTC that cannot be altered by trust language.  Those unalterable provisions include (i) the duty of a trustee to act in good faith and in accordance with the terms of the trust, (ii) the power of the court to modify or terminate a trust, adjust the compensation of the Trustee, or require or modify a

ESTATE PLANNING ADVISOR

 surety bond, (iii) the duty of the Trustee to notify each beneficiary who has attained the age of 25 or his representative of the existence of the trust, the identity of the trustee and the right to request a trustee’s report, (iv) the exculpation or personal liability of the Trustee, (v) the jurisdiction of the court, or (vi) the court supervision of testamentary trusts. When drafting trusts in 2020, we will include trust terms that cannot overrule CUTC provisions, but we will include trust terms that may contravene CUTC but streamline trust administration.

Consider updating your current trust if it has been a while since you reviewed it.  The new law may alter the effect of certain trust provisions.  New statutes can cloud the meaning of favorable trust provisions and clarify the meaning of unfavorable trust provisions.  You may want to explore modifying an irrevocable trust using the court’s expanded trust modification powers. 

If you have never had a trust, you have picked the right time to consider signing one.  You can tap the most current trust provisions to keep assets within your family, provide for charity, protect your assets from creditors and qualify for public benefits.  Given that the notice provisions do not apply to trusts signed before 2020, you may want to create your new trust before the end of this year.  

Finally, if you currently serve as a Trustee, you need to know the consequences of the new law.  Trustees do not want to expose themselves to greater liability by failure to follow the unalterable provisions of CUTC.  

The estate planning attorneys at Cipparone & Zaccaro, P.C. can help you understand how this new law affects you.

_____________________________________________

Joe Cipparone wrote the articles in this edition.  No taxpayer can avoid tax penalties based on the advice given in this newsletter.  This information is for general purposes only and does not constitute legal advice.  For specific questions related to your situation, you should consult a qualified estate planning attorney.   

At Cipparone & Zaccaro, we regularly receive a call from a child who wants to assist his or her parent with an estate plan.  Often, the child schedules an appointment for us to meet with the parent or the child brings the parent to our law office.   

In the first meeting, we must clarify who our client is.  In many cases, the child is already one of our clients.  As you can imagine, this creates an ethical dilemma that must be carefully navigated. When a parent hires one of our lawyers to create an estate plan, we make it clear that the parent is the only one to whom we owe a duty of competence, diligence, loyalty and confidentiality. We have this duty regardless of who pays our fee.

Initially, many people are surprised at learning that we have an ethical dilemma.  The child helping the parent may be more involved with the parent’s care than other siblings.  Nevertheless, the lawyer’s duty is to make it clear that in order to avoid any potential conflicts of interest or any appearances of impropriety, the firm only represents the parent when drafting the parent’s estate plan.

A lawyer has a duty to keep a client’s confidences.  This means the lawyer has to protect information and communications between the parent and the lawyer by keeping them confidential.  At that point, the child may be asked to stay in the waiting room while the lawyer meets with the parent.  This practice is purposely done for the parent’s protection, which is a goal that everyone agrees on.  Meeting with the parent privately not only gives that person the opportunity to think about what they want and explain it to the lawyer but it also provides the lawyer with assurances that the client really understands what’s going on and is making choices that aren’t influenced by anyone else.  

If the child were in the same room as the parent and the lawyer, did most of the talking, and answered most of the questions, it would be very difficult for the lawyer to determine whether the wishes conveyed were those of the parent or the child.  If one child is allowed to participate in the discussion, the other children of the parent could challenge the estate plan at a later date.  This can lead to family feuds and no one wants their estate plan to cause division within their family.

Obviously, there will be times when we – the lawyers – will conclude that the parent does not have the capacity to sign estate planning documents.  In that case, our advice will include recommending other options to the client and their family.  Ultimately, however, our role is to draft an estate plan that captures the parent’s true intent.

The safer practice is for the child to stay in the waiting room while the parent consults with the lawyer.  This practice greatly decreases the chances of a subsequent legal challenge.  The lawyer does not want the parent’s Will or Trust challenged at a later time because the lawyer thought it was okay to allow a child to participate in the parent’s estate plan.  

If you have questions related to our ethical duties, please don’t hesitate to call the estate planning attorneys at Cipparone & Zaccaro, PC.  

Parents often come to us asking how they can protect an inheritance they want to give to a child who has a shaky marriage. A trust can provide protection if it is properly crafted and implemented.  It all hinges on whether the child has the ability compel a distribution from the trust.

Let’s take as an example. the case of Ferri v. Powell-Ferri. This case shows us how a trust can provide no protection of the assets for the benefit of a child embroiled in a divorce. It also clarifies how giving the people managing the trust (“the Trustees”) complete authority over whether and when to make distributions can provide effective protection of assets in a divorce. 

In 1983, Paul J. Ferri funded the Paul John Ferri, Jr. Trust with $1M for the sole benefit of his 18 year old son, Paul John Ferri, Jr. (known as “the 1983 Trust”). The trust was created in Massachusetts and is governed by Massachusetts law. The 1983 Trust established two methods by which the Trustees can distribute assets to Paul Jr. First, the Trustees may "pay to or segregate irrevocably" trust assets to Paul Jr. This means the Trustees can either pay trust funds directly to Paul Jr. or can set aside funds for his future use. Second, after Paul Jr. reaches the age of thirty-five, Paul Jr. may request certain withdrawals of up to fixed percentages of trust assets, increasing from 25% of the principal at age 35 to 100% after age 47.

In 1995, when Paul Jr. was 30 years old he married Nancy Powell. Fifteen years later in October, 2010, Nancy filed for divorce in Connecticut. In March, 2011, the current trustees of the 1983 Trust, Michael Ferri (Paul, Jr’s brother) and Anthony Medaglia (the “Trustees”) create the Declaration of Trust for Paul John Ferri, Jr. (known as “the 2011 Trust”) in order to shield the trust assets from Paul Jr.’s soon to be ex-wife. They subsequently moved the assets from the 1983 Trust to the 2011 Trust.

As with the 1983 Trust, Paul Jr. is the sole beneficiary of the 2011 Trust. Under the 2011 Trust, the Trustees have complete authority over whether and when to make payments to Paul Jr., if at all; Paul Jr. had no power to demand payment of trust assets. The spendthrift provision of the 2011 Trust bars Paul Jr. from transferring or encumbering his interest. This means the 2011 Trust shields the trust from Paul's creditors including his ex-wife Nancy. The Trustees moved the assets into the 2011 Trust out of concern that Nancy would get part of the assets of the 1983 Trust in the divorce. They moved the assets without informing Paul Jr. and without his consent.

At the time the assets were moved from the 1983 Trust to the 2011 Trust, Paul Jr. had a right under the 1983 Trust to request a withdrawal of up to 75% of the principal. During the course of the divorce, his vested interest matured into 100% of the assets in the 1983 Trust.

In August, 2011, the Trustees of the 1983 Trust and the 2011 Trust commence a declaratory judgment action against Nancy and Paul Jr. in the Connecticut Superior Court. A declaratory judgment action is a type of lawsuit that interprets a legal document like a trust. The Trustees asked the Court to declare that: 

(1) the Trustees validly exercised their powers under the 1983 Trust to distribute and assign the property and assets to the 2011 Trust; and 

(2) Nancy has no right, title, or interest, directly or indirectly, in the 2011 Trust or its assets, principal, income, or other property. 

Nancy moved for summary judgment asking the court to rule in her favor without a trial, and the Trustees filed a cross motion to block Nancy from receiving any of the Trust assets. In support of their cross motion, the Trustees filed an affidavit from Paul Sr. (“the Settlor”) who was still alive. The affidavit stated that the Paul Sr. intended to give the Trustees of the 1983 Trust the specific authority to do whatever they believed necessary and in the best interest of Paul Jr., including irrevocably setting aside the trust principal in a separate trust for Paul Jr.’s sole benefit.

In August, 2013, the Connecticut trial judge struck Paul Sr.’s affidavit and granted Nancy's motion for summary judgment. If upheld on appeal, the court’s ruling would allow Nancy to reach the Trust assets in the divorce. The court determined that the affidavit was not necessary to the disposition of this case because the 1983 Trust document itself was clear. According to Judge Munro, allowing the assets from the 1983 Trust to move to the 2011 Trust would improperly remove the provisions of the 1983 Trust that gave Paul Jr. the right to withdraw money from the trust. If Paul Sr. had wanted to make the Trustees power absolute, he could have done so in the 1983 Trust. Anything less than giving the Trustees absolute power over the trust principal could not defeat the intent of the trust section giving Paul Jr. the absolute right to withdraw the trust property. 

The Connecticut court ruled that the Trustees of the 1983 Trust moved the assets to the 2011 Trust without the proper authority to do so. In June, 2014, Judge Munro ordered restoration of 75% of the assets of the 2011 Trust to the same terms as the 1983 Trust, an accounting of the 2011 Trust from inception to the date of restoration, and an award of reasonable attorney's fees to Nancy.

Paul Jr. appealed the decision to the Connecticut Supreme Court. The Connecticut Supreme Court referred the case to the Massachusetts Supreme Judicial Court (“Mass. SJC”) because it is the state in which the 1983 Trust was set up.  In a decision dated March 20, 2017, the Mass. SJC ruled that under Massachusetts law the Trustees had the power to move the assets from the 1983 Trust to the 2011 Trust.  The Court found that the Trustees had a lot of latitude when it came to deciding what to do with the 1983 Trust. The 1983 Trust plainly allows the Trustees to act with no oversight other than the requirement to provide reporting at the request of Paul Jr. The Court noted that the 1983 Trust allowed the Trustees to "segregate irrevocably for later payment to” Paul Jr. and show that Paul Sr.’s intent was to allow the Trustees to move assets to a new trust for Paul Jr. The Court also mentioned that the Trustees not only had the power to pay trust assets directly to Paul Jr.; they could apply the payment for his or her benefit which included moving the assets from the 1983 trust to the 2011 trust. Because the language of the trust was almost identical to another case where assets were moved from one trust to another in Morse v. Kraft, a 2013 case, the Court said the Trustees could move the assets from the 1983 Trust. 

Nancy’s lawyers argued that the assets in the trust should be included in the divorce because Paul Jr. had the ability to ask for trust assets. The Mass. SJC recognized that Paul Jr. had the power to withdraw the trust principal.  Yet, the Court found that Paul Jr.’s ability to request assets from the trust did not prevent the Trustees from being able to move the assets from the 1983 Trust to the 2011 Trust. The Court reasoned that if the Trustees couldn’t move the assets over which Paul had the power to withdraw, it meant that the Trustees would lose the ability to exercise their fiduciary duties over those assets. Under Nancy' s interpretation, the Trustees would be without a role when Paul Jr. turned 47. At the time the Trustees moved the assets from the 1983 Trust to the 2011 Trust, Paul Jr. had withdrawn only a small percentage of the assets. Therefore, a substantial portion of the trust assets remained in the 1983 Trust, subject to the Trustee's authority and stewardship. This means that just because Paul Jr. had the ability to withdraw assets from the trust, it did not mean the Trustees lost the authority to move the assets from the 1983 Trust into the 2011 spendthrift trust.  In other words, the Trustees did have the power to deny creditors like Nancy access to the trust assets.

In a concurring opinion, Chief Justice Gants made clear that the Mass. SJC was not deciding whether Massachusetts law will permit assets to be moved from one trust to another for the sole purpose of removing trust assets from the marital estate that might be distributed to the beneficiary’s spouse in a divorce action. Chief Justice Grant wrote, “I do not offer any prediction as to whether this court might invalidate as contrary to public policy a new spendthrift trust created for the sole purpose of decanting the assets from an existing non-spendthrift trust in order to deny the beneficiary’s spouse any equitable distribution of these trust assets. I simply make clear that, in this opinion, we do not decide this issue; we will await a case that presents such an issue before we decide it.”     

In conclusion, the case of Ferri v. Powell-Ferri recognizes that trusts can play an important role in protecting family assets in a divorce.  Trusts with withdrawal powers or that allow the child to compel distribution will not work.  For instance, a trust that requires distributions be made for the child’s health, education, maintenance and support will not protect the trust principal. Instead, like the 2011 Trust, the Trustee must have complete authority over whether and when to make payments to the beneficiary.  

Come see the estate planning attorneys at Cipparone & Zaccaro, PC if you want to leave an inheritance to a child with a shaky marriage. 

If you want legal and financial protection from a greedy or meddling relative, a voluntary conservatorship can put the court between that relative and your property. To get the protection in Connecticut, you file a Petition for Voluntary Representation in the Probate Court where you live. The Court will hold a hearing and if appropriate, appoint a person you designate as conservator. The Court will appoint the conservator without ever finding that you lack capacity. The conservator will have to account to the Court for all of the financial transactions they make. If you decide you no longer need the conservator, you can terminate the conservatorship by giving the court 30-days notice.

What powers do you keep when a voluntary conservator is appointed?  That is the question the Connecticut Superior Court wrestled with in Day v. Seblatnigg. In a case decided on December 23, 2015, the Connecticut Superior Court ruled that a conserved person retains no power over their property. In other words, the conservator has the power to manage all of the conserved person’s property and the conserved person loses the power to enter into contracts involving the property.

Day v. Seblatnigg involves a women named Susan Elia, the sister of the plaintiff. Susan suffers from Parkinson’s disease and lung cancer. Susan has 2 children – Marc and Christine. Susan worried that her children would take over her life and her money. In 2007, when she was 63 years old, Susan created and funded a revocable trust drafted by Renee Seblatnigg, Susan’s attorney for over 30 years (herein referred to as “the Connecticut Revocable Trust”). For 4 years, Susan managed the securities in the Connecticut Revocable Trust and had over $6,000,000 in her Connecticut Revocable Trust.

Susan became increasingly fearful of interference by her children and decided to resign as Trustee of her Connecticut Revocable Trust. She appointed Seblatnigg and her financial advisor, Salvatore Mulia, as Co-Trustees. On Seblatnigg’s recommendation, Susan also filed a voluntary petition in the Greenwich Probate Court to appoint Seblatnigg as Conservator of her estate. The Probate Court approved the appointments on June 28, 2011. The Decree empowered Seblatnigg to manage the conservatorship estate, including supporting Susan, paying her debts and collecting debts due her. 

Susan continued to be concerned about protecting her wealth from her children. Consequently, Seblatnigg consulted with Attorney Richard Mauceri who works for First State Facilitators which is a Delaware LLC that provides sophisticated asset protection services to clients of substantial net worth; who for professional or other reasons, are particularly exposed to the risk of lawsuits or other risks of loss. Mauceri recommended that Susan transfer her assets to a Delaware limited liability company owned by a self-settled Delaware domestic asset protection trust. 

On September 15, 2011, Seblatnigg as conservator entered into an asset protection agreement with First State Facilitators and a legal representation agreement with Mauceri. Susan, as Grantor, signed the Susan D. Elia Irrevocable Trust with Seblatnigg and Mulia as Trustees and First State Fiduciaries as Trust Protector (herein referred to as “the Delaware Irrevocable Trust”). During Susan’s lifetime, the Trustees must pay to or for the benefit of Susan, any charitable organization, and Susan’s grandchildren so much of the net income and/or principal of the trust, in such proportions and amounts as the Independent Trustees shall determine, in their absolute and uncontrolled discretion. The Independent Trustees are not required to distribute any net income of the trust currently, and may, in their absolute and uncontrolled discretion, accumulate all or any part of the net income of the trust and add it to principal. Thus, like most asset protection trusts, the Delaware Irrevocable Trust not only provided for Susan it also gave the Trustees the power to withhold income and gift trust assets to others.

On September 20, 2011, Seblatnigg, Mulia, and Susan individually authorize Morgan Stanley to accept the assets of the Connecticut Revocable Trust held by Goldman Sachs in Delaware. The Co-Trustees of the Delaware Irrevocable Trust then create Peace At Last, LLC (“the Delaware LLC”), with the Irrevocable Trust as owner. The Co-Trustees of the Delaware Irrevocable Trust open an account at Morgan Stanley in the name of the Delaware LLC. Between September 2011 and April 2012, the Co-Trustees of the Connecticut Revocable Trust transfer $6,538,415.49 to the Delaware LLC; Seblatnigg as Conservator transfered $80,000 to the Delaware LLC and did not obtain the authorization of the Greenwich Probate Court to enter into the asset protection agreement, transfer funds to the Delaware LLC, or create and fund the Delaware LLC. Seblatnigg thought she had the power to fund the Delaware LLC without court approval because she held most of the assets as Trustee of the Connecticut Revocable Trust. Trust assets are not usually considered probate assets.

On April 5, 2013, Seblatnigg resigned as Conservator of Susan’s estate at the request of Susan’s litigation counsel. On May 20, 2013, Seblatnigg fileed a Final Account. On May 21, 2013, the Greenwich Probate Court appoints Mulia as the Conservator of Susan’s estate. Two days later, the Probate Court appointed Susan’s sister, Margaret E. Day, as conservator of Susan’s person Because Susan had a falling out with Seblatnigg and no longer wanted Seblatnigg’s legal representation. 

On December 17, 2013, Susan objected to Seblatnigg’s attorneys’ fees and conservator fees shown in the Final Account. On January 9, 2014, at Susan’s request, the Probate Court nameed Day the co-conservator of Susan’s estate for the limited purpose of matters related to Susan’s interest in the Delaware Irrevocable Trust. Apparently, Mulia had a conflict of interest because he was one of the Co-Trustees of the Delaware Irrevocable Trust and Susan wanted the funds returned to the conservatorship estate.

On March 4, 2014, Day commenced a declaratory judgment action in the Connecticut Superior Court seeking return of the assets. On February 26, 2015, Day filed a motion for summary judgment on the ground that Connecticut General Statutes §45a-655(e) requires Seblatnigg, as the conservator of Elia’s estate, to obtain approval from the Greenwich Probate Court to create and fund the Delaware Irrevocable Trust. Because Seblatnigg failed to obtain such approval, Day argued the Delaware Irrevocable Trust was void ab initio (i.e. from the beginning) and unenforceable. Thus, the assets from Susan’s conservatorship estate—including the assets from the Connecticut Revocable Trust— must be returned to the conservator under supervision of the Court.

Day won the case.  The Superior Court found that it didn’t matter that Susan Elia was a fully capable person when she signed the Delaware Irrevocable Trust. When she asked the Court for a conservator, she lost all power to contract and so she had no power to sign the Delaware Irrevocable Trust. The Court noted that it would be inconsistent for a conserved person to retain the power to manage her property when the Court had appointed a conservator at her request. The Court found that the conservator has the same powers whether under a voluntary or involuntary conservatorship. The only distinction between a voluntary and involuntary conservatorship once established is that the conserved person in a voluntary conservatorship can terminate the conservatorship on 30-days advance notice.  On January 6, 2016, Seblatnigg appealed this declaratory judgment to the Connecticut Appellate Court. 

On August 2, 2016, Judge Hopper of the Greenwich Probate Court held a hearing on  Seblatnigg’s final account. The Court ruled that the conservator’s fees, in the amount of $227,200, are unreasonable and excessive and reduced them to $36,768.50. On September 16, 2016, Seblatnigg appealed the Court rulings on the Conservator’s final account to the Connecticut Superior Court. Now there are 2 cases pending in the Superior and Appellate Courts between the parties.

The briefing in the Appellate Court on the declaratory judgment action ended on March 16, 2017. However, on April 3, 2017, Day filed a Motion to Strike a portion of Seblatnigg’s reply brief.  It appears that it will be a while before the Appellate Court hears argument in the case.  

Until the Appellate Court issues a final ruling in the declaratory judgment action, any person who wants the protection of the Court through a voluntary conservatorship must understand that they surrender control of their property to the conservator even if they are capable of managing that property. Their only recourse is to abandon their request for court supervision and petition the court to terminate the conservatorship.  

A diagnosis of Alzheimer’s Disease can send you and your caregivers reeling. Not only are there many things to learn about the disease and the many services you may need but you will have financial concerns to address. As soon as you can, focus on gathering information and weighing your options. Here is a list of the top 11 things to do financially after you receive a diagnosis of Alzheimer’s Disease:

Investigate the Cost of Alzheimer's Care

Explore the costs of in-home care, assisted living facilities, and nursing homes in your area. The cost of Alzheimer’s care largely depends on the level of care needed at the time. Typically, Alzheimer’s care costs between $5,000 and $7,000 a month in a Connecticut assisted living facility. Considering the average Alzheimer’s patient lives between 8 and 10 years, you may spend over half a million dollars on your care. See our Senior Services Guide for information about nursing homes and assisted living facilities in Southeastern Connecticut.

Find the Public Programs that Benefit You 

Now that you have a diagnosis, you may qualify for many government programs to assist you and your family.  Visit Senior Resources, the Area Agency on Aging, to determine what programs could assist you and what are the eligibility criterion. Read Chapter 3 of our Senior Services Guide for a list of federal and Connecticut programs and visit with an elder law attorney to discuss the programs and how to qualify for them. Join the Alzheimer’s Association and participate in their support groups to find out what is available.  

Create a Small Joint Checking Account  

A small joint checking account will allow your trusted spouse, child or friend to pay your day-to-day bills.  What is “small?” We advise $20,000 as an initial amount in the joint account. As the bills mount, it will help to have another person who can keep your bills current. 

Consider Transferring Your Assets to an Irrevocable Trust 

If you do not need public benefits, you can put your assets in a trust for the benefit of your family with an independent Trustee like a close friend, a bank, an attorney or an accountant.  By creating an Irrevocable Trust, you will no longer have the responsibility of managing your assets. Your Trustee will have the duty to manage your property as a prudent investor and provide for your care until you die.  The trust document controls who will receive your property and in what manner upon your death. Visit with an elder law attorney to determine if transferring your assets to an irrevocable trust is right for you. 

Consider Transferring Your Assets to Your Spouse

If you will need public benefits to provide for your care and you trust your spouse to act in your best interest, consider giving your property to your spouse. That way as you decline, your spouse will have full power to manage the family finances. Transferring your assets to your spouse will not help you obtain Medicaid (Title 19), but it will protect your assets from those who prey upon the disabled and it will simplify your estate upon your passing. Visit with an elder law attorney to decide whether to transfer your assets to your spouse.   

Have Your Spouse Sign a Community Spouse Will

If your spouse dies, you probably do not want the family’s property consumed by the cost of your care. How do you avoid that result?  By having your spouse sign a Will that creates a trust for you and a trust for your children.  Because of a Connecticut case called Skindzier v. Commissioner of Social Services, neither testamentary trust will render you ineligible for Title 19 (Medicaid).  Thus, you can receive public benefits and preserve the family assets.  The income from the trust for you can provide for your care.  One of your children will serve as Trustee of each trust and will thus manage the property as Trustee. 

Sign a Durable Power of Attorney

If Alzheimer’s renders you unable to sign documents and make financial decisions, you will not be considered legally able to implement your financial decisions. By signing a Durable Power of Attorney, you confer on another person the power to sign financial documents for you even if you become too sick to do so. 

Consolidate Accounts  

You may have multiple brokerage accounts and stocks held in street name or in a dividend reinvestment plan (DRIP). As your Alzheimer’s progresses, diversification and saving brokerage fees are no longer a major concern.  Consolidating all of your investments into one brokerage account will greatly simplify your financial life and ultimately your estate. 

Organize Your Insurance & Retirement Documents

Loved ones spend a lot of time hunting for long-term care insurance policies, life insurance policies, and health insurance information. They often need to find annuity contracts and IRA beneficiary designation forms. Assembling all of those documents before your dementia renders you unable to do so will make your caregiver’s job much easier.

Find Important Government Documents 

Assemble your social security card, birth certificate, marriage certificate, naturalization papers, green card, and DD-214 military discharge papers.  You may be the only one who knows where they are kept because they may have been issued 50 or more years ago. As your Alzheimer’s progresses, you may have less capacity to find them. 

Confirm all Beneficiary Designations in Writing 

Most people designate beneficiaries when they set up an account.  It is common for people to set up the account 10 or more years ago and have no idea who you designated as beneficiary.  Now is the time to confirm who is to receive the assets from your various accounts   and change them if they do not conform to your current estate plan. 

Prepay Your Funeral

There are no public benefits program to pay for your funeral. If you do not want to burden your family with your funeral costs, visit a funeral home and purchase a prepaid funeral contract.  

As your Alzheimer’s progresses, you will need more and more assistance from others. Only by planning and taking action now will you rise to the challenge of  managing the financial consequences of Alzheimer’s Disease. As you can see from this list of financial steps to take, an elder law attorney can help with much more than just wills and trusts. An elder law attorney can help you identify and qualify for government assistance, help with financial planning and help with transferring assets. Call our law firm today at (860) 442-0150 to learn more about how we can help you.

What Is a Hotchpot?

I know it sounds like a delicious dish, but a hotchpot is actually an estate planning tool used in many Trusts and Wills. While it is also used in other contexts, as an estate planning doctrine, it dates back as early as the 12th century.

Our children are usually the first we want to inherit our wealth after we die. If we have more than one child, and we love them equally, we want them to share in our estate equally, as well. But sometimes our children have different financial needs during our lifetime that could make an equal inheritance unfair to the others. For example, perhaps one of your children received a substantial gift from you for a down payment on a home, or to satisfy their debts or fend off a foreclosure. In light of such a gift, would it be fair to your other children if that child inherited an equal share of the remainder of your estate? Many people do not think so.

When to Use a Hotchpot in Your Will or Trust

Fortunately, there is a solution to this dilemma. A hotchpot is an estate planning tool that is created by adding a clause to your Trust or Will that takes into account gifts made to your children during your lifetime when dividing up your estate after your death. With a hotchpot clause, such gifts are treated as advancements against a child’s inheritance. These advancements are “brought into hotchpot,” added to the value of your estate before it is divided up, and then deducted from the recipient’s share.

Here is a simple example. Let’s say you have an estate worth $240,000, and three children, Annie, Betty and Charlie. You want your estate to be divided equally among your children; however, you gave Charlie a $60,000 gift to help him purchase a home. If you have a hotchpot clause in your Trust or Will, the gift you made to Charlie during your life will be “brought into hotchpot” and added to the value of your estate, so that your estate would be treated as having a value of $300,000 ($240,000 plus the $60,000 advance to Charlie). Each child’s share would be $100,000, but Charlie will be treated as having already received $60,000. So, as a result of the hotchpot, Annie and Betty each receive $100,000, and Charlie receives $40,000 ($100,000 minus the $60,000 advancement).

When NOT to Use a Hotchpot in Your Will or Trust

It is important to remember that there are many legitimate reasons why someone would not want to use a hotchpot as a way to equalize the inheritance among his or her children. Perhaps a child had special needs or other disadvantages over his or her siblings. Perhaps a child contributed in other ways to your well-being that you want to recognize. A hotchpot is by no means universal in estate planning; but there are many circumstances where it is useful and desirable.

If you think a hotchpot could be appropriate for your estate plan, contact your estate planning attorney to discuss this option.

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.  

Happy New Year! Some of you might be wondering 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 2016.

Estate Tax Exclusion

This year, the federal estate tax exclusion is $5,450,000. Therefore, 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 $10.9 million 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 million. Thus, if an estate is worth less than that amount, no Connecticut estate tax will be due. Depending on the amount above the Connecticut estate tax exclusion, the estate tax rate ranges from 7% to 12%. 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 million estate tax exclusion is by having an estate tax saving trust.

Gift Tax Exclusion

The annual federal gift tax exclusion remains at $14,000 for 2016. 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 the Federal Gift Tax Return Form 709. In 2016, 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 2016 is $148,000.

Besides the annual exclusion, each taxpayer also has a lifetime gift tax exclusion. In 2016, the lifetime gift tax exclusion is $5,450,000. Thus, 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.

Although Connecticut uses the annual federal gift tax exclusions for its own annual gift tax exclusion, Connecticut has a different lifetime gift tax exclusion: $2 million for 2016. 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 15th of the year following the gift.