Estate Planning

What are Advance Directives?

Advance Directives are specific written instructions regarding health matters. The most common instructions contained in written Advance Directives are the designation of a Health Care Representative and a Living Will. Connecticut also permits adults to designate whether or not they wish to donate any vital organs (make an anatomical gift) authorize cremation, or designate a particular person to take custody of remains.

What is a Power of Attorney?

A Power of Attorney allows you to designate an Agent to act on your behalf. The power you give to your Agent can be extremely broad, allowing him or her to act in any situation in which you could act for yourself, essentially as your “alter ego;” or it can be more limited in scope. A Power of Attorney can grant a specific power for a specific reason or time period.

When considering whether to appoint an Agent, consider whether you want your Agent to be able to act on your behalf at any time; or whether you only want to appoint someone to act for you if you cannot act for yourself. A Durable Power of Attorney is effective as soon as you sign it, and remains effective even if you subsequently become incapacitated. The person you name as your Agent can sign your name without consulting you, and that signature has the same legal effect as if you had signed the document yourself. A Springing Power of Attorney offers the same broad range of power provided by a Durable Power of Attorney, but only takes effect after a physician pronounces you incapable of handling your own affairs. Thus, the person named as your Agent under a Springing Power of Attorney cannot act on your behalf in any capacity unless and until your doctor pronounces you incompetent.

What is a Will?

A Will is a legal document, signed with certain formalities (witnesses and often notarized) that a person uses to provide for the orderly disposition of assets after death. Wills do not avoid probate. Wills have no legal authority until the Will-maker dies and the original Will is delivered to the Probate Court and admitted. Anyone with minor children should have a Will. It is the only way to appoint a guardian of an orphaned child. Please be aware that simply writing down your wishes and signing it does not create a valid a Will. Even if the instructions you provide are clear, the Probate Court will not be able to honor your wishes unless a Will is properly executed.

What happens if I don’t have one?

If you die without a Will, the State where you reside will dictate how your assets are divided and distributed at the time of your death. Some assets may pass to the persons you designated as beneficiaries, such as on an IRA or a life insurance policy. If you own any property jointly with another person with rights of survivorship, the surviving owner becomes the full owner of the property after your death. But assets that are not designated specifically will pass according to the laws of intestacy to your closest living heirs. This process takes place under the jurisdiction of the Probate Court.

What is the difference between a Will and a Trust?

A trust is a contract that is entered into by a person called a Grantor and another person called a Trustee. (In the case of a revocable trust, the Grantor and the Trustee can be the same the person.) The Trustee agrees to hold and manage trust property for the benefit of another person, called the “Beneficiary.” When a trust is created in a Last Will and Testament it is called a “testamentary trust” because no trust exists until after the trust maker has died. A trust can also be created during lifetime. This type of trust is called an “inter vivos” trust.

Does my trust need to be funded?

If avoiding probate is an important priority then your trust should be funded while you are living. Assets that are titled in the name of a trust prior to death are not subject to the probate process, because the asset is already where it needs to be.

If a trust was created during lifetime but no assets have been titled in the name of the trust, the trust is considered an unfunded trust. In this situation, probate will likely be required to move assets into the trust after death. After the probate process is complete, the Probate Court orders the transfer to the trust where it can be managed without ongoing Court supervision.

Do I need new documents if I re-locate to another state?

Yes. Although a Will prepared in another state will be honored for its instructions, the designated Fiduciary will have no power. Power is granted under a specific state statute. Thus, a Will prepared in Connecticut grants an Executor power under Connecticut law. If the will-maker moves to Florida and does not create a Florida Will, the Will prepared in Connecticut only grants Connecticut authority. No Florida authority has been conveyed. Thus all of the Fiduciary’s activities will need to be approved by the Court with jurisdiction over the Will in Florida.

Trust Administration

Do I need to tell my tax preparer that I have signed a revocable trust?

While you are living, a revocable trust is almost invisible. They need no separate tax identification number and they do not require a separate income tax return. They use the trust-maker’s social security number and assets are reported on a simple Form 1040. We recommend that you make sure that your tax preparer is aware of the existence of the trust (because statements may reference the name of the trust and any currently serving Trustees) but assets will continue to be reported under your name and social security number. However, after death, the trust will be assigned a new tax identification number and will be required to file one or more separate income tax returns of its own.

Who should I name as my Successor Trustee?

The job of Successor Trustee needs to be evaluated in the context of the trust’s overall goals and “life expectancy.” If your trust essentially “ends” upon your death, the responsibilities of Successor Trustee are largely administrative. There are financial, legal and tax obligations that must be met before assets can be distributed to beneficiaries. When selecting an “Administrative Trustee” you should consider the role as more of an obligation than a reward, and you should select someone capable of handling the responsibility, keeping meticulous records, and meeting deadlines in a timely matter.

If a trust is to continue for the lifetime of beneficiaries, there are more issues to consider. Are the trusts continuing in order to provide divorce or creditor protection? If so, then having a disinterested Trustee will be important. Is a beneficiary disabled or receiving any form of public assistance? Then naming a Trustee who understands the ins and outs of public benefits law is critical.

Finally, a continuing trust should be drafted to provide flexibility if your first or second choice for Successor Trustee don’t work out. Does your trust permit new trustees to be appointed without Court intervention? Can beneficiaries select their own Trustees? These questions should be carefully considered as part of your plan.

Will there be any ongoing costs associated with my Trust?

Some people reject the idea of a professional trustee, or utilizing professional fiduciary services, because they assume the cost will not be justified. That is not always the case. For example, most financial institutions already charge fees for managing assets. Many of those institutions also offer fiduciary services, in part so that they can continue to manage assets. Thus, the cost of utilizing their professional services is only marginally impacted by the additional legal responsibility associated with serving as trustee. Moreover, fees related to the trust’s administration, whether legal, tax, financial, are tax deductible (in varying degrees). Thus, if the trust produces income, expenses offset the income, and decrease the tax passed on to beneficiaries. While fees are certainly a legitimate and important concern, the value of professional assistance should not be underestimated.

Specialized Estate Planning

What is a Supplemental Needs Trust?

A Supplemental Needs Trust (also known as a Special Needs Trust) is a trust created for a disabled beneficiary which supplements government benefits such as Medicaid rather than limiting the individual to only the services provided by government programs. Supplemental needs trusts pay for comforts and luxuries — “special needs” — that could not be paid for with public funds.

What is a Standalone Retirement Trust?

A Standalone Retirement Trust is a trust created specifically for the purpose of protecting or insulating one or more retirement accounts from the potential creditors (including a divorcing spouse) of a beneficiary. Instead of naming an individual as the beneficiary, a simple trust for the benefit of the beneficiary is created. Designating a trust, rather than the beneficiary directly, gives the account owner more control over how and for what reasons a retirement account can be accessed, preserving long term growth and tax efficiency. Instead of required minimum distributions being paid directly to your beneficiary, they will be paid into the trust for the benefit of your beneficiary. The trust can either be mandated to pass on these distributions immediately to the beneficiary (called a conduit trust) or it can accumulate these distributions (called an accumulation trust) and pay out trust assets according to your instructions (for example, for higher education expenses, down payment on a home, etc.)

Probate and Estate Administration

What is probate and when is it required?

Probate is a court-supervised procedure for collecting a deceased person’s assets, paying debts and taxes, and distributing the property to the person’s beneficiaries (either according to the instructions the person set forth in his or her Will or as determined by state law if the person died without a Will). The length of time to administer a probate estate may be as short as a few months, or as long as a few years, depending on many factors.

In Connecticut, probate is required if the decedent owned land (real property) in his or her sole name, or if he or she owned more than $40,000 in his or her sole name, without a “pay on death” or beneficiary designation.

How do living trusts avoid probate?

A Will cannot do or accomplish anything until after the Will maker has died. But a revocable living trust is valid as soon as it is created. This means that a trust can begin to hold and manage assets immediately. When assets are owned by a trust prior to death, those assets do not have to be “moved” by the Probate Court after death. Thus, many people who have had a bad experience with probate utilize trust based planning to ensure that probate will not be required.

If my spouse has died, but our assets were all jointly titled, isn’t probate avoided?

When assets are titled jointly with rights of survivorship, the asset rightfully belongs to the surviving joint owner after death. No Decree or Court intervention is needed to complete that process. However, even if assets are all titled jointly, they must still be reported on a Connecticut Estate Tax Return.

Additionally, if real estate is jointly owned, the surviving owner will not be permitted to sell or transfer the real estate unless and until a Connecticut Estate Tax Return is filed and the Court issues a Certificate for the Land Records confirming either that no estate taxes were owed, or that all estate taxes were properly paid.

What is the Connecticut Probate Fee?

Here in Connecticut, there are certain fees payable in every estate, regardless of whether probate is actually required, and regardless of whether any estate taxes are owed. While not a tax, per se, the fee is based upon the size of a decedent’s “gross taxable estate.” This includes retirement accounts, life insurance proceeds, and even joint accounts.

The amount of the fee is set by statute on a sliding scale based upon the date of death and the size of the gross taxable estate. Currently, for estates greater than $10,000 but less than $500,000 in value, the Statutory Fee is $150 plus .0035 of the amount in excess of $10,000. For estates greater than $500,000 but less than $2 million, the Probate Fee is $1,865 plus .0025 of the amount in excess of $500,000. For estates over $2 million, the Fee is $5,615 plus .005 of the amount over $2 million. There is no longer any cap on the amount of the Connecticut Probate Fee.

The Probate Court will calculate the Fee and send an invoice directly to the Fiduciary as soon as the Estate Tax Return has been filed. (If an extension is requested, the Fee will be calculated at the time the extension is requested.) The Probate Fee will be due upon receipt of the invoice.

How soon can I distribute assets?

Before making any distributions, a Fiduciary has certain obligations to make sure ALL of the Decedent’s debts and other obligations have been fully paid. If distributions are made before this process is complete, or if any unanticipated expenses or taxes are due, the Fiduciary may be required to pay those expenses or taxes from personal funds. For this reason, you should always obtain appropriate legal advice before making any advance distributions.


Do I need to worry about Estate Taxes?

Under the current rules, no Federal Estate Taxes are owed unless the Decedent dies with more than $5.49 million (adjusted for inflation). Federal tax planning strategies should be considered if assets exceed this amount.

Here in Connecticut, the State assess its own estate tax when assets exceed $2 million (not adjusted for inflation). So even though many national publications are touting that “estate tax planning is dead” this is certainly not true in Connecticut. Tax planning strategies should be considered in Connecticut when a husband and wife’s combined assets exceed $2 million.

What types of gifts can I make without paying tax?

Certain gifts are not subject to tax because of who receives the gift. For example, gifts to charitable organizations are exempt from tax. Likewise, gifts for education are exempt, as are gifts for medical expenses. Other gifts are exempt from tax because the amount is too small. The current exemption amount is $14,000 per person per year. A husband and wife together can double this amount and give $28,000. If a gift is below the exemption amount, no gift tax is owed and no Gift Tax Return is required.

Should I give away my assets away now to avoid estate tax?

There is no real advantage to giving away assets before death for the purpose of avoiding estate tax. The Connecticut estate tax return specifically requires the reporting of all taxable gifts made after 2005. The value of those gifts is included in the total reported on the estate tax return. Thus no estate tax savings is achieved giving away assets prior to death, unless the amount of those gifts is too small to be reported. (The current permitted exemption amount is $14,000.) Moreover, making significant taxable gifts could also result in adverse income tax consequences. Assets that are gifted during lifetime typically do not receive a step up in basis for capital gains tax. So, an asset like the family home that may have been purchased for much less than its current value would be taxed at the time it is sold at a much higher rate than if it had been inherited at death. Additionally, gifts made to avoid estate tax may inadvertently disqualify the donor from eligibility for public benefits.

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