Posts tagged with "Connecticut Supreme Court"

What is a Pre-Need Funeral Services Contract?

Pre-need Funeral Services Contract

A pre-need funeral services contract allows an individual to set aside funds, before his or her death, to be used specifically to pay for funeral expenses. Under the terms of such a contract, a “purchaser” signs the contract and advances funds, which are held in an escrow account for the purpose of paying for future funeral services for the “beneficiary” upon his or her demise. See C.G.S. §42-202. A pre-need funeral services contract may only be sold by a funeral director licensed by the public health commissioner. See C.G.S. §42-201.

Requirements

There are strict requirements for such contracts under Connecticut law. For example, funeral services contracts must be in writing, and must contain the following:

(1) The name, address, telephone number and Social Security number of the beneficiary and the purchaser;

(2) The name, address, telephone number and license number of the funeral director for the funeral service establishment providing the goods or services;

(3) A list of the selected goods or services, if any;

(4) The amount of funds paid or to be paid by the purchaser for such contract, the method of payment and a description of how such funds will be invested and how such investments are limited to those authorized pursuant to subsection (c) of section 42-202;

(5) A description of any price guarantees by the funeral service establishment or, if there are no such guarantees, a specific statement that the contract contains no guarantees on the price of the goods or services contained in the contract;

(6) The name and address of the escrow agent designated to hold the prepaid funeral services funds;

(7) A written representation, in clear and conspicuous type, that the purchaser should receive a notice from the escrow agent acknowledging receipt of the initial deposit not later than twenty-five days after receipt of such deposit by a licensed funeral director;

(8) A description of any fees to be paid from the escrow account to the escrow agent or any third party provider;

(9) A description of the ability of the purchaser or the beneficiary to cancel a revocable funeral service contract and the effect of cancelling such contract;

(10) For irrevocable contracts, a description of the ability of the beneficiary to transfer such contract to another funeral home; and

(11) The signature of the purchaser or authorized representative and the licensed funeral director of the funeral service establishment.

C.G.S. §42-200 + C.G.S. §42-202

See C.G.S. §42-200(b). A funeral services contract must also contain a statement that if the particular merchandise provided for in the contract is not available at the time of death, the funeral service establishment will furnish merchandise similar in style and at least equal in quality of material and workmanship to the merchandise provided for in the contract.  See C.G.S. §42-202(g). Funeral services contracts should not be confused with burial insurance policies, which are separately codified in the Connecticut General Statutes, under Section 38a-464.

For further information on pre-need funeral services contracts in Connecticut, see Chapter 743C of the Connecticut General Statutes. The General Statutes can be found online at: http://www.cga.ct.gov/. Additional information is available in the State of Connecticut’s Office of Legal Research Report on pre-need funeral services contracts online at: http://www.cga.ct.gov/2007/rpt/2007-R-0578.htm.

Should you have questions regarding pre-need funeral services contracts, contact managing partner Joseph C. Maya at 203-221-3100 or at JMaya@Mayalaw.com for a free consultation. You may also contact the well practiced attorneys of Maya Murphy P.C. for any other inquiries regarding estates and trusts.

Connecticut Appellate Court finds that Incorrect Standard was applied for Testamentary Capacity to make a Will

Connecticut Appellate Court finds that Incorrect Standard was applied for Testamentary Capacity to make a Will
Deroy v. Estate of Baron, 136 Conn. App. 123, 43 A.2d 759 (2012)   

In a case involving testamentary capacity, Defendant Jeanne Baron appealed from the judgments of the Superior Court denying the admission of a will executed by her mother, Edith Baron, because of lack of capacity.  The Probate Court originally received two documents purporting to be the decedent’s will, one executed on February 12, 2002 and the other on July 3, 2002.   The will executed on July 3, 2002 was admitted by the Probate Court.  On appeal, the Superior Court concluded that Edith Baron was “incompetent” when she executed the will on July 3, 2002.

In reviewing the Superior Court decision, the Appellate Court found that the incorrect standard was applied for testamentary capacity.  The standard does not require the testator to be able to understand “complex” financial transactions.  Rather, the mental capacity necessary to make a will under Connecticut law is a lower standard.  An individual may have the capacity to make a will even if they are generally incapable of business transactions.

“To make a valid will, the testatrix must have had mind and memory sound enough to know and understand the business upon which she was engaged, that of the execution of a will, at the very time she executed it.” (Internal quotation marks omitted)  Sanzo’s Appeal from Probate, 133 Conn. App. 42, 50, 35 A. 3d 203 (2012); see also Atchison v. Lewis, 131 Conn. 218, 219-20, 38 A.2d 673 (1944).  The Appellate Court reversed the judgment of the Superior Court and the case was remanded for further proceedings.

Should you have any questions relating to wills, trusts, estates or probate issues generally, please feel free to contact Attorney Joseph C. Maya, managing partner in the firm’s Westport, Connecticut office in Fairfield County by telephone at (203) 221-3100 or by e-mail at jmaya@mayalaw.com.

What is the Gift Tax and How Does it Work?

The Gift Tax

The federal gift tax applies to gifts of property or money while the donor is living. The federal estate tax, on the other hand, applies to property conveyed to others (with the exception of a spouse) after a person’s death.

The gift tax applies only to the donor. The recipient is under no obligation to pay the gift tax, although other taxes, such as income tax, may apply. The federal estate tax affects the estate of the deceased and can reduce the amount available to heirs.

Exceptions

In theory, any gift is taxable, but there are several notable exceptions. For example, gifts of tuition or medical expenses that you pay directly to a medical or educational institution for someone else are not considered taxable. Gifts to a spouse who is a U.S. citizen, gifts to a qualified charitable organization, and gifts to a political organization are also not subject to the gift tax.

You are not required to file a gift tax return unless any single gift exceeds the annual gift tax exclusion for that calendar year. The exclusion amount ($14,000 in 2013) is indexed annually for inflation. A separate exclusion is applied for each recipient. In addition, gifts from spouses are treated separately; so together, each spouse can gift an amount up to the annual exclusion amount to the same person.

Determining the Gift Tax

Gift taxes are determined by calculating the tax on all gifts made during the tax year that exceed the annual exclusion amount, and then adding that amount to all the gift taxes from gifts above the exclusion limit from previous years. This number is then applied toward an individual’s lifetime applicable exclusion amount. If the cumulative sum exceeds the lifetime exclusion, you may owe gift taxes.

Tax Relief Act

The 2010 Tax Relief Act reunified the estate and gift tax exclusions at $5 million (indexed for inflation), and the American Taxpayer Relief Act of 2012 made the higher exemption amount permanent while increasing the estate and gift tax rate to 40% (up from 35% in 2012). Because of inflation, the estate and gift tax exemption is $5.25 million in 2013. This enables individuals to make lifetime gifts up to $5.25 million in 2013 before the gift tax is imposed.

Contact Managing Partner Joseph Maya and the other experienced estate law attorneys at Maya Murphy, P.C. today at (203) 221-3100 or by email at JMaya@Mayalaw.com, to schedule a free initial consultation.

Connecticut Supreme Court upholds Order for Specific Performance of Contract to purchase Estate Property

Connecticut Supreme Court upholds Order for Specific Performance of Contract to purchase Estate Property  
Bender v. Bender, 292 Conn. 896; 975 A.2d 636 (2009)

The plaintiffs filed a complaint in Superior Court for specific performance and damages for breach of contract against the defendants, the executors of the Estate of Edward Stebner (the “Estate”).  The complaint arose out of a contract entered into by the plaintiffs and the defendants for the plaintiffs’ purchase of real property from the Estate.  The plaintiffs tendered a deposit in accordance with the contract but the defendants subsequently indicated that they were unwilling to complete the transaction.  The Superior Court dismissed the plaintiffs’ claim for damages but entered judgment in favor of the plaintiffs on their claim for specific performance of the contract.

The defendants appealed claiming that res judicata barred the plaintiffs from pursuing the breach of contract claim and bringing an action for specific performance in Superior Court because the Probate Court had denied the petition brought by the plaintiffs for specific performance of the contract.  Also, the defendants argued that the action should not have proceeded without the residuary beneficiaries of the decedent as named in the will, that the contract was invalid and that the contract could be avoided under several defenses.

The Supreme Court concluded that res judicata did not bar the action because the Probate Court lacked jurisdiction under Conn. Gen. Stat. § 45a-98(a)(3) over the claims brought in the Superior Court.  In addition, the Superior Court correctly ordered specific performance because the defendants had authority to sell the property as executors of the Estate pursuant to a valid contract that could not be avoided.  Finally, the Supreme Court ruled that the action could proceed without the residuary beneficiaries.  Therefore, the judgment of the Superior Court was affirmed.

Should you have any questions relating to wills, trusts, estates or probate issues generally, please feel free to contact Attorney Joseph C. Maya, managing partner in the firm’s Westport, Connecticut office in Fairfield County by telephone at (203) 221-3100 or by e-mail at jmaya@mayalaw.com.

Connecticut Supreme Court Holds Support Awards Based on Earning Capacity Must Specify Its Dollar Amount

In a Connecticut Supreme Court decision, Tanzman v. Meurer, the Court held that when a trial court has based an alimony or child support award on a party’s earning capacity, the court must determine the specific dollar amount of the party’s earning capacity.[1] The Court overruled a previous Appellate Court decision, Chyung v. Chyung,[2] which held that a court issuing a lump-sum alimony award based on earning capacity was not required to specifically state the dollar amount.

The plaintiff, Jonathan M. Tanzman, appealed from the judgment of the Superior Court, Judicial District of Fairfield, denying his postjudgment motion to modify his unallocated alimony and child support obligations to the defendant, Margaret E. Meurer.[3] After the Appellate Court affirmed the trial court’s denial the plaintiff’s motion, the Supreme Court granted his appeal. The issue before the Supreme Court was whether a trial court that issuing a financial support order based on a party’s earning capacity must determine the specific dollar amount of the party’s earning capacity.

The relevant facts and procedural history as summarized by the Appellate Court show on October 6, 2006, in connection with its judgment of dissolution of the parties’ marriage, the trial court entered an order requiring the plaintiff to pay the defendant $16,000 per month in unallocated alimony and child support for a period of fourteen years. The court found that the plaintiff had an earning capacity far exceeding his then current income, but did not specify the amount of the earning capacity.  While the court determined that the plaintiff had earned a yearly average of $988,064.43 in his career as a day trader over the previous seven years, due to changes in the day trading industry he was unable to find another job in the same field and consequently was earning much less. Nevertheless, the trial court concluded that, “Although the changes in the market and the industry have proven a challenge to the plaintiff’s continued financial success, the court does not believe that he has made satisfactory efforts [toward] gaining new employment.”[4]

On January 9, 2008, the plaintiff filed a motion to modify the support order in which he represented that he had obtained employment at an annual salary of $100,000.  He contended that, because his current income was “a fraction of the earning capacity previously attributed to him by the trial court,” there had been a substantial change in circumstances justifying a modification of the award.[5] The plaintiff filed a motion for articulation of the original support order, asking the trial court to articulate the specific earning capacity that it had attributed to him at that time. The trial court denied the motion for articulation.

After a hearing, the trial court denied the plaintiff’s motion for modification of the support order.  The court stated that, at the time of the original support order, it “was not persuaded that there was a serious commitment and effort to maximize [the plaintiff’s] earning capability and the court’s position has not changed.” Again, while the court did not specify the amount of the plaintiff’s estimated earning capacity, it found that the plaintiff’s income had not been reduced significantly since the date of the original support order, and accordingly, concluded that the plaintiff had not clearly shown a substantial change in circumstances justifying a modification of the award.

The plaintiff then filed a motion for clarification of the court’s decision in which he requested the court to clarify whether it had considered “any amount of ‘earning capacity’” in connection with the motion for modification and, if so, “what amount did it consider?” The trial court denied the motion for clarification.

The plaintiff appealed the trial court’s denial of the motion for modification to the Appellate Court and filed a motion to review.  The Appellate Court ordered the trial court, regarding the October, 6 2008 support decision, “to state whether the court made a finding of the plaintiff’s current earning capacity and, if so, the specific dollar amount and the factual basis for that finding.”[6]  In response, the trial court issued an articulation in which it stated that had not made a specific finding of the plaintiff’s earning capacity in connection with its October 6, 2008 decision denying the motion for modification. Instead, it stated that “at the time of trial the plaintiff had not made efforts to maximize his earning capability and based on the evidence presented at the modification hearing including his financial affidavits the court’s position was essentially the same.”[7]

The Appellate Court affirmed the judgment of the trial court, denying the motion for modification.  The Appellate Court reasoned that, because the trial court’s “evaluation of the plaintiff’s earning capacity, as a foundation for its award and denial of the plaintiff’s motion for modification, remained unchanged throughout the underlying proceedings,” and because “the plaintiff has failed to provide us with any statute, case law or rule of practice that require[d] the trial court to specify an exact earning capacity when calculating an alimony and child support award”; “the trial court’s failure to specify an amount did not require reversal.”[8]

On appeal, the Supreme Court agreed with the plaintiff who argued that the Appellate Court improperly determined that the trial court is not required to determine the specific amount of a party’s earning capacity when that factor provides the basis for a support award.  The Supreme Court reversed the judgment of the Appellate Court affirming the trial court’s denial of his motion for modification and remanded to the trial court for a new hearing at which the court must determine the plaintiff’s earning capacity.[9]

In its opinion the Supreme Court articulated the law relevant to its decision. § 46b–86(a) provides that a final order for alimony may be modified by the trial court upon a showing of a substantial change in the circumstances of either party.  Under that statutory provision, the party seeking the modification bears the burden of demonstrating that such a change has occurred.”[10]

The trial court may under appropriate circumstances in a marital dissolution proceeding base financial awards, pursuant to General Statutes §§ 46b–82 (a) and 46b–86, on the earning capacity of the parties rather than on actual earned income.[11] Earning capacity is not an amount which a person can theoretically earn, confined to actual income, but rather “it is an amount which a person can realistically be expected to earn considering such things as his vocational skills, employability, age and health.”[12]  “When determining earning capacity, it … is especially appropriate for the court to consider whether [a person] has willfully restricted his [or her] earning capacity to avoid support obligations.”[13]

The Supreme Court recognized that the Appellate Court relied on its previous decision in Chyung v. Chyung, to support its conclusion that, when a trial court relies on a party’s earning capacity to determine the amount of a financial award, the court is not required to specify the particular dollar amount of the party’s earning capacity. In Chyung, the trial court awarded the plaintiff a lump sum alimony payment of $350,000 based in part on the parties’ earning capacities.[14] The plaintiff appealed from the judgment, claiming that “the court’s failure to identify the defendant’s precise earning capacity resulted in an award that was based on speculation and conjecture.” The Appellate Court rejected the plaintiff’s claim, stating that she had “failed to provide us with any statute, case law or rule of practice that requires the trial court to specify an exact earning capacity.”[15] Unlike the present case, the plaintiff in Chyung had failed to file a motion for articulation of the court’s decision, rendering her claim unreviewable.

The Supreme Court overruled the holding of Chyung, except to the extent that the trial court had determined the specific amount of the defendant’s earning capacity in the support award but it has merely failed to articulate that amount in its support order, that failure does not automatically require reversal. Also, to the extent that it held that, when a party has failed to seek clarification as to whether the trial court failed to determine the specific amount of earning capacity or whether it merely failed to articulate the specific amount in its support order, a claim that the trial court improperly failed to determine a specific amount of earning capacity is unreviewable for lack of an adequate record.[16]

In the case at bar, the plaintiff did seek an articulation of the trial court’s determination of his earning capacity in its determination of the original support order and its decision to deny his motion to modify.  In reversing the Appellate Court the Court stated, “As the present case shows, the failure to specify the dollar amount of the earning capacity leaves the relevant party in doubt as to what is expected from him or her, and makes it extremely difficult, if not impossible, both for a reviewing court to determine the reasonableness of the financial award and for the trial court in a subsequent proceeding on a motion for modification to determine whether there has been a substantial change in circumstances.”[17]

Therefore, the Supreme Court concluded, “when a trial court has based a financial award pursuant to § 46b–82 or § 46b-86 on a party’s earning capacity, the court must determine the specific dollar amount of the party’s earning capacity.” Because the trial court could not reasonably have concluded that there had been no substantial change in the plaintiff’s earning capacity between the time of the original financial award and the motion for modification without ever having determined the plaintiff’s specific earning capacity, the trial court abused its discretion when it denied the motion for modification.  The Supreme Court determined the appropriate remedy was to reverse the judgment of the trial court denying the plaintiff’s motion for modification and order a new hearing on the issue of his earning capacity.[18]

Our family law firm in Westport Connecticut serves clients with divorce, matrimonial, and family law issues from all over the state including the towns of: Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton. We have the best divorce attorneys and family attorneys in CT on staff that can help with your Connecticut divorce or New York divorce today.

If you have any questions or would like to speak to a divorce law attorney about a divorce or familial matter, please don’t hesitate to call our office at (203) 221-3100 or email Attorney Joseph C. Maya at JMaya@mayalaw.com. We offer free divorce consultation as well as free consultation on all other familial matters. Divorce in CT and divorce in NYC is difficult, but education is power. Call our family law office in CT today.


[1] Tanzman v. Meurer, 18812, 2013 WL 3288091 (Conn. July 9, 2013)

[2] Chyung v. Chyung, 86 Conn.App. 665, 862 A.2d 374 (2004)

[3] Tanzman v. Meurer, 128 Conn.App. 405, 406, 16 A.3d 1265 (2011).

[4] Id.

[5] Id at 408.

[6] Id. at 410.

[7] Id.

[8] Tanzman v. Meurer, 128 Conn.App.405, 412, 413 (2011).

[9] Tanzman v. Meurer, 18812, 2013 WL 3288091 (Conn. July 9, 2013)

[10] Simms v. Simms, 283 Conn. 494, 502, 927 A.2d 894 (2007).

[11] Lucy v. Lucy, 183 Conn. 230, 234, 439 A.2d 302 (1981).

[12] Weinstein v. Weinstein, 280 Conn. 764, 772, 911 A.2d 1077 (2007).

[13] Bleuer v. Bleuer, 59 Conn.App. 167, 170, 755 A.2d 946 (2000).

[14] Chyung v. Chyung, 86 Conn.App. 665, 675 (2004).

[15] Id. at 676.

[16] Tanzman v. Meurer, 18812, 2013 WL 3288091 (Conn. July 9, 2013)

[17] Id.

[18] Id.

If I Am Still Living in Our Marital Apartment and Am on the Lease, Am I Legally Entitled to Remain in the Apartment?

If you are navigating a divorce and are unsure of whether you are entitled to retain residence over the marital property, it would be in your best interest to consult an experienced divorce attorney.  An experienced divorce attorney has likely handled this situation countless times and can educate you on the best manner to proceed.

If you have any further questions regarding divorce law in Connecticut, please contact Joseph C. Maya, Esq. at (203) 221-3100 or e-mail him directly at JMaya@Mayalaw.com.

$211,000 in Fiduciary and Attorney’s Fees O.K. After Sibling Probate Quarrel

In a recent Appellate Court decision, the court upheld an award of $211,000 in fiduciary and attorney’s fees after probate of a highly disputed estate. The award was challenged by one of the three beneficiaries of the estate who claimed the award was excessive and inconsistent with the widely relied on Hayward factors set out by the Connecticut Supreme Court. Plaintiff also urged the court to adopt a new rule limiting the fiduciary and attorney’s fees that can be collected from an estate to an amount proportionate to the size of the estate. The court disagreed with the contention and declined to adopt such a rule.

The plaintiff and challenger of said fees was the daughter of the decedent. The other two beneficiaries in this probate were the two sons of the decedent. None of these siblings had a good relationship with the other and there was constantly disputes among them about how to best administer the estate. Ultimately, the court determined it was their constant bickering that resulted in the huge amount of attorney fees that in light of the situation could have been much more.

This probate case “involved more contentiousness, disputes, arguments, correspondence, pleadings, memoranda of law and judicial hearings than any other decedent’s estate” in the judge’s 30 years on the bench. The defendants’ expert witness, who reviewed the materials that detailed the requests the siblings made of Gallant(the defendant), testified that “the contentiousness [between the beneficiaries is] at a level I have only seen once in some forty-four years of this work.” The plaintiff’s expert witness conceded that the extensive quarrelling among the siblings made settling the estate “a very difficult matter,” and that one of the strategies defendant used to try to quell the siblings’ animosity was to directly and unequivocally tell them the truth: their constant quarrelling was resulting in fees that were diminishing the estate.

Despite this forewarning by the defendant lawyer, the plaintiff still sought to challenge the awarded fee. It was her firm belief that an attorney could not collect such a large amount of an estate. In actuality, the estate was worth over 1.2 million dollars and his fee constituted just 1/6th of the estate. This left more than 1 million to be dispersed between the three children.

In analyzing the issues claimed by the Plaintiff the Appellate Court reviewed the Hayward factor analysis made by the trial court who awarded the fee. First, the court stated it is well understood that “under [Connecticut] law an executor, administrator, trustee or guardian is entitled to a reasonable compensation for his services, depending upon the circumstances of the case.” Hayward v. Plant, 98 Conn. at 384, 119 A. 341. Further, in Hayward, our Supreme Court set forth nine factors for the trial court to consider when determining the reasonableness of such compensation: (1) the size of the estate; (2) the responsibilities involved; (3) the character of the work required; (4) the special problems and difficulties met in doing the work; (5) the results achieved; (6) the knowledge, skill and judgment required of and used by the executors; (7) the manner and promptitude with which the estate has been settled; (8) the time and service required; and (9) any other circumstances which may appear in the case and are relevant and material to this determination. Id., at 384–85, 119 A. 341.

After the determination of those factors, the trial court decided the figure of $211,000 was reasonable. In reviewing that decision “[t]he test is, has the court exercised a reasonable discretion, or, in other words, is its exercise so unreasonable as to constitute an abuse of discretion.” Hayward v. Plant, supra, 98 Conn. at 382, 119 A. 341. “This standard applies to the amount of fees awarded … and also to the trial court’s determination of the factual predicate justifying the award…. Under the abuse of discretion standard of review, [w]e will make every reasonable presumption in favor of upholding the trial court’s ruling, and only upset it for a manifest abuse of discretion…. [Thus, our] review of such rulings is limited to the questions of whether the trial court correctly applied the law and reasonably could have reached the conclusion that it did.”

There was much factual information that supported the trial court’s decision. At trial, the plaintiff conceded that the billing records submitted by the defendants to the Probate Court accurately reflected the work that the defendants performed, but she advanced an argument that much of that work was unnecessary and could have been avoided had Gallant been more decisive in his actions with regard to the estate. Her primary argument was that Gallant’s inability to sell the Bahamian property(which amount to about half of the estate) in a timely fashion and the erosion that occurred on the property during the time the property was for sale support a reduction of fiduciary and attorney’s fees under Hayward’s results and promptitude factors. The court, however, was presented with evidence of the siblings’ contentiousness and litigious nature, and determined that “an extensive amount of time was spent by Gallant in dealing with issues raised by the beneficiaries.” Among the myriad issues created by the beneficiaries included bickering about the listing price of the Bahamian property. Therefore, the award did have factual backing and could have been anticipated by plaintiff due to the siblings constant issues with how to best settle the estate.

So, with regard to the question of whether the court used the proper legal standard, the Appellate Court concluded that the trial court made an independent determination after a two day trial. It produced a written memorandum of decision, which provided in part: “When applying the standards set forth in Hayward v. Plant, the court finds that the fees charged by the defendants are reasonable under the unusual circumstances presented here.” Therefore, there was no error in the legal standard applied by the court.

Next, the Appellate Court addressed the plaintiff’s contention that a new rule should be adopted that limited attorney and fiduciary fees to a reasonable proportion of the estate. In declining to adopt such a rule the court stated that “size of the estate is one of the factors our Supreme Court set forth in Hayward, and as such, it should be considered by a court in determining whether fiduciary and attorney’s fees are reasonable. It is, however, one of nine factors. Elevating it to the dispositive level suggested by the plaintiff would run afoul of the sound holistic approach to reasonableness our Supreme Court set forth nearly a century ago.”
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Our estate planning firm in Westport Connecticut serves clients with will, trust, and estate law issues from all over the state including the towns of: Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton. We have the best probate attorneys in CT on staff that can help with your Connecticut or New York estate today.

If you have any questions or would like to speak to a probate law attorney about a will, trust, or estate matter, please don’t hesitate to call our office at (203) 221-3100. We offer free consultation on all matters. Call today.

Uniform Fraudulent Transfer Act Applies to Property Distributed by a Divorce Decree

In a case before the Connecticut Supreme Court, Canty v. Otto, 41 A.3d 280 (Conn. 2012), the former wife of a convicted felon appealed a trial court ruling granting prejudgment relief to the administratrix of a homicide victim’s estate by challenging the administratrix’s right to recover against her as a creditor under the Uniform Fraudulent Transfer Act (“UFTA”). The Supreme Court affirmed the trial court ruling.

In early 2007, the local and state police began to investigate the former wife’s husband in connection with the disappearance of a woman with whom he had been involved outside of the marriage.  In mid-April, the husband transferred $8,000 from a joint marital account to an account that was held solely in his wife’s name.  Within a week of the transfer, the police found the remains of the missing woman on a Connecticut property that was co-owned by the husband and his son.  After this discovery, the husband and wife went together to the Department of Motor Vehicles to transfer title to a jointly owned vehicle solely to the wife, and traveled to Massachusetts to transfer title in residential property to the wife.  The husband made these transfers without valuable consideration.  Within a week of completing the property transfers, the wife contacted an attorney to file a dissolution action, which was commenced the same day and filed within a week.  Pursuant to the dissolution action, a notice of lis pendens was filed against the husband’s interest in two Connecticut properties.  Afterward, the estate of the deceased woman commenced a wrongful death action against the husband.  In May 2007, the state arrested him and charged him with one count of murder and two counts of tampering with physical evidence.

In June 2007, after a full hearing on the wrongful death action, the administratrix of the deceased woman’s estate obtained a prejudgment order against the husband in the amount of $4.5 million.  During this hearing, the trial court found probable cause to believe that the former wife did not truly intend to divorce her husband but rather intended to conspire with him to obtain a judgment of dissolution that would shield his assets from the victim’s estate. The trial court also found that the husband transferred assets shortly before the commencement of the dissolution action with specific intent to defraud his creditors, among which was the estate of the deceased.  Finally, the court found that the former husband had encouraged and facilitated his former wife’s institution of a dissolution action against him and did not seriously contest those proceeding in order to ensure that most or all of his assets could not be reached by the deceased’s estate in the wrongful death action.

The administratrix moved to intervene in the couple’s dissolution action to assert her rights as a creditor of the husband; the motion was denied and later dismissed on appeal.  In June 2008, the trial court issued a judgment of dissolution which included the division of marital property.  The former wife received all of the real property, and the former husband received an automobile, some shares of stock and the remaining balance of his retirement funds.  The former husband was convicted of murder in November 2008.

After the judgment in the wrongful death hearing, the administratrix filed an action against the former wife to recover against her under the UFTA and applied for a prejudgment remedy. In February 2010, the trial court hearing the motion for a prejudgment remedy concluded that there was probable cause to show that the assets transferred from the husband to the wife through the dissolution action were fraudulent actions.  In doing so, that court adopted the prior decision of the trial court, concluded that a dissolution judgment would be subject to a claim under the UFTA and awarded a prejudgment remedy in the amount of $670,000.  The former wife filed a motion for reconsideration in which she alleged that the amount of the prejudgment remedy was higher than the amount alleged to have been transferred. In April 2010, the trial court issued a memorandum of decision in which it agreed with the former wife that her one-half interest in the marital property could not be the subject of a fraudulent transfer and reduced the amount of the prejudgment remedy to $552,000.

The former wife appealed.  She contended that the administratrix, as a creditor of her debtor spouse, cannot collect the debt from her, the non-debtor spouse, by bringing an action under the UFTA, Conn. Gen. Sta. §§ 52-552a et seq.  The former wife first claimed that the distribution of marital assets in a dissolution decree was an equitable determination as to which portion of the marital estate each party was entitled and not a transfer as defined in the UFTA.  The former wife alleged that characterizing the distribution as a transfer and allowing the administratrix to bring a claim under the UFTA would disturb the distribution that was carefully crafted by the trial court and would create further complications for distributing marital property.  Second, the former wife alleged that the trial court’s determination that the dissolution was undertaken with actual intent to hinder, delay or defraud the estate of Smith was clearly erroneous and was not supported by evidence in the record.  Finally, the former wife alleged that the administratrix was improperly attempting to obtain a modification of a marital property distribution, which was prohibited under Connecticut law governing the assignment of property pursuant to a dissolution decree and modification of such judgments.

In Connecticut, the UFTA requires three elements for a creditor to claim recovery:  (1) the debtor made a transfer or incurred an obligation; (2) the transfer is made after the creditor’s claim arose; and (3) the debtor made the transfer with the actual intent to “hinder, delay or defraud” the creditor.  Conn. Gen. Stat. § 52–552e.  UFTA defines the term “transfer” very broadly, including “every mode … voluntary or involuntary…of disposing of or parting with an asset or an interest in an asset.” Conn. Gen. Stat. § 52-522b (12).   Such a transfer is fraudulent under the UFTA if the creditor’s claim arose before the transfer was made and the debtor made the transfer with requisite actual intent.  Conn. Gen. Stat. § 52-552e.

The Supreme Court concluded that the plain language of the UFTA supports the conclusion that distribution of property in a dissolution decree is a transfer under the UFTA.  The federal bankruptcy code defines “transfer,” 11 U.S.C. § 101(54)(D), using terminology similar to the UFTA, and bankruptcy courts characterize property settlements pursuant to divorce decrees as transfers of property.  The court further supported this conclusion with reference to the statute governing assignment of property and conveyance of title in dissolution actions, Conn. Gen. Stat § 46b-81, which uses terms such as “assign,” “pass title,” “vest title,” and “conveyance.”  Case law in other jurisdictions expressly rejects the allegation that characterizing the distribution of assets in a dissolution decree as a transfer would disturb the court’s equitable determination.  The Supreme Court agreed with the reasoning and policy considerations stated by the California Supreme Court: “[i]n view of this overall policy of protecting creditors, it is unlikely that the [l]egislature intended to grant married couples a one-time-only opportunity to defraud creditors by including the fraudulent transfer in [a marital separation agreement].” Mejia v. Reed, 74 P.3d 166 (Cal. 2003). Therefore, the court concluded that the distribution of property in the divorce decree was a transfer that could be subject to a UFTA claim.

The Connecticut UFTA sets forth a series of factors which a court may consider in determining “actual intent” to fraudulently transfer property.  Conn. Gen. Stat. § 52-522e(b).  These factors include whether the debtor retained possession or control over the property after the transfer, whether the debtor had been threatened with a suit before the transfer was made, whether the transfer was of substantially all the debtor’s assets, and whether the value of the consideration received by the debtor was reasonable equivalent to the value of the assets transferred.  A person’s intent to defraud is to be inferred from his conduct under the surrounding circumstances, and is an issue for the trier of fact to decide. State v. Nosik, 715 A.2d 673 (Conn. 1998).

In her application for prejudgment remedy, the administratrix alleged the conveyance of the Massachusetts property and the entire divorce proceeding were undertaken with intent to shelter assets; the timing of these acts, occurring so quickly after the husband became a suspect in the disappearance of the deceased, offered a reasonable inference of fraudulent intent.  According to Connecticut law, in a hearing on an application for prejudgment remedy, the trial court need only make a finding of probable cause, which is a bona fide belief in the existence of facts essential under law for the action. Based on the evidence in the record, the Supreme Court concluded that the trial court finding of probable cause was not an abuse of its discretion. Additionally, the Supreme Court concluded that the trial court properly determined that probable cause existed that the husband commenced the dissolution action with actual intent to hinder, delay or defraud the administratrix.  These findings, combined with the determination that the property settlement under the divorce decree constituted a transfer, permitted the administratrix to bring her claim for prejudgment relief against the former wife.

The Supreme Court additionally noted that the administratrix was not seeking to set aside the dissolution decree, but rather attach certain assets that were transferred to the former wife as a result of the decree.  A financial order is severable when it is not interdependent with other orders and is not improperly based on a factor that is linked to other factors.  Therefore, her claim was not an improper attempt to modify a court judgment in contravention of Connecticut law.

Therefore, Supreme Court determined that the trial court properly granted the administratrix’s application for a prejudgment remedy.

Should you have any questions relating to marital proceedings or personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

written by Lindsey Raber, Esq.

Connecticut Estate Taxes: What You Need to Know

If you live in Connecticut, all the property that you own at your death will be valued to determine if your estate owes money to the IRS or Connecticut — or both — or neither. Your estate includes your house, car, furniture, bank account, brokerage account, IRA, 401(k), business interests and everything else you call your own. But assets passing to a spouse are not counted as part of your taxable estate.

Connecticut estates over $2 million are taxed at different rates. The rates range from 7.2 percent for estates over $2 million to the top of 12 percent for estates over $10.1 million. The first $2 million is tax free.For example, the Connecticut estate tax for a $2 million estate is zero. A $3 million estate is taxed $72,000 (7.2 percent of $1 million). An estate of $5 million would pay a Connecticut estate tax of $252,000 (8.4 percent of $3 million). A $10 million estate would pay $912,000 (11.4 percent of $8 million). The Connecticut tax is due six months after death.

You may recall that pre-2010, we had a “cliff” tax structure. An estate of $2 million paid no Connecticut estate taxes. But an estate of $2,000,001 — just a dollar more — paid Connecticut $101,700. A Connecticut law enacted in 2011 did away with the cliff. Now, a $2,000,001 estate would be taxed only pennies. Again, there is no Connecticut estate tax on estates below $2 million.

What about Federal taxes?

Until a few weeks ago, it was not clear whether a $1 million estate would be subject to a federal estate tax. Now that’s resolved. Only estates over $5 million (inflation adjusted estimated to be $5.25 million for deaths in 2013) are subject to federal estate taxes, thanks to the American Taxpayer Relief Act signed into law on Jan. 3. That means that estates of individuals dying in 2013 are not taxable on the federal level if they are valued at $5.25 million or less.

Because of “portability,”(see our previous article on portability and tax law permanency) spouses can pass $10.5 million to heirs free of federal estate tax. Portability preserves the $5.25 million exemption on the federal level, but not in Connecticut for the first spouse to die.

How Connecticut and Federal taxes work alongside-

To see the effect of the two tax schemes, we need to consider the size of the estate, individuals with estates below $2 million will pay nothing to Connecticut and nothing to the IRS while individuals with estates above $5.25 million will pay taxes to both the IRS and Connecticut. For example, an estate of $6 million will be taxed $360,000 in Connecticut (9 percent of $4 million, with the first $2 million tax-free).

Because the Connecticut tax can be deducted on the federal tax return, the $360,000 paid to Connecticut reduces the federally taxable estate from $6 million to $5.64 million. The federal estate tax is $156,000, figured as follows: $5.64 million less $5.25 million is $390,000; 40 percent of $390,000 is $156,000.

A $6 million estate would pay a grand total $516,000, counting both Connecticut and federal estate taxes. Estates valued between $2 million and $5.25 million will owe Connecticut taxes but no federal estate taxes. Since the Connecticut tax rate for estates between $2 million and $5.25 million ranges from 7.2 percent and 8.4 percent, each $100,000 of assets over $2 million will cost between $7,200 to $8,400 in Connecticut taxes.

That amount can potentially be saved through planning — or be avoided altogether by making a move to a tax-free state, such as Florida. With proper planning, a married couple can pass $4 million free of federal and Connecticut estate tax. The usual method is a by-pass trust or credit shelter trust that passes the first spouse’s exemption amount into a trust for the life benefit of the survivor. Unlike the federal law, Connecticut does not have “portability” where unused exemptions on the first death pass automatically to the surviving spouse.

Remember, in Connecticut, the rule is “Use it or lose it.” Couples need to do some planning to protect the Connecticut $2-million-per-person exemption, or it’s lost when the first spouse dies.

Here is an example: A married couple with $8 million has all of their assets in joint name with rights of survivorships. There will be no federal or Connecticut estate tax when the first spouse dies and no federal tax when the second spouse dies due to portability. In Connecticut, the $8 million will be reduced by $2 million (not $4 million), when it comes to paying Connecticut taxes. Planning before the first death can preserve another $2 million. This is why it is important to have an experienced estate planning lawyer on your side.

Article provided by Stamford Advocate writer Julie Jason.
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Our estate planning firm in Westport Connecticut serves clients with will, trust, and estate law issues from all over the state including the towns of: Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton. We have the best probate attorneys in CT on staff that can help with your Connecticut or New York estate today.

If you have any questions or would like to speak to a probate law attorney about a will, trust, or estate matter, please don’t hesitate to call our office at (203) 221-3100. We offer free consultation on all matters. Call today.

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Connecticut Supreme Court Protects Corporate and Personal Assets By Denying Reverse Piercing of the Corporate Veil

Connecticut Supreme Court Protects Corporate and Personal Assets By Denying Reverse Piercing of the Corporate Veil

Commissioner of Environmental Protection, et al., v. State Five Industrial Park, Inc., et al, 304 Conn. 128, 37 A.3d 724 (2012)

In a recent case before the Supreme Court of Connecticut, State Five Industrial Park, Inc., (“State Five”) and Jean L. Farricielli (“Jean”) appealed a trial court judgment holding them liable for a $3.8 million judgment rendered in 2001against Jean’s husband, Joseph J. Farricielli (“Joseph”) and five corporations that he owned and/or controlled. The Supreme Court transferred the case from the appellate division, reversed the lower court judgment and remanded the case with direction to render judgment in favor of State Five. Although the Supreme Court concluded that the facts of this specific case did not support the application of reverse veil piercing, the court refused to address whether that doctrine should be disallowed in Connecticut under any and all circumstances.

In 1999, the Commissioner of Environmental Protection (“commissioner”), the town of Hamden (“town”) and the town’s zoning enforcement officer (collectively, “the plaintiffs”) brought an environmental enforcement action against Joseph and the five corporations that he owned and/or controlled alleging egregious violations of state solid waste disposal statutes. A bench trial took place in 2000 and, in 2001, a memorandum of decision was issued awarding the plaintiffs all relief sought, including civil penalties for each day of each alleged violation, which totaled approximately $3.8 million. Joseph appealed and, in 2004, the Supreme Court affirmed the trial court judgment against him and the five corporations.

In 2005, the civil penalties of approximately $3.8 million were still largely unpaid; therefore, the plaintiffs initiated the present action. They argued that principles of reverse piercing of the corporate veil should be applied to hold State Five liable for the 2001 judgment against Joseph and that principles of traditional piercing of the corporate veil should be applied thereafter to hold Jean liable for the resulting judgment against State Five. The trial court concluded that reverse veil piercing was warranted because Joseph used State Five to hide assets and used State Five funds to pay thousands of dollars in personal expenses; both actions complicated the plaintiffs’ normal efforts to collect their judgment. Once Joseph’s liability was imputed to State Five, the trial court concluded that traditional veil piercing principles applied to Jean, who was the majority shareholder in State Five. Therefore, the lower court held both State Five and Jean liable for the 2001 judgment against Joseph, plus pre-judgment interest on the outstanding amount, for a total liability of over $4.1 million.

The appeal raised the question of whether the equitable doctrine of reverse piercing of the corporate veil is a viable remedy in Connecticut. State Five and Jean argued that the trial court improperly applied veil piercing principles because that remedy should not be recognized in Connecticut under any circumstances. In the alternative, State Five and Jean argued that the trial court should not have applied veil piercing principles given the facts of the instant case.

A corporation generally is a distinct legal entity, and stockholders are not personally liable for the acts and obligations of the corporation. Saphir v. Neustadt, 177 Conn. 191, 209, 413 A.2d 843 (1979). This corporate shield of liability is pierced in only exceptional circumstances, such as where the corporation is a “mere shell, serving no legitimate purpose, and used primarily as an intermediary to perpetuate fraud or promote injustice.” Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. 544, 557, 447 A.2d 406 (1982). (internal quotation marks omitted.) In veil piercing cases, the party seeking to disregard the corporate form bears the burden of proving that there is a basis to do so. In a traditional veil piercing case, the corporate veil shields a majority shareholder or other corporate insider who is abusing the corporate fiction in order to perpetuate a wrong; therefore, the claimant requests that the court disregard the corporate form in order to reach this individual’s assets. C.F. Trust, Inc. v. First Flight, L.P., 266 Va. 3, 10, 580 S.E.2d 806 (2003). In a reverse veil piercing case, however, the corporate form protects the corporation which gets used by a dominant shareholder or other corporate insider to perpetuate a fraud or defeat a rightful claim of an outsider; therefore, the claimant seeks to reach the assets of the corporation to satisfy claims or a judgment obtained against the corporate insider. Tomasso, 187 Conn. at 557, 447 A.2d 406. Three specific concerns have been identified in the distinction between these two doctrines: (1) reverse piercing bypasses normal judgment collection procedures, prejudicing the rightful creditors of the corporation who relied on the entity’s separate corporate existence; (2) reverse piercing prejudices the rights of the non-culpable shareholders; and (3) when the judgment creditor is a shareholder or other insider, there other legal remedies are potentially available to obviate the need for the more drastic remedy of corporate disregard. Therefore, a court contemplating reverse veil piercing must weigh the impact of this action on innocent investors and creditors, and consider the availability of other remedies to satisfy the debt. C.F. Trust, 266 Va. at 12–13, 580 S.E.2d 806.

In Connecticut jurisprudence, two rules form the legal standard for the application of traditional veil piercing doctrine and reverse veil piercing doctrine: the identity rule and the instrumentality rule. The instrumentality rule requires proof of three elements: (1) control, equivalent to the complete domination of finances, policy and business practice such that the corporate entity had no separate mind, will or existence of its own with respect to the contested transaction; (2) that such control was used to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of the plaintiff’s legal rights; and (3) that such control and breach of duty proximately caused the injury or unjust loss complained of. Naples v. Keystone Building & Development Corp., 295 Conn. 214, 232, 990 A.2d 326 (2010) (internal quotation marks omitted.) The identity rule requires that the plaintiff show that there was such a unity of interest and ownership between the shareholder and the corporation that the independence of the corporation had in effect ceased or had never begun, and adhering to the legal fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability. Id.

Whether the circumstances of a particular case justify the piercing of the corporate veil presents a question of fact. Therefore, the Supreme Court defers to the trial court decision to pierce the corporate veil, as well as any subsidiary factual findings, unless these factual findings are clearly erroneous, which means that either the record contains no evidence to support the findings or the reviewing court is left with the “definite and firm conviction” that a mistake has been made.

The Supreme Court concluded that, in the present matter, the trial court should not have applied reverse veil piercing, regardless of whether it is a viable theory in Connecticut. Certain subsidiary factual findings related to crucial factors that necessarily render reverse veil piercing inequitable lacked evidentiary support and, therefore, were clearly erroneous. Furthermore, after reviewing the trial court’s application of the instrumentality and identity rules, the Supreme Court was left with the definite and firm conviction that a mistake has been made.

The Supreme Court determined that the trial court did not adequately ensure that third party creditors did not exist or, if they did, that these creditors would not be harmed by applying reverse veil piercing principles that made all of the corporation’s assets available to satisfy the 2001 judgment. Permitting direct attachment of corporate assets to satisfy an individual insider’s debt undermines corporate viability, reasonably relied upon by creditors, with no forewarning. Testimony and printed statements in evidence at trial indicated that State Five had a line of credit with a local bank; however, the trial court concluded that this bank would not be harmed by the reverse piercing because the line of credit had been paid off in 2007 and the line was secured with Jean’s personal assets rather than corporate property. The Supreme Court determined that this finding was clearly erroneous because the record was silent as to the outstanding balance on the line of credit as of the date of trial and the precedent in Connecticut is that a lender in this context extends credit in reasonable reliance on the existence of both a viable borrower in possession of assets and the additional security provided by a secondary obligor.

Evidence that certain State Five shareholders were not involved in running the corporation, making necessary business decisions or suggesting changes did not support the trial court’s factual finding that these shareholders were complicit in Joseph’s activities. Because the plaintiffs did not establish that these shareholders were not innocent, the Supreme Court determined that it was improper for the trial court to apply reverse piercing without regard to whether the interests of these individuals would be impacted.

Finally, the Supreme Court was convinced that the trial court improperly concluded that the equitable remedy was warranted in this case. To justify any veil piercing action pursuant to the instrumentality rule, it must be shown that the insider debtor exercised complete control over the subject corporation and used such control “to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of [the plaintiffs’] legal rights; and … that the aforesaid control and breach of duty … proximately cause[d] the injury or unjust loss complained of.” Tomasso, 187 Conn. at 553, 447 A.2d 406. To justify imposing the entire obligation of the 2001 judgment on State Five, the plaintiffs needed to show that Joseph exercised his control over State Five to divert or hide assets that belonged to him personally or to his corporations and that otherwise would have been available to satisfy that judgment. Additionally, the plaintiffs needed to demonstrate that these maneuvers were the proximate cause of the plaintiffs’ inability to collect $3.8 million that it otherwise would have been able to recover. The Supreme Court found that the trial court’s analysis failed to specifically establish the necessary connection between Joseph’s improper actions in relation to State Five and the plaintiffs’ inability to collect on the 2001 judgment.

The Supreme Court found that the identity rule was not satisfied in the present case. It was neither unjust nor inequitable to permit State Five to avoid liability for the judgment against Joseph and his other corporations when State Five received little in the way of assets from those parties and much in the way of liabilities. Additionally, in paying personal expenses for Joseph, State Five has been caused to pay other expenses for which it is not legally obligated.

Because the Supreme Court concluded that the trial court improperly applied reverse veil piercing, Joseph’s liability for the 2001 judgment could not be imputed to State Five. Therefore, there was no liability to transfer from State Five to Jean.

The Supreme Court had a definite and firm conviction that a mistake has been made because the trial court’s application of the equitable remedy of reverse veil piercing was based in part on unsupported factual findings, and the court employed improper reasoning when analyzing other facts. Therefore, the Supreme Court set aside the trial court’s factual determinations as clearly erroneous, reversed the lower court judgment, and remanded the case with direction to render judgment in favor of State Five and Jean Farricielli.

Should you have any questions relating to corporate or personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

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