Posts tagged with "estate planning"

Assets Protected From Creditors in Connecticut

In today’s economy more and more people find themselves having a hard time paying the bills and avoiding late payments.  Still others have a problem with creditors chasing them for unpaid debts.  Now more than ever it is important for you to know what assets are protected from creditors and what are not.

Connecticut law provides some protection from creditors in a situation where your income or assets are subject to a court judgment or lien.  You can protect yourself in a variety of ways by planning ahead and consulting with a professional financial planner and an attorney.   Taking out liability insurance or setting up a corporate entity or trust for your property are examples of how you can shield your assets from future creditors.  However, there are some individual assets that are automatically protected from creditors.  Here is brief summary of the law in Connecticut:

A.            Wages

Once a creditor obtains a judgment against you, it can apply for an execution against your wages.  See Connecticut General Statutes, Section 52-361a.  Connecticut law does provide for some protection in this situation.   No more than twenty-five percent of an individual’s weekly disposable earnings may be subject to a wage execution.  The portion of disposable earnings subject to the wage execution is withheld and applied to the amount of the judgment.    In some cases, the maximum amount that can be withheld may be less depending upon the ratio between the individual’s disposable earnings and the hourly minimum wage in effect at the time of the execution.

B.             Retirement Plans

Generally, retirement plans are exempt from claims by creditors.  Both IRAs and 401ks are protected assets pursuant to Connecticut General Statues, Section 52-321a.

C.             Personal Property

Connecticut law provides a list of exempt personal property that creditors cannot claim an interest in pursuant to Connecticut General Statutes, Section 52-352b.  The list of property includes basics necessities such as apparel, bedding, foodstuffs, household furniture and appliances.  Items necessary for a person’s occupation or profession such as tools, books, instruments, farm animals and livestock feed are also considered exempt property.  Wedding and engagement rings are not subject to creditor claims as well.

D.             Insurance and Government Assistance Payments

Some insurance and government assistance payments are exempt from creditors under Connecticut General Statutes, Section 52-352b.   Health and disability insurance payments are exempt as are Workers’ compensation, Social Security, veterans and unemployment benefits.  In addition, under Connecticut General Statutes, Section 38a-453, creditors of an insured cannot seek payment from a life insurance policy beneficiary under most circumstances.

E.             Child Support and Alimony Payments

Any court approved child support payments received by a debtor are exempt and protected from creditors.  Alimony payments, to the extent that wages are exempt from creditor claims, are also protected.  See Connecticut General Statutes, Sections 52-352b & 52-361a.

F.             Real Estate

Your homestead or personal residence is exempt from creditor claims up to the value of seventy-five thousand dollars.  If a creditor has a money judgment arising out of hospital services, then the value of the exemption increases to one hundred twenty-five thousand dollars.  The exemption is calculated based upon the fair market value of the equity in the property taking into account any statutory or consensual liens on the property.  See Connecticut General Statutes, Section 52-352b.

There is no such exemption in place for commercial real estate or rental properties.

G.             Motor Vehicles

Only one motor vehicle is exempt from creditor claims up to the value of one thousand five hundred dollars.  The exemption is calculated by estimating the fair market value of the motor vehicle and taking into account any relevant liens or security interests.  See Connecticut General Statutes, Section 52-352b.

H.              Bank Accounts

         A creditor can enforce a judgment by way of a bank execution.  However, the same exemptions apply to bank accounts as they do to government assistance, insurance, alimony and child support payments as outlined above.  Therefore, you have the opportunity to challenge a bank execution based on these exemptions and prevent a creditor from taking money out of your account.   In addition, you can claim a general exemption not to exceed one thousand dollars.

In conclusion, Connecticut law prevents creditors from seizing all of your income, property, possessions and savings pursuant to a judgment or lien.  However, the law does not prevent a debt collector from jeopardizing your livelihood and financial wellbeing.  You best bet is to limit individual liability and plan ahead to avoid a creditor claim in the first place.  Consulting with a professional financial planner and an attorney is recommended.

Estate Planning for Single Individuals

For single individuals without children and without any future plans to have children, it is still vitally important to formulate an estate plan in the event of untimely death.  A single person, of course, possesses assets, possessions, money, accounts, etc., and an estate plan allows for all of those assets to be distributed to the person, persons, charities, or organizations of the decedent’s choosing.

Without a will, an individual’s possessions and assets will be distributed to relatives and family members of the decedent in accordance with a preset order determined by law.  This, however, is predetermined and may not be the order in which the deceased may have wanted his or her assets to be distributed.  Furthermore, without a will, the deceased’s family might have to expend a lot of money navigating the waters of the administrative proceedings associated with intestacy.  Intestacy is the term for what happens when a person dies without a will.

Under Connecticut law, where a person dies without any children and without a will, the estate will be distributed in accordance with the following order: first a portion will go to the decedent’s husband or wife, if any; next, to the parent or parents of the deceased; if there is no parent, the estate will go to the siblings of the deceased and those who legally represent them.  If the deceased has no surviving parents or siblings, the “residue of the estate shall be distributed equally to the next of kin in equal degree.”[1] Those “next of kin” may be relatives you have never met or heard of or met, but who by law could be entitled to a share of your estate in the event of death.

It is important to consult with an attorney who is experienced in estate planning law.  The attorneys at Maya Murphy have years of experience in will consultations, preparation, and contests.  Should you have any questions relating to your estate planning, do not hesitate to contact our Westport, Fairfield County office at 203-221-3100.


[1] Conn. Gen. Stat. §45a-439.

Probate Courts Hearing a Conservator’s Application to Transfer Income from a Conserved Person’s Estate Must Provide Notice to All Parties Who May Have an Interest in the Estate

In a recent case before the Superior Court of Connecticut, a named beneficiary of a will filed an appeal to reverse a probate court order that authorized the conservator of his benefactor to transfer all her assets into trusts.  The conservator brought a motion to dismiss the appeal based on  lack of standing.  The court held that the named beneficiary had standing to file his appeal and denied the motion to dismiss.

In January 2008, the probate court appointed John Nugent (“Nugent”) as the conservator of the person and the estate of Josephine Smoron.  In April 2009, the Nugent applied to the probate court to approve the creation and funding of a revocable trust and an irrevocable trust for Ms. Smoron.  At the time of the May 2009 probate court hearing, Samuel Manzo (“Manzo”) was a named beneficiary under Ms. Smoron’s will. The probate court approved Nugent’s application and authorized the creation and funding of the two trusts; however, the hearing was held without providing notice to Manzo or other named beneficiaries of Ms. Smoron’s will.  Nugent, in his capacity as conservator, established and funded the trusts by quitclaiming real property owned by Ms. Smoron to the irrevocable trust and by depositing over $218,000 of her assets to the revocable trust.  Pursuant to the terms of the trusts, upon Ms. Smoron’s death, the proceeds were to be distributed to three churches, with no provisions for the beneficiaries named under will.  In June 2009, Ms. Smoron died.

Nugent argued that Manzo’s appeal of the probate orders authorizing the creation and funding of Ms. Smoron’s trusts must be dismissed because Manzo was a “mere prospective heir” under Ms. Smoron’s will and, therefore, lacked a sufficient legal interest to challenge the rulings of the probate court.  However, in the instant case, the Superior Court found it to be a provable fact that Manzo was a beneficiary of Ms. Smoron’s will rather than a prospective heir.

Connecticut law specifically requires the probate court to hold a hearing and provide notice to “all parties who may have an interest” in the estate before authorizing a conservator to transfer his conserved person’s property.  Conn. Gen. Stat. § 45a-655(e).  The same law further provides that the probate court should also consider the provisions of an existing estate plan before authorizing the conservator to make transfers of income or principal from the estate of the conserved person.  The Superior Court found that, as a named beneficiary under Ms. Smoron’s will at the time of the May 2009 order, Manzo had both an interest in the estate and an interest in ensuring that the probate court considered Ms. Smoron’s will as part of the existing estate plan.  Therefore, Manzo should have received notice of the probate court hearing.

Therefore, the Superior Court held that, as a named beneficiary under the will, Manzo was aggrieved by the May 2009 probate court order, should it be permitted to stand. Pursuant to that order, Nugent not only placed Ms. Smoron’s assets in the trusts, but he also designated three churches as beneficiaries of the trusts upon Ms. Smoron’s death. The court characterized these actions as effectively disinheriting Manzo and nullifying any provisions that had been made for him under Ms. Smoron’s will.  Based these facts, the trial court determined that Manzo was a proper party to invoke the jurisdiction of the court.

The Superior Court denied Nugent’s motion to dismiss and permitted Manzo to go forward in the Superior Court of Connecticut with his appeal of the probate court orders authorizing the creation and funding of trusts for Ms. Smoron’s estate.

Should you have any questions relating to wills, trusts, estate planning or other 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.

Manzo v. Nugent, X04HHDCV105035142S, 2012 WL 1959076 (Conn. Super. Ct. May 8, 2012)

Where the Grantors Intend a Trust to be Modified Jointly, A Surviving Grantor May Not Make Unilateral Modifications After the Death of the Co-Grantor

Whitehouse v. Gahn, 84 A.D.3d 949  (N.Y. App. Div. 2011)

In a case before the Appellate Division of the Supreme Court of New York, a trust beneficiary appealed a New York Supreme Court decision that declared the trust amendment naming her as sole beneficiary to be void and unenforceable.  The Appellate Division affirmed the lower court ruling and remitted the case for an entry of judgment.

In their lifetimes, the mother and father, as grantors, established an irrevocable trust naming their three children as the beneficiaries of the trust estate, which consisted of the family home.  The trust instrument expressly reserved for the grantors a limited power of appointment to change or alter the remaindermen.  Approximately five months after the father died, the mother executed an amendment to the trust, naming the daughter as its sole beneficiary.  Less than one month after the amendment was executed, the mother died.  The two children who were removed as trust beneficiaries sought a declaratory judgment in the Supreme Court to declare the amendment void and unenforceable.  The court decided in their favor, and the daughter who had been named sole beneficiary appealed the decision.

According to New York case law, a trust instrument is to be construed as written and the grantor’s intent is to be determined solely from the unambiguous language of the trust instrument itself. Mercury Bay Boating Club v. San Diego Yacht Club, 557 N.E.2d 87 (N.Y. App. Ct. 1990); see Matter of Wallens, 877 N.E.2d 960 (N.Y. App. Ct. 2007); Matter of Chase Manhattan Bank, 846 N.E.2d 806 (N.Y. App. Ct. 2006).  The Appellate Division found that the terms of this trust instrument were unambiguous, and clearly expressed the grantors’ intent that their three children share the trust estate equally.  These unambiguous terms may not be altered by a separate provision of the trust which may allow the plural usage of “grantors” to be interpreted as a singular “grantor.”  The Appellate Division held that because the trust agreement allowed an amendment to be made with the joint consent of the grantors, a surviving grantor may not unilaterally amend the trust after the death of the co-grantor.  Therefore, because only the mother executed the amendment to the trust, it was void and unenforceable.

New York law permits a court to amend an irrevocable, unamendable trust if its grantor and all the beneficiaries consent to the amendment.  N.Y.  Estates, Powers and Trusts Law § 7-19.  Because that did not happen in this case, the Appellate Division found further reason to determine that the purported amendment was void and unenforceable.

The Appellate Division of the Supreme Court remitted the matter to the Supreme Court where it originated for entry of judgment declaring that the amendment to the trust was void and unenforceable, and that all three children were beneficiaries of that trust.

Should you have any questions relating to trusts, estate planning 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.

Estate Planning in Connecticut

You may be thinking that if you have a simple will, and you have already planned for your children, there’s no reason to update your estate plan.   But there are lots of good reasons to revisit your estate planning documents, including the following:

 

  • Are you in a high-risk profession, such as being a physician, attorney, or business owner? You may want to consider a Domestic Asset Protection Trust, a tool that the legislature gave Connecticut residents in January 2021, that can be used to protect assets and minimize transfer taxes, while shielding trust assets from future creditors of the grantor.  Gen. Stat. Sec. 45a-487j, et seq.
  • Are you a woman of childbearing age? In 2019, the Probate Code was updated to provide specific options in an advance healthcare directive if a decision must be made about whether to provide life support for a pregnant woman.  If you are a woman of childbearing age, laying out your wishes and discussing them with your loved ones could save them a heart-wrenching decision in an unimaginably difficult situation.  Gen. Stat. 19a-575.
  • Did you get a job that offers stock options as compensation? Startups and even established tech giants now regularly offer stock options as part of compensation packages to lure and retain top talent.  Your Power of Attorney can now include giving your agent the power to —or prohibiting your agent from—buying, selling, exchanging, or assigning your hard-earned stock options.  Gen. Stat. Sec. 1-351f.
  • Did you start your own business or company during the pandemic? A good estate plan incorporates business succession instructions so that your family and business partners do not wind up litigating your stake in a business.
  • Have you acquired new property or opened bank accounts? To minimize probate court involvement after your death, it is important to review your assets and make sure that they are properly titled, and that you’ve designated the right beneficiary where appropriate, so that the accounts pass to your beneficiaries with as little entanglement as possible.
  • Have your children gone through major life changes? Maybe your life has been stable, but if you have young children, children with financial challenges such as bankruptcies or creditor difficulties, children who gotten married/divorced, or children with either physical or mental health issues, you may want to consider whether to put their inheritance (no matter how small) into a trust so you can control how the trust assets are spent  A trust can also protect the trust assets – either from creditors or even from your own children or their spouses.  There are many different types of trusts, and a skilled attorney can help you decide whether one of them might fit your needs.
  • Are you interested in so-called “Dynasty Trusts”? Connecticut recently extended the vesting period required by the so-called Rule Against Perpetuities (RAP) to 800 years, instead of the customary 90 years.  Gen. Stat. Sec. 45a-491(f).  While explaining this technical jargon could be the subject of an entire textbook, the bottom line is that this new, super-sized RAP gives Connecticut residents with significant assets some of the greatest flexibility in the nation to retain wealth within families.  But there’s a catch: it only applies to trusts created on or after January 1, 2020.  Because of these new options, it is critical to sit down with an estate planning attorney to determine whether a “Dynasty Trust” would be suitable for your estate.

These are just a sample of the new developments and tools that should be considered in designing an estate plan that fits your unique needs.  The rules governing estate planning are like a complicated jigsaw puzzle.  If just one piece of your estate plan does not fit into the puzzle, your beneficiaries will suffer the consequences, whether they are emotional, financial, or legal.  The attorneys at Maya Murphy, P.C. can assist Connecticut and New York residents with estate planning matters to make sure that your estate plan is drafted carefully and with an eye to the future.  Attorney Joseph C. Maya may be reached at Maya Murphy, P.C., 266 Post Road East, Westport, Connecticut (located in Fairfield County), by telephone at (203) 221-3100, or by email at JMaya@mayalaw.com.  The above is not intended to constitute tax advice, and to discuss the potential tax implications of a will or trust, you should consult with a tax professional.

What happens if I die without a will in Connecticut?

After someone dies, attention naturally shifts to the decedent’s survivors, property and wishes. A probate court (also called a surrogate court) is a specialized court that handles distribution of the decedent’s property and ensures that any debts, funeral expenses and taxes are paid prior to distributing the remaining assets. If there is a will, the decedent’s wishes are carried out and the process is typically straight forward. However, if there isno will, distribution of property is awarded to survivors in accordance with the state’slaws of “intestacy.”

In Connecticut, if you are survived by a spouse and children, your spouse takes the first $100,000 plus half of the remainder and your children take the other half of the remainder. If you are survived by a spouse and children who are not your spouse’s children, your spouse takes half and the children share the other half equally. If you are survived by a spouse and parent(s) but no children, your spouse takes the first $100,000 plus three quarters of the remainder and the parent(s) takes the other one quarter. If you are survived by a spouse only, your spouse takes it all. If you are survived by children only, your children take it all. If you are survived by parent(s) only, your parent(s) take it all. If you are survived by brother(s) and sister(s) only, your brother(s) and sister(s) take it all. If you are survived by next of kin only, your next of kin takes it all. If there is no next of kin but there is a step-child, your step-child takes it all. If there is no step-child, it all goes to the State of Connecticut.

Regardless of the value of your property, it is always in your best interest to have a will.If you have a will, it may be possible to reduce the amount of tax payable on the inheritance. If you die without a will, your money and property may not be distributed as you had wished. If you are unmarried but have a partner, he or she cannot inherit your property without a will. If you have children who are minors, you will need a will so that living and financial arrangements are as you had wished in the event of your death. If youor your former partner’s circumstances have changed and there is a new partner in the picture, you may want to have a will to ensure your property is distributed as you’d wished.

Maya Murphy Attorneys at Law can provide you with estate planning with artfully crafted trusts and tax avoidance. We know that clients want peace of mind for the future. Our experienced attorneys will help you map out a plan so that your family is properly cared for in the event of your death. Please call us at 203-221-3100, or email us at Ask@Mayalaw.com to schedule a free consultation.

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What happens if I die without a will in Connecticut?

After someone dies, attention naturally shifts to the decedent’s survivors, property and wishes. A probate court (also called a surrogate court) is a specialized court that handles distribution of the decedent’s property and ensures that any debts, funeral expenses and taxes are paid prior to distributing the remaining assets. If there is a will, the decedent’s wishes are carried out and the process is typically straight forward. However, if there isno will, distribution of property is awarded to survivors in accordance with the state’slaws of “intestacy.”

In Connecticut, if you are survived by a spouse and children, your spouse takes the first $100,000 plus half of the remainder and your children take the other half of the remainder. If you are survived by a spouse and children who are not your spouse’s children, your spouse takes half and the children share the other half equally. If you are survived by a spouse and parent(s) but no children, your spouse takes the first $100,000 plus three quarters of the remainder and the parent(s) takes the other one quarter. If you are survived by a spouse only, your spouse takes it all. If you are survived by children only, your children take it all. If you are survived by parent(s) only, your parent(s) take it all. If you are survived by brother(s) and sister(s) only, your brother(s) and sister(s) take it all. If you are survived by next of kin only, your next of kin takes it all. If there is no next of kin but there is a step-child, your step-child takes it all. If there is no step-child, it all goes to the State of Connecticut.

Regardless of the value of your property, it is always in your best interest to have a will.If you have a will, it may be possible to reduce the amount of tax payable on the inheritance. If you die without a will, your money and property may not be distributed as you had wished. If you are unmarried but have a partner, he or she cannot inherit your property without a will. If you have children who are minors, you will need a will so that living and financial arrangements are as you had wished in the event of your death. If youor your former partner’s circumstances have changed and there is a new partner in the picture, you may want to have a will to ensure your property is distributed as you’d wished.

Maya Murphy Attorneys at Law can provide you with estate planning with artfully crafted trusts and tax avoidance. We know that clients want peace of mind for the future. Our experienced attorneys will help you map out a plan so that your family is properly cared for in the event of your death. Please call us at 203-221-3100, or email us at Ask@Mayalaw.com to schedule a free consultation.

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Utilizing Valuation Discounts for Gift Tax Savings: The Family LLC

This memorandum discusses the advantages of using gifts of fractional ownership interests in a family limited liability company (“LLC”) to defer or reduce gift and estate taxes. A family limited liability company can be used as an estate planning tool to “leverage” gifts to the next generation. The leverage is created by valuation discounts that apply to gifts of interests in a family LLC.

For gift tax purposes, the value used in determining the amount of a gift is fair market value, generally defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the facts. Ownership of an interest in an entity such as a family LLC, whether a majority or minority interest, generally will result in a lower valuation for estate and gift tax purposes than the outright ownership of assets outside of the entity. Lower valuations result because minority interest and lack of marketability valuation discounts are allowed for transfers of interests in closely held corporations and limited partnerships.

A minority interest is any ownership interest in an entity such as a family LLC that lacks voting control over the entity, such that the member has no unilateral power to determine the timing of distributions, to force a liquidation of the LLC, or to control the management of the LLC. A marketability discount generally applies to majority and minority interests in a LLC due to the illiquid nature of such interests. A combined marketability and minority interest discount may approach fifty percent.

The following example illustrates the advantages of utilizing valuation discounts
in gifts of Family LLC interests:

Suppose Mom and Dad own real estate worth $1,000,000.00. They wish to make partial gifts of this real estate to their four children to take advantage of the $13,000.00 annual exclusion under Internal Revenue Code § 2503(a). Mom and Dad decide to establish a family LLC to own the real estate. Each receives a 50% interest in the LLC upon contribution of the real estate to the LLC. Mom and Dad are appointed managers, which gives them the power to make all decisions regarding the management and operation of the LLC. After establishing the LLC for substantial business reasons, and after the LLC has been in existence for some time, Mom and Dad make a gift of 19.2% of their interests in the LLC, by giving a 4.8% interest to each of their four children.

Each gift of an interest in the LLC is entitled to a minority interest discount, because each child lacks control of the entity. Each gift is also entitled to a lack of marketability discount because each interest in the LLC is highly illiquid, and no child has the power to liquidate the LLC. Assuming for purposes of this example a total discount of fifty percent, the fair market value of the 4.8% gift made to each child is only $24,000.00, even though 4.8% of the underlying assets in the LLC is $48,000.00. Thus, the gift tax exclusion has been “leveraged” using the LLC because $48,000.00 in underlying asset value has been transferred to each child without gift tax cost and without using any unified credit.

As the real estate owned by the LLC increases in value, such increase in value
will be reflected in Mom’s and Dad’s estates only to the extent of their remaining interest in the LLC. Furthermore, after the gifts Mom and Dad each owns only a 40.4% minority interest in the LLC. Each such interest lacks the power to liquidate the LLC, and would also be entitled to minority interest and lack of marketability discounts. Thus, significant gift and estate tax savings can be achieved by using a family LLC, although at the “cost” to Mom and Dad of foregoing the income that otherwise would have been received on the 19.2% that has been given away to the children.

Because of many recent court cases involving the use of family limited liability companies and family limited partnerships, a careful analysis in each instance is needed before interests in a family entity are gifted. Moreover, in most situations a professional appraisal is needed to value both the company’s underlying assets and the fair market value of the interests gifted. The cost of such appraisals must be considered when a decision is make to implement the use of family entities as a part of one’s estate plan.

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Rolling GRATs: A Low Risk High Reward Estate Planning Tool

A Grantor Retained Annuity Trust (GRAT) can be an effective wealth transfer technique without incurring a gift tax or utilizing one’s lifetime gift tax exemption. A risk, however, with a long-term GRAT is if the Grantor dies prior to the expiration of its term. Death of the Grantor would subject the trust assets, including any income and appreciation, to estate tax. To reduce the mortality risk (especially for elderly clients or for those with health concerns), there is an estate planning technique that utilizes shorter-term GRATs.

The “Rolling GRAT” technique involves creating a series of consecutive short-term GRATs (typically 2 to 3 years) with each successive GRAT funded by the previous trust’s annuity payments. Rolling GRATs minimize the risk of mortality during the term and thereby increases the success of transferring wealth. Two years is the shortest amount allowable by the IRS according to recent revenue rulings. These short-term GRATs can take advantage of asset volatility by capturing rapid appreciation in assets such as a rapid increase in stock value (i.e. Tesla). In fact, research on GRATs funded with publicly traded stock showed that a series of rolling GRATs outperformed an identical long-term GRAT, regardless of the 7520 rate at time of creation. The study showed that the short-term GRAT strategy minimized the risk that good investment performance in one year would be offset by poor performance in another year. Rolling GRATs also keep more funds committed to the estate planning strategy.

If the short-term GRAT strategy is effective (assets appreciate faster than the IRS Section 7520 rate within the trust term), wealth is removed from the taxable estate and transferred to beneficiaries at little cost. If the strategy is not effective (assets did not outperform the IRS Section 7520 rate), all of the assets would go back to the Grantor in form of the annuity payments and none of the lifetime gift tax exemption would be wasted. Thus, almost no risk, but the potential for very high reward.

Rolling GRATs also offer the advantage of plan and strategy flexibility. The Grantor can stop the rolling process at any time and for any reason. For example, the Grantor may wish to stop if he or she needs the income from the trust assets, no longer has an estate tax concern, wants to transfer wealth to the beneficiaries sooner, the assets’ growth rate drops too low, or his or her health has deteriorated and is not expected to live for another 2 or 3 years. The disadvantage of a short-term GRAT is that a particularly low Section 7520 rate will not be locked in long-term.

While Rolling GRATs offer advantages for liquid assets, such as publicly traded stock, illiquid or hard-to-value assets are better suited for long-term GRATs. In particular, illiquid assets would require frequent valuations that may be subjective, cumbersome and costly.
It is important to note that a provision in the President Obama’s 2014 Budget seeks to eliminate the use of short-term GRATs. The proposal would require that any new GRAT have a minimum term of 10 years and would require that the remainder interest have a value greater than zero at the time the interest is created. This minimum 10 year term would not eliminate the use of GRATs, but it would increase the risk that the grantor would fail to outlive the GRAT term and lose the anticipated transfer tax benefit.

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The Popularity of Pet Trusts

241_dogcatpettrust

Here is an interesting article recently published by the New York Times. The number of Americans owning pets is at a record high, and more people are making provisions in their wills to provide for these animals after they’re gone.

But to ensure your pet is cared for as you intend, it’s important to set up a pet trust—an arrangement that 46 states permit.

While some—including noted financier Muriel Siebert, who died in August—have left tens of thousands of dollars for the care of a pet, attorneys who specialize in planning for the care of pets say most pet owners allocate only enough to cover necessities like food and veterinary care.

“Pet trusts aren’t just for the wealthy,” says Frances Carlisle, a trust and estates attorney in New York. For most pet owners, she adds, the goal “is to make sure a plan exists for the care of the animal.”

As of 2012, 68% of U.S. households owned pets, up from 62% in 2010. Among cat owners, 9% had made financial provisions in their wills for their animals, up from 6% in 2010, according to the American Pet Products Association, which represents manufacturers of pet food and other products. From 2010 to 2012, the percentage of dog owners making such arrangements rose to 9% from 5%.

“Many people think of their pets as family members and want to make sure they are well provided for,” says Bob Vetere, president of the association.

Pet owners aren’t allowed to bequeath money directly to their animals. State laws treat animals as property, which means they can’t own property themselves. A pet owner wishing to provide for an animal typically leaves money to a designated caretaker—but that person “is under no legal obligation” to keep the pet or to use the money for the animal’s benefit, says Ms. Carlisle.

Instead, she says, a better idea is to set up a pet trust. (Her fees for an estate plan, including a will and pet trust, start at $1,000.)

The advantage of a trust is that it is administered by a trustee, who is appointed by the pet owner and is legally obligated to act in the animal’s best interest and to ensure the owner’s wishes are carried out, says Ms. Carlisle. The trustee pays the pet’s bills and oversees the performance of its caretaker. (Trustees can double as caretakers.)

Be sure those you appoint want to perform their duties and name successors just in case, says Rachel Hirschfeld, a New York City attorney whose “pet protection agreement” is available at sites including legalzoom.com for $39.

Designate people or charities to receive any money left after the animal’s demise. And give the beneficiaries—along with the trustee, caretaker and successors—a copy of the trust document so each understands your expectations and can monitor the pet’s care.

Pet trusts can take effect either after you die or while you’re alive. The latter provides for care of the pet in the event you suffer an accident or illness that leaves you unable to take care of your animal.

If you are interested in creating a pet trust, or simple have questions about estate planning, call one of Maya Murphy’s experienced estate planning attorneys today at 203-221-3100.

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