Posts tagged with "income"

Trusts Created For Personal Benefit Are Not Exempt From Judgment Creditors

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Estes v. Crowley, FSTCV114021004S, 2011 WL 5841857 (Conn. Super. Ct. Oct. 26, 2011)

In a case before the Superior Court of Connecticut, a judgment creditor objected to the debtor’s claim of exemption for a bank account that was standing in the name of a family living trust. The court sustained the objection and denied the exemption.

Case Background

In July 2011, a judgment was entered for Karl Estes, as the custodian of the Karl G. Estes IRA, (“judgment creditor”) against Timothy Crowley (“debtor”).  The Superior Court of Connecticut issued an execution that was served upon the bank where the debtor maintained a “High Yield Consumer Savings Account” in the name of his family living trust.  The total balance of the account was removed toward satisfying the judgment, in accordance with Conn. Gen. Stat. § 52-367b(c) (2009).  The debtor then filed a claim of exemption, classifying the account as a “private pension, trust, retirement or medical savings account” under Conn. Gen. Stat. §§ 52-321a, 52-352b(m) (2009).

According to the living trust agreement establishing the debtor’s family living trust, the debtor and his wife were both grantors and trustees of the trust.  The trust was for the benefit of the two grantors and their children. The trust was divided into two grantor’s separate shares, one for each grantor, and each share consisted of an undivided one-half beneficial interest in the trust assets.

During the lives of both grantors, all distributions of income and principal from the trust estate would be made one-half from each grantor’s separate share. During their joint lifetimes, the trustees had the power to pay to or apply all or part of the principal and income of each grantor’s separate share for the benefit of each grantor. The majority of the funds in the family living trust were from an IRS refund issued in connection with the debtor and his wife’s joint federal income tax return.

Exemption of Assets 

Connecticut law exempts any “assets or interests of an exemptioner in, or payments received by the exemptioner from, a plan or arrangement described in Section 52-321a.” Conn. Gen. Stat. §§ 52–352b(m).  However, the statute that describes which assets are unavailable to creditors, Conn. Gen. Stat. §52–321a, limits the definition to trusts or other instruments that were established as part of retirement plans or other plans qualified under various sections of the Internal Revenue Code.

Such plans are “conclusively presumed to be a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under the laws of this state.”  Id. The court found that the family living trust at issue was not a plan or arrangement described by the relevant statutes and, therefore, was not entitled to exemption from a judgment creditor on these bases.

In the alternative, the debtor argued that even if the family living trust was not entitled to exemption, the income could not be subjected to claims of creditors based on Conn. Gen. Stat. § 52-321(a).  This statute states that non-exempt income can be subject to the claims of creditors of a beneficiary only “if the property has been given to trustees to pay over the income to any person without provision for accumulation or express authorization to the trustees to withhold the income.”  The debtor argued that, given the powers of the trustees as defined in the living trust agreement, the trust income could not be subjected to the claims of creditors; therefore, the income must be exempt.

The Court’s Decision

The court reached the opposite conclusion and held that the cited statute does not apply to the living trust at issue, because it was a discretionary trust established by grantors for their own benefit.  As a matter of public policy, this family living trust cannot enjoy the exemption afforded to a spendthrift trust; and as a matter of statutory interpretation, the exceptional provisions governing the liability of the income of trust find to creditors does not apply to the income of this trust. Conn. Gen. Stat. § 52–321(a).

Connecticut common law has interpreted the statutory predecessor of Section 52-321(a) to mean that a trust created by a person for his own benefit cannot qualify as a “spendthrift trust” that is beyond the reach of his creditors.   See Greenwich Trust Company v. Tyson, 129 Conn. 211, 219 (1942).  The income generated by such a trust is also not protected from the just claims of creditors.  Id. at 222.

The court denied the debtor’s claim of exemption, and permitted the amount removed from the bank account standing in the name of the family living trust to be applied to the satisfaction of the judgment held by the judgment creditor.

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Should you have any questions relating to living trusts or other personal asset protection issues, please do not hesitate to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a consultation today.

What Does It Mean if My Employee is Subject to Income Withholding in Connecticut?

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Child support is often collected through income withholding orders which means it is paid by the non-custodial parent’s employer out of the parent’s wages.  Income withholding can include withholding wages or paychecks, commissions, bonuses, unemployment compensation, worker’s compensation insurance, or retirement benefits.  If an employer receives an income withholding order, the employer must withhold money as required by the court order.  The employer is responsible for sending payments within seven days of withholding the money from the employee’s wages or earnings, and to continue to withhold and send payments until they are notified by the court that the order is suspended or changed.

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

Wife Found in Contempt of Court’s “Automatic Orders”

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In a decision rendered in a dissolution of marriage action, a wife was found in contempt for depriving her husband of information regarding the parties’ two minor children in violation of the court’s “automatic orders.”  In this particular case, the parties were married 1991, and were the parents of two children.  At the time of trial the husband was forty-three years old and in generally good health.  He had an associate’s degree and worked for a supply company earning approximately $51,000 annually.

The wife was also forty-three years old and in generally good health.  Although she stayed home to care for the family for a better part of the marriage, in 1999 she began working as an independent contractor selling kitchen products.  Later, she worked for a local board of education, and at the time of trial, was employed with a local newspaper earning roughly $20,000, plus commission, annually.

The Divorce

During the divorce proceedings, the husband filed a motion for contempt claiming the wife violated the court’s automatic orders in that she left the marital residence with the children and refused to disclose their location.  In reviewing the merits of the husband’s motion, the court noted that in a civil contempt proceeding, the movant must show by a preponderance of the evidence the existence of a clear and unambiguous court order, and willful noncompliance with that order.  According to the court’s “automatic orders,” entered upon the commencement of every divorce action, neither party is permitted to remove children from the State of Connecticut without prior written consent of the other parent.

Additionally, a party vacating the marital residence with minor children must notify the other parent of the move, and must provide the other parent of an address where the relocated party can be contacted.  Finally, where parents live separate and apart during a divorce proceeding, pursuant to the “automatic orders,” they must assist their children in having contact with both parents.

The Court’s Decision

In this particular case, the court found that because the wife was served in hand with a notice of automatic orders, she clearly knew she had an obligation to inform the husband in writing of any relocation.  The court found that she also knew she had a duty to assist her children in having contact with their father.

Nevertheless, the wife willfully removed the children from the home, and kept their address from the husband absent a valid reason for doing so.  As a result, the husband did not know where the children were living until the day of trial.  The court further found that the wife willfully kept the children from having contact with their father in violation of the court’s clear and unambiguous automatic orders.

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Our firm in Westport 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.

Should you have any questions regarding automatic court orders, or divorce proceedings in general, please feel free to contact Attorney Joseph Maya, Esq.  He can be reached in the firm’s Westport office at (203) 221-3100 or by e-mail at  JMaya@Mayalaw.com.

Overseas Tax Shelters Now Complying With IRS

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Some of the world’s most notorious secret account havens have agreed to give information about U.S. tax payers to the Internal Revenue Service.

In a 24-day span ending December 19, eight jurisdictions — the Cayman Islands, Costa Rica, Jersey, Guernsey, the Isle of Man, Bermuda, Malta and the Netherlands – signed separate agreements with the IRS to help it implement the Foreign Account Tax Compliance Act (FATCA), enacted by Congress to uncover offshore tax evasion. Deals with more countries are in the works.

IRS Intergovernmental Agreements

An IRS intergovernmental agreement “obligates the foreign country to require its investment funds and other financial institutions, unless they are exempt, to collect certain information from their U.S. account holders and report it to their country’s tax authority, which will then report the information to the IRS,” explains accountant Jay Bakst, a partner in the financial services practice of EisnerAmper LLP, an advisory and accounting firm in New York.

Institutions in countries that have yet to ink an intergovernmental agreement must enter into an agreement with the IRS to report directly to it or face 30-percent withholding on certain income from U.S. sources.

Reportable data includes the client’s name, address and tax identification number, plus information on account deposits, withdrawals and balances. Reporting begins in 2015, when 2014 account data will be furnished to the IRS.

Considering the Cayman Islands

For advisors and their U.S. clients, the Cayman Islands accord is particularly significant. The British territory’s money and secretive banks, private funds and insurance outfits are popular with affluent Americans, and for some of them the new pact could prove a game changer.

Prior to the Cayman government’s November 29 agreement with the IRS, Cayman banks that didn’t have income from the U.S. — and which were therefore unaffected by FATCA’s withholding on U.S.-source income — had little motivation to comply with the American law.

The same was true for Cayman funds with no U.S. income. But the intergovernmental agreement means an institution will be breaking its own country’s law by failing to report U.S. investors’ information to its government. That is a “strong incentive” to turn over the data regardless of whether withholding would apply, Bakst says.

International Clients

For advisors with international clients, attorney Frank L. Brunetti points out that most IRS intergovernmental agreements are reciprocal. For example, the IRS will be reporting to Costa Rica about its taxpayers in the U.S.

International clients should also be aware that multilateral agreements are expanding, where “multiple countries are sharing in the same exchange-of-information protocol,” says Brunetti. He is a partner at Scarinci Hollenbeck in Lyndhurst, N.J., as well as an academic observer to the United Nations Committee of Experts on Cooperation in International Tax Matters.

“Governments are cooperating with each other because they are looking for revenue, and they’re getting much better at it with the technology and the laws,” Brunetti says. “There are not many places for the international billionaire to hide assets anymore.”

Credit: Eric Reiner

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If you have any questions relating to tax law, please do not hesitate to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation.