Posts tagged with "Personal Assets"

State Employee Retirement Benefits Payments are Not Exempt from Garnishment by Victims of Violent Crime

State Employee Retirement Benefits Payments are Not Exempt from Garnishment by Victims of Violent Crime

Klingman v. Winters, KNLCV020560881, 2010 WL 5493498 (Conn. Super. Ct. Dec. 8, 2010)

In a case before the Superior Court of Connecticut, a victim of a violent crime sought to have a wage execution enforced against the retirement payments of her convicted assailant in order to collect the awarded judgment. The court found that the claim for a wage execution was valid and enforceable.

The plaintiff was awarded a $240,000 judgment for injuries she sustained from a physical attack by the defendant. The judgment was entered on a four-count complaint claiming negligence, reckless and wanton assault, intentional assault and violation of the Violence Against Women Act of 1995, 42 U.S.C. § 13981, based upon the applicable Connecticut General Statutes. The defendant declared bankruptcy; however, the bankruptcy court found that the plaintiff’s judgment was not subject to bankruptcy exemptions. In its memorandum of decision, the bankruptcy court characterized the attack as “vicious and brutal” and the injuries inflicted as “willful and malicious.”

A wage execution was entered against the defendant and the defendant’s employer, the State of Connecticut, and was paid to the plaintiff until the defendant retired. The plaintiff applied for a new wage execution, which was served on the State and returned by reason of the defendant’s retirement. The State contended that it discontinued payments on the wage execution because the defendant was placed on hazardous duty disability retirement and the execution was impermissible according to Connecticut law prohibiting assignments of state employees’ retirement benefits, Conn. Gen. Stat. § 5-171.

Under Connecticut law, retirement benefits of state employees are intended to support the member or beneficiary who is entitled to those payments; therefore, any assignment of such benefits is “null and void.” Conn. Gen. Stat. § 5-171. These benefits are “exempt from the claims of creditors.” However, if these general provisions are contrary to the law governing a particular circumstance, the law dictates “any payment shall be exempt to the maximum extent permitted by law.” Id. Connecticut law governing the general availability of retirement income to creditors, Conn. Gen. Stat. § 52-321a, exempts “any pension plan, annuity or insurance contract or similar arrangement … established by federal or state statute for federal, state or municipal employees for the primary purpose of providing benefits upon retirement by reason of age, health or length of service” from the claims of all creditors of the plan beneficiary. Conn. Gen. Stat. § 52-321a(a)(5). However, this law also provides a specific exception for victims of violent crime: “Nothing in this section … shall impair the rights of a victim of crime … to recover damages awarded by a court of competent jurisdiction from any federal, state or municipal pension, annuity or insurance contract or similar arrangement … when such damages are the result of a crime committed by [the] participant or beneficiary.” Conn. Gen. Stat. § 52-321a(b).

The plaintiff argued that the defendant’s retirement payments should be garnished pursuant to the Connecticut law governing the availability of retirement income to creditors, Conn. Gen. Stat. § 52-321a. She asserted that this law governed her particular circumstance as a victim of violent crime, and established an exception to the exemption of state employee retirement benefits stated in Section 5-171.

The plaintiff’s argument raises an issue of first impression in the Connecticut. Connecticut appellate courts have not addressed the specific issue of a victim’s right to enforce a withholding order pursuant to law governing the availability of retirement income to creditors, Conn. Gen. Stat. § 52-321a. Discussion of the general applicability of this law has been limited to trial court decisions regarding alimony and child support obligations. These cases have consistently found that pension benefits covered by Section 52-321a are not exempt from income withholding orders. See, e.g., Sinicropi v. Sinicropi, 23 Conn. L. Rptr. 49 (Conn. Super. Ct. 1998); Foley v. Foley, 20 Conn. L. Rptr. 644 (Conn. Super. Ct. 1997).

The court found that the plaintiff was a victim of a crime; therefore, her claim for a wage execution upon the retirement benefits of the defendant fell within the statutory exception of Section 52-321a(b) and constituted a particular circumstance that fell within the statutory exception of Section 5-171. The court ordered that a wage execution may issue against the retirement benefits payments to the defendant by the State of Connecticut.

Should you have any questions relating to 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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Undistributed Income of a Spendthrift Trust is Excluded from Alimony Determinations

Taylor v. Taylor, 978 A.2d 538 (Conn. App. Ct. 2009)

In a case before the Appellate Court of Connecticut, an ex-wife appealed a trial court ruling that reduced her ex-husband’s alimony obligations on the basis of her status as the beneficiary of a supplementary spendthrift trust. The appellate court reversed the trial court ruling and remanded the case for further proceedings.

In April 2002, the couple’s forty-year marriage was dissolved. The judgment of dissolution contained provisions that required the ex-husband to pay $5,000 per month to his ex-wife as alimony, and that permitted the court to take a second look at the alimony obligation on the ex-husband’s 65th birthday or upon the death of his father, which ever occurred first. In 2006, after both events occurred, the ex-husband filed a motion to modify his alimony obligation. In its memorandum of decision, the court found that the ex-wife was an income beneficiary of a trust in which the settlor’s primary intent was to provide generously for her care and maintenance, commonly known as a “spendthrift trust.” The court also found that this trust earned more than enough income to provide for the ex-wife’s care and maintenance without any invasion of the principal. On the basis of its findings regarding the ex-wife’s status as a trust beneficiary, the court granted the ex-husband’s motion and modified the ex-wife’s alimony to $1 per year, retroactive to the date the motion was served. The ex-wife appealed the trial court decision.

According to Connecticut case law, a court’s role in the construction of a trust instrument is to determine the meaning of what the grantor stated in the trust instrument and not to speculate upon what the grantor intended to state in the instrument. Connecticut Bank & Trust Co. v. Lyman, 148 Conn. 273, 278-79, 170 A.2d 130 (1961). Expressed intent must control the court’s interpretation of the instrument. Therefore, the plain language of the trust instrument itself, rather than extrinsic evidence of actual intent, is determinative of the grantors’ intent. Cooley v. Cooley, 32 Conn.App. 152, 159, cert. denied, 228 Conn. 901 (1993) (citing Heffernan v. Freedman, 177 Conn. 476, 481, 418 A.2d 895 (1979). The provisions of the trust of which the ex-wife was a beneficiary classify it as a supplementary spendthrift trust: “[T]he trustees shall pay to or for the benefit of [the ex-wife]… so much of the net income thereof as the Trustees, in their sole discretion, deem advisable for the comfortable maintenance of said child.”

In the case of a spendthrift trust which provided the beneficiary with only such sums as the trustee deems necessary for the beneficiary’s support, no title passes in the income passes to the beneficiary until the beneficiary receives a distribution from the trust. Bridgeport v. Reilly, 133 Conn. 31, 35–36, 47 A.2d 865 (1946), quoting Reilly v. State, 119 Conn. 508, 512, 177 A. 528 (1935). Therefore, the appellate court determined that, until the ex-wife receives a distribution from her supplementary spendthrift trust, the undistributed trust income cannot be considered for the purposes of determining an alimony award. Furthermore, a court can only control the exercise of discretion by the trustee of a spendthrift trust when an abuse of discretion has occurred. Zeoli v. Commissioner of Social Services, 179 Conn. 83, 89, 425 A.2d 553 (1979). In the instant case, there has been no claim that the trustees have abused their discretion in not making distributions to the ex-wife.

In examining the provisions of the ex-wife’s spendthrift trust, the appellate court concluded that the trial court improperly interpreted the provisions of the trust agreement when, in effect, it assumed that the trustees were obligated to distribute income to the ex-wife, in her capacity as trust beneficiary. The court could not compel the trustees to make income payments and consider the unreceived income in modifying the alimony order. Furthermore, it was an abuse of discretion for the court to consider the undistributed trust assets as income to the ex-wife when the court considered and applied the statutory factors for the determination of alimony. Conn. Gen. Stat. § 46b-82. Therefore, the trial court incorrectly applied the law when it ordered the ex-wife’s alimony to be reduced because it could not reduce alimony based on a finding that the supplementary spendthrift trust earned enough to provide for the ex-wife’s support.

Because the appellate court agreed that the trial court abused its discretion by improperly crafting an order that tacitly compelled the trustees to make distributions of the trust to the ex-wife, the appellate court reversed the trial court ruling and remanded the case for further proceedings in accordance with the law.

Should you have any questions relating to trusts 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.
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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. 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.

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Conveyance of Trust Assets Must Abide by the Clear and Unambiguous Terms of the Trust Instrument

Gabriele v. Williams, KNLCV096001373S, 2011 WL 2480535 (Conn. Super. Ct. May 26, 2011)

In a case before the Superior Court of Connecticut, a daughter, in her capacity as the conservator of her mother’s estate, petitioned the court to determine the rights of the family members to undeveloped land and to quiet title to the contested property. In her answer to the complaint, the mother requested that the court declare her trust terminated and declare her the sole title owner of the contested real estate. The court quieted title to the property in the trust and declared the attempted revocation of the trust to be null and void.

In 1992, at the age of 68, the mother established a nominee trust to assist with estate planning for approximately 170 acres of undeveloped land that she owned. On the same date that the trust was established, the mother conveyed her interest in the property to the trust, excepting a two acre lot with her residence. Keeping the land in the family and undeveloped as long as possible was a priority for the mother and, together with estate tax planning, were motivating reasons for establishing the trust. She named herself as the trustee and a beneficiary of the trust, and named her daughter and her daughter’s two sons as additional beneficiaries. All three additional beneficiaries agreed with her philosophy of keeping the land intact and undeveloped. The trust contained two provisions that limited the trustee’s powers to deal with the trust property except as directed by all beneficiaries. It also required that any amendments be signed by all the beneficiaries. An agreement was later provided to clarify the administrative provisions of the trust, stating that if the beneficiaries differed in opinion as to the directions that should be given to the trustee, a majority vote by beneficial interest would control. From 1992 to 1998, the mother made a series of gifts of percentages of interest in the trust to her daughter and to her daughter’s two sons. According to the percentage in the final schedule of beneficial interests dated 1998, the mother owned approximately 49-percent, the daughter owned approximately 21-percent, and the two grandsons each owned approximately 15-percent. The trust, the property conveyance and the later agreement were all recorded in the town land records in a timely fashion.

In 2004, at the age of 80, the mother began to have medical and cognitive difficulties. She was diagnosed with breast cancer. During a brief hospital stay in April, a neurologist also diagnosed her with mild dementia. In October 2004, her primary doctor re-examined the mother and diagnosed her with “senile dementia with depression, Alzheimer type.” Because of the mother’s ill health and the conflict her care was causing between family members, the town probate judge petitioned for an involuntary conservatorship of the mother. The daughter later requested that the petition for conservatorship be withdrawn because the hearings were causing her mother obvious distress. The acting judge withdrew the petition without making a finding of the mother’s capacity.

While the conservatorship hearings were in process, a family member who was not a beneficiary of the 1992 trust arranged for a new attorney to get involved with the mother’s affairs. In October 2004, the new attorney prepared a deed for the mother to sign as trustee purporting to convey all trust assets from the trust to herself individually. In November 2004, the attorney prepared a revocation of trust for the mother’s signature. The family attorney who wrote the trust and who represented the mother for many years was not consulted in any of the transactions. None of the beneficiaries of the 1992 trust were consulted or involved in the decision making process to convey the sole trust asset to the mother individually nor did they consent to the conveyance. When the family attorney learned of the deed and the attempted revocation, he prepared an affidavit and had it recorded in the town land records.

In 2006, the mother was formally declared incompetent through temporary conservatorship. A permanent involuntary conservatorship of the person and estate followed, and was still in effect at the time of the instant case.

In order to render judgment in a quiet title action, Connecticut courts are permitted to determine the construction of instruments that are the sources of contested title. Conn. Gen. Stat. § 47-31(f). The instant case required the court to examine four documents: the 1992 trust instrument, the 1998 final schedule of beneficial interests, the 2004 deed conveying the trust asset to the mother individually, and the 2004 revocation of trust. The construction of a trust instrument presents a question of law to be determined in the light of facts. According to Connecticut case law, a court’s role is to determine the meaning of what the grantor stated in the trust instrument and to not speculate upon what the grantor meant to state in the instrument. Connecticut Bank & Trust Co. v. Lyman, 148 Conn. 273, 278-79, 170 A.2d 130 (1961). Expressed intent must control the court’s interpretation of the instrument. In determining the intent of the grantor, the words used in the trust instrument are to be interpreted in their ordinary sense and all the provisions must be construed together. Tremaine v. Tremaine, 235 Conn. 45, 61, 663 A.2d 387 (1995). Therefore, the plain language of the trust instrument itself, rather than extrinsic evidence of actual intent, is determinative of the grantors’ intent. Heffernan v. Freedman, 177 Conn. 476, 481, 418 A.2d 895 (1979).

The 1992 trust instrument contained clear and unambiguous language that the trustee had no power to deal in or deal with the estate except as directed by all beneficiaries. At the time of the attempted conveyance of the contested property from the trust back to the mother individually, the trust had four beneficiaries. Three beneficiaries neither knew of nor agreed to the conveyance. Therefore, the court found that the attempted conveyance in 2004 was a violation of the trust document, and declared the conveyance to be void for that reason. Furthermore, any attempted transfer of the trust estate back to the grantor by deed or revocation without compliance with the clear and unequivocal terms of the trust constitutes a breach of the grantor’s fiduciary duty to the beneficiaries. The mother, in her capacity as trustee, was a fiduciary within the definition of Connecticut law, Conn. Gen. Stat. § 45a-199, and could not personally benefit from the trust. Therefore, the court declared the both conveyance and revocation were void due to the mother’s breach of fiduciary duty resulting from her violation of the terms of the trust agreement and her intention for personal benefit.

The court additionally determined that the mother lacked the necessary capacity to execute the 2004 documents due to her mental condition. The mental capacity to make a deed is defined as whether, at the time of executing the deed, the person possessed understanding sufficient to comprehend the nature, extent and consequences of the deed. Both the doctor who attended to the mother during a brief hospital stay and the mother’s primary doctor had diagnosed her with mild dementia in relatively close proximity to the attempted transactions. Additionally, the mother was not able to remember and understand the trust she created in 1992 and the gifts she had granted subsequent to its creation. These two factors taken together supported the court’s determination that the 2004 attempted conveyance of the contested property from the trust and the attempted revocation of the trust was null and void.

Even if the conveyance and revocation were otherwise effective, the court declared these transactions to be null and void because the family member involved in bringing them about did so through the exercise of undue influence. A deed procured by undue influence is voidable regardless of whether the undue influence was exerted by the grantee or another individual. Fritz v. Mazurek, 156 Conn. 555 (1968). Connecticut case law sets out four elements necessary for a finding of undue influence: (1) a person who is subject to influence, (2) an opportunity to exert undue influence, (3) a disposition to exert undue influence, and (4) a result indicating undue influence. Dinan v. Marchand, 279 Conn. 558, 560, fn.1 (2006). As evidence of these elements, the court cited the affidavit of the town probate judge who initiated the involuntary conservatorship proceedings to protect the mother from the family member. The affidavit described the family member’s intention to change the mother’s trust and will to benefit him, as well as the steps that he took to keep the mother isolated and locked in the house. The family member selected a new attorney, failed to contact the family’s regular attorney and attended all the conferences the new attorney held with his mother. The changes that would result from the conveyance and revocation would solely benefit the family member involved. Based on this evidence, taken together with other facts of the case, the court found the elements of undue influence satisfied and the two instruments to be null and void on this basis.

Because the trial court declared the 2004 property conveyance and revocation of trust to be null and void on several bases, the court determined that title to the contested property remained vested in the 1992 trust. Furthermore, the court clarified that the beneficiaries of the trust and the proportions of their interests are as described in the schedule of beneficial interests signed by the mother in 1998.

Should you have any questions relating to trusts, real estate and 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.
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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. 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.

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Provisions in A Prenuptial Agreement can be a Sufficient Basis to Establish Constructive Trusts on Estate Assets

In re Chantarasmi, 938 N.Y.S.2d 762 (N.Y. Sur. 2012)

In a recent case before the Surrogate’s Court in Westchester County, New York, the co-administrators of a deceased father’s estate and guardians of property of his minor children sought to impose constructive trusts on a portion of the estate. The court authorized the guardians to establish trusts for the benefit of the decedent’s children.

In June 2002, the decedent and his wife entered into a prenuptial agreement under which the wife waived her rights to the decedent’s estate in the event that they did not have children. If the couple were still married and had children at the time of his death, the prenuptial agreement provided that the decedent would leave an amount equivalent to 30-percent of his gross estate to a trust for his wife. The trustees of this trust would be the wife, the decedent’s father and the decedent’s brother. The same clause in the prenuptial agreement provided that the decedent would leave an amount equivalent to 70-percent of his gross estate to one or more trusts to be established for the sole benefit of his children, upon the terms specified in the decedent’s will. The trustees for the children’s trusts would also be the wife, the decedent’s brother and the decedent’s father. In December 2009, the decedent died in an accident before making his will. He was survived by his wife, his eight-year-old son and his seven-year-old daughter.

Upon the decedent’s death, the co-administrators distributed 30-percent of the net estate to the marital trust. However, the absence of a will meant that there were no provisions to establish the trusts for the benefit of the decedent’s children. Therefore, the co-administrators of the decedent’s estate, who were also the guardians of property of his minor children, petitioned the court to impose a constructive trust on 70-percent of the net estate and authorize them to transfer such funds to the individuals named as trustees in the prenuptial agreement in order. The co-administrators proposed to establish two irrevocable trusts, one for the son with 35-percent of the net assets and one for the daughter with 35-percent of the net assets. Under the terms of each proposed trust, the trustees would have full discretion to pay to, or apply for the benefit of, any or all income and/or principal to the beneficiary during the trust period. Each proposed trust would make payments of principal upon the beneficiary attaining age 25 and age 30. Each trust would pay the balance of the principal and terminate upon the beneficiary attaining age 35. The co-administrators also proposed various exculpatory clauses and broad administrative powers clauses.

In New York case law, it is well settled that a contract between spouses that provides for distribution of one’s estate to the other, or to their children, may be enforced against the deceased spouse’s estate. In re Granwell, 228 N.E.2d 779 (N.Y. 1967); see also, In re Cohen, 629 N.E.2d 1356 (N.Y. 1994). Because the decedent did not leave a will, he breached the terms of his prenuptial agreement regarding the establishment of trusts for his children. Therefore, the Surrogate Court held that this breach warranted imposition of a constructive trust, and the guardians of the property of the minor children could enforce the prenuptial agreement in equity by imposing a trust upon 70-percent of the net assets of the decedent’s estate.

Although a constructive trust may be imposed, the Surrogate Court also considered whether it may authorize the guardians to establish the children’s irrevocable trusts under the proposed terms. The court found the instant case differs from precedents in New York case law because, in the instant case, the agreement clearly stated that the decedent would provide certain terms and conditions of the trust in his will. Therefore, the Surrogate Court had to construe the missing terms from the intents and purposes expressed by the decedent in the prenuptial agreement.

The prenuptial agreement clearly defined three of the necessary elements of a trust agreement by designating beneficiaries, trustees and trust assets; however, the duration of the trust and the distribution of assets during the trust’s administration were left for the decedent to provide in his will. In absence of the decedent’s will, the Surrogate Court construed the decedent’s intent as desiring the trust to continue for the period necessary to accomplish its purpose. When the trust arises from another agreement, such as the prenuptial agreement in the instant case, the purpose of that agreement becomes relevant to determining the trust period. In examining the relevant provision of the prenuptial agreement, the Surrogate Court construed the decedent’s intent to be that trusts provide financial support for the children after the decedent’s death and free their mother from administering the children’s assets under a join guardianship with the Clerk of the Court. Because the decedent sought to hold the assets in trust, the Surrogate Court inferred that the decedent did not want the children to receive their shares of his estate at the age of majority. Because the obligation to support the children was not specifically limited to age 21, the Surrogate Court inferred that the decedent contemplated that the trustees would administer the trust for a longer period. The same analysis was applied to ascertain the decedent’s intent with regard to the distribution of trust funds. Taking these inferences as a whole, the court construed that the decedent’s intent was for each children’s trust to continue for a period necessary to accomplish its purpose by fairly and impartially distributing income and/or principal for the benefit of the children during their minority and to pay principal at fixed ages. Therefore, the Surrogate Court concurred with the trustees, duration of the trust and distribution of assets proposed by the co-administrators

Although the court granted the imposition of the constructive trusts on 70-percent of net assets for the children’s benefit and concurred with the necessary elements of the trust, the court found that several of the proposed exculpatory clauses and administrative powers were in violation of New York law. These same clauses would not have been enforceable had the decedent created them under a will. Therefore, the court ordered the guardians to redraft the proposed trusts in accordance with the fiduciary powers outlined in New York Law, N.Y. Estates, Powers and Trusts Law § 11-1.1 (MicKinney 2011).

The court granted the guardians’ application to enforce the prenuptial agreement and to authorize the establishment of trusts for the benefit of the decedent’s children. The guardians were ordered to provide copies of the revised proposed trusts within 60 days of the decision.

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.
________________________________________________________________________________
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. 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.

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Trustees May Be Liable in their Own Person and Estate for Failure to Comply with IRS Notices of Levy Issued against Trust Beneficiaries

Trustees May Be Liable in their Own Person and Estate for Failure to Comply with IRS Notices of Levy Issued against Trust Beneficiaries

United States v. Michel, 08 CV 1313 DRH WDW, 2012 WL 3011124 (E.D.N.Y. July 23, 2012)

In a recent case before the United States District Court for the Eastern District of New York, the United States government commenced an action against a trustee in order to collect unpaid federal taxes owed by the trust beneficiary. The District Court granted the government’s summary judgment motion and found the trustee liable for unpaid federal taxes plus interest.

In 1995, the beneficiary’s mother died. Pursuant to her will, the majority of her estate was left to be held in trust, and administered, managed, invested and reinvested by the trustee as set forth in the will. The relevant provision of the will directed the trustee to pay her son, the sole beneficiary of the trust, at least $1,000 per month, but not more than 60-percent of the net income of the trust. The same provision also provided the trustee with sole discretion to pay trust principal to her son as necessary for the comfortable “maintenance, support, health, education and well being” of her son, and his two sons. In February 1996, the trustee was issued letters of trusteeship for the trust created by the will.

In April 1996, the trustee was informed by his attorney by letter that the son owed the federal government for various taxes totaling $246,579. The attorney additionally informed the trustee that whatever income was going to the son, regardless of the source, must go first to the creditor. In June 1996, the trustee was served with an Internal Revenue Service (IRS) Notice of Levy and Notice of Federal Tax Lien. The Notice of Levy listed federal income tax liabilities and civil penalties that the son owed to the IRS for tax years 1979 through 1989. The notice further stated that the levy required the trustee to turn over to the IRS “this person’s property and rights to property (such as money, credits and bank deposits) that you have or which you are already obligated to pay this person.” In either 2000 or 2001, the trustee was directed by his new attorney to make distributions from the trust to the son because the IRS had been satisfied. The trustee did not see the paperwork documenting satisfaction of the IRS levy and signed blank checks to permit the attorney to draw on the trust account for the son. The government then commenced action against the trustee to collect the son’s delinquent tax liability through the judicial enforcement of the IRS levy.

The IRS has two principal tools to collect delinquent taxes. The first is a lien foreclosure suit, brought pursuant to 26 U.S.C. § 7403(a). The other is the issuance of a levy upon all property and rights to property belonging to the delinquent taxpayer, pursuant to 26 U.S.C. § 6331(a). Where the taxpayer’s property is being held by another, the notice of levy is customarily served upon the custodian of the property pursuant to 26 U.S.C. § 6332(a). Serving the notice on the custodian creates a custodial relationship between the person holding the property and the IRS so that the property comes into constructive possession of the government. If the custodian fails or refuses to surrender the property or rights to property subject to the levy, the custodian becomes liable in his own person and estate to the government in the sum equal to the value of what he failed to surrender. 26 U.S.C. § 6332(d)(1).

Pursuant to New York law, the plain language of the trust instrument must be analyzed in order to determine a trust beneficiary’s property rights in trust income or principal. The Second Circuit has held that a beneficiary has a property interest in trust income when the trust instrument sets out the trustee’s duty to pay income in mandatory terms. Magavern v. United States, 550 F.2d 797, 801 (2d Cir.1977). Therefore, when the trustee is required to make a payment of trust income to a beneficiary, even when the amount and timing of the mandatory income distribution are left to the trustee’s discretion, the trust beneficiary has a property right in trust income that is subject to a tax levy.

In the instant case, because the trustee’s duty pay out a certain amount of trust income was set forth in mandatory terms, the beneficiary had a right to property in the trust income, and the government tax levy could attach to this right. However, the will did not require the trustee to pay trust principal to the beneficiary. The terms of the trust left decisions with respect to the trust principal entirely to the trustee’s discretion. Therefore, the beneficiary had no attachable right to property in the trust principal until the trustee decided to make a distribution of such principal to him. The District Court concluded that the beneficiary had some property rights to both the trust income and that portion of the trust principal, if any, that was distributed to him. These rights to property were in the possession of the trustee, and it was undisputed under the facts of the case that the trustee did not surrender any levied property to the IRS in compliance with 26 U.S.C. § 6332(a). Therefore, the trustee could be liable in his own person and estate to the government under 26 U.S.C. § 6332(d)(1).

A custodian of property or rights to property that are subject to an IRS levy has only two defenses to avoid liability in his own person and estate. The first available defense is that the trustee is neither in possession of nor obligated with respect to the property or rights to property belonging to the delinquent taxpayer. 26 U.S.C. § 6332(a). The second available defense is that the taxpayer’s property or rights to property at issue are subject to attachment or execution under a judicial process. Id. In the instant case, the first defense was not applicable because, pursuant to the terms of the will, the trustee was both obligated to pay the beneficiary certain amounts of trust income at given intervals and empowered to make discretionary distributions. The trustee made no suggestion that the second defense was applicable. The absence of intentional or negligent conduct is not relevant as to whether an enforcement action may be maintained against the custodian; therefore, good faith could not absolve the trustee of liability for his failure to comply with his statutory obligations to surrender property pursuant to a valid IRS Notice of Levy. Therefore, the District Court found that the trustee could not avoid liability for his actions under either of the two statutorily available defenses.

The District Court determined that the government established as a matter of law that the trustee failed to honor the Notice of Levy served on the trust beneficiary in June 1996 by improperly distributing estate assets to the trust beneficiary after the date of the levy. However, the court also held that the trustee was liable for less than the judgment amount requested by the government, but the court permitted the government to submit a supplemental briefing as to its entitlement to additional estate money to which the trust beneficiary had a property right.

Should you have any questions relating to trusts 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.

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Several Different Legal Theories May Allow Creditors To Reach a Debtor’s Assets Held in Trust

Several Different Legal Theories May Allow Creditors To Reach a Debtor’s Assets Held in Trust

United States v. Evseroff, 00-CV-06029 KAM, 2012 WL 1514860 (E.D.N.Y. Apr. 30, 2012)

In a recent case before the United States District Court for the Eastern District of New York, the United States government sought to collect delinquent taxes by accessing assets held in a trust established for the benefit of the taxpayer’s children. The current case was remanded to the District Court by the United States Court of Appeals for the Second Circuit after the Second Circuit reversed an earlier District Court ruling on the same matter. On remand, the District Court ruled that the government may collect against all assets held by the trust.

Between 1978 and 1982, the taxpayer invested in a series of tax shelters that generated deductions that were later disallowed by the Internal Revenue Service (IRS). In December 1990, after being audited, the taxpayer received notification that he owed over $227,000 in taxes and penalties. This amount was later corrected. In January 1992, the taxpayer received a notice of deficiency indicating that he had accrued more than $700,000 in tax liability. The taxpayer challenged the IRS calculation of his tax liability in a petition to the United States Tax Court. In November 1992, the Tax Court entered judgment against the taxpayer in the amount of $209,113 in taxes and penalties, and $560,000 in interest.

In June 1992, the taxpayer established a trust, naming a series of family friend and business associates as the trustees and naming his two sons as the beneficiaries. In the same month, he transferred approximately $220,000 to the trust and in October 1992 he transferred his primary residence, valued at $515,000, to the trust. The taxpayer received no consideration and there was no evidence the trust assumed the individual taxpayer’s mortgage obligations. Pursuant to the transfer agreement, the taxpayer was allowed to live in the residence and was responsible for the expenses of the residence, including the mortgage and property taxes. At the time of the transfer, the mortgage was scheduled to be paid off in five years; however, the transfer agreement did not specify an end date for the taxpayer’s occupancy.

At the bench trial held in 2005, the government advanced several theories for recovering assets from the trust, all of which were rejected by the District Court. The government appealed. In 2008, the United States Court of Appeals for the Second Circuit reversed the judgment and remanded the case. In its remand order, the Second Circuit directed the District Court to reconsider its findings with respect to whether the conveyances by the taxpayer to the trust were actually fraudulent, whether the trust held property as the taxpayer’s nominee and whether the trust was the taxpayer’s alter ego.

According to New York law, every conveyance made with “actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud” one’s creditors is fraudulent as to both present and future creditors. N.Y. Debtor and Creditor Law § 276. The primary issue is the intent of the debtor in making the conveyance, not the actual financial status of the debtor at the time of the conveyance. The requisite intent required by this section does not need to be proven by direct evidence; it may be inferred from circumstances surrounding the allegedly fraudulent transfer. Factors, known as “badges of fraud,” that a court may consider in determining fraudulent intent include: lack or inadequacy of consideration; close relationship between the transferor and the transferee; debtor’s retaining possession, benefit or use of the property; series of transactions after incurring the debt; the transferor’s knowledge of the creditor’s claim and the inability to pay it; the financial condition of the debtor before and after the transfer; and the shifting of assets to a corporation wholly owned by the debtor. See Steinberg v. Levine, 6 A.D.3d 620 (N.Y. 2004); In re Kaiser, 722 F.2d 1574, 1582–83 (2d Cir.1983) (citations omitted). To support a fraudulent conveyance finding, the creditor must have suffered some actual harm; however, actual harm may be found if the debtor depletes or diminishes the value of the assets of the debtor’s estate available to the creditors. Lippe v. Bairnco Corp., 249 F.Supp.2d 357, 375 (S.D.N.Y. 2003)

The District Court found that the taxpayer was well aware of his tax liabilities and other potential demands on his assets when he transferred his residence and $220,000 to the trust in 1992. Evidence of the taxpayer’s conduct at the time of the transfers supported the court’s finding that the taxpayer acted with the intention to hinder or delay collection of his assets. The taxpayer retained the benefits of ownership of the residence after it was transferred to the trust for no consideration. His payments of mortgage and other property-related expenses, in lieu of rent, were the type of payments that would be made by a property owner, not a renter. Much of the taxpayer’s net worth consisted of cash, which he was continually transferring among bank accounts held by family and close associates, as well as withdrawing to hold in an office safe. These transfers and withdrawals made it difficult for the IRS to locate and value the taxpayer’s assets. The District Court also found that the transfers of cash and real estate to the trust unambiguously caused the requisite actual harm to his creditors by reducing the assets that the taxpayer had available to satisfy his tax debt and reducing the value of his readily accessible assets well below the amount of his tax debt. After the transfers, the IRS would have had to collect between fifty and ninety percent of his remaining assets to satisfy his tax debt. As a result of this analysis, the District Court found that the taxpayer’s intent to evade the IRS collection efforts was substantial and sufficient on its own; therefore, the court concluded that the taxpayer’s transfer of the residence and $220,000 to the trusts was actually fraudulent within the definition of New York law. The remedy for fraudulent conveyance is that the creditor may collect upon the fraudulently conveyed property. Therefore, the District Court held that the government may collect against the assets in the trust on this basis.

The nominee theory focuses on the relationship between the taxpayer and the property to determine whether a taxpayer has engaged in a legal fiction, for federal tax purposes, by placing legal title to property in the hands of another while, in actuality, retaining all or some of the benefits of being the property’s true owner. Richards v. United States, 231 B.R. 571, 578 (E.D.Pa.1999). The overall objective of the nominee analysis is to determine whether the debor retained the practical benefits of ownership while transferring legal title. Id. The critical consideration is whether the taxpayer exercised active or substantial control over the property. Factors examined by the court include: (1) whether inadequate or no consideration was paid by the nominee; (2) whether the property was placed in the nominee’s name in anticipation of a liability while the transferor remains in control of the property; (3) where there is a close relationship between the nominee and the transferor; (4) whether they failed to record the conveyance; (5) whether the transferor retains possession; and (6) whether the transferor continues to enjoy the benefits of the transferred property. Giardino v. United States, No. 96–CV–6348T, 1997 WL 1038197, at *2 (W.D.N.Y. Oct.29, 1997). A nominee finding can be made even where there is no intent to defraud creditors or hinder collection efforts. Where a nominee relationship is found, the government may access only the property held on the taxpayer’s behalf by the nominee and not all the property of the nominee.

The District Court found that the trust was the taxpayer’s nominee with respect to the residence only, and not with respect to the $220,000. The taxpayer had a close relationship with the trustees and the trust paid no consideration for the transfer of the residence. There was no evidence in the transfer agreement that the trust prevented the taxpayer from benefitting from the use and occupancy of the residence as much as when he held legal title to it. The District Court found the evidence that the taxpayer made some payments relating to the property to be insufficient evidence to rebut the inference that he was the de facto owner of the property. The payments that the taxpayer made in exchange for his occupancy were precisely those that an owner would make. Once the mortgage was paid off, the taxpayer was only responsible for upkeep and expenses for the property; therefore, the trust received no net return from this asset. The District Court considered that, were the trust acting as the owner of the property, it would have sought market rental rates that would have exceeded the taxpayer’s payments. Therefore, the District Court found that the trust held the residence as the taxpayer’s nominee and that the government could recover the taxpayer’s debts against the residence under a nominee theory.

The alter ego theory differs from the nominee theory because the nominee theory focuses on the taxpayer’s control over and benefit from the actual property, while the alter ego theory emphasizes the taxpayer’s control over the entity that holds the property. The alter ego doctrine arose from the law of corporations and allows the creditor to disregard the corporate form (also known as “piercing the corporate veil”) by either using an individual owner’s assets to satisfy a corporation’s debts or using the corporation’s assets to satisfy the individual owner’s debts. Although the New York Court of Appeals has never held that the alter ego theory may be applied to reach assets held in trust, the District Court found no policy reason not to extend the application of veil piercing to trusts. The policy behind piercing the corporate veil is to prevent a debtor from using the corporate form to unjustly avoid liability, which applies equally to trusts. Therefore, the District Court held that the alter ego theory could be applied to the trust in the instant case.

To pierce the corporate veil in New York, a plaintiff must show that “(1) the owner exercised such control that the corporation has become a mere instrumentality of the owner, who is the real actor; (2) the owner used this control to commit a fraud or ‘other wrong’; and (3) the fraud or wrong results in an unjust loss or injury to the plaintiff.” Babitt v. Vebeliunas,332 F.3d 85, 91–92 (2d Cir.2003) (citations omitted); see also Wm. Passalacqua Builders, Inc. v. Resnick Developers S. Inc., 933 F.2d 131, 138 (2d Cir.1991). With respect to analyzing the taxpayer’s control over the trust, the relevant factors can be drawn by analogy from the corporate context. In analyzing the alter ego question as it relates to a corporation, courts consider factors such as the absence of formalities, the amount of business discretion displayed by the allegedly dominated corporation, whether the related corporations deal with the dominated corporation at arm’s length and whether the corporation in question had property that was used by other of the corporations as if it were its own. Vebeliunas,332 F.3d at 91 n.3 (citation omitted).

The District Court that the trust was an alter ego of the taxpayer. The trust formalities were so poorly observed as to give rise to the inference that the trust was not a bona fide independent entity. Between 1992 and 1998, the trust did not record the taxpayer’s payment of expenses for the residence as income and, during this period, the trust did not claim the mortgage interest deduction for the residence. The individual taxpayer remained as the named beneficiary of the flood and fire insurance policies of the residence. The accounting work for the trust was performed by a business associate of the taxpayer as a professional courtesy. The trust tax statements were sent directly to the taxpayer instead of to the trustees. The District Court also found that the manner in which the trust was managed also demonstrate that it was an extension of the taxpayer because there was little evidence that the trustees were actively involved in managing the trust or its assets. Having trustees play an active role in managing the trust is an important factor in deciding whether to respect the form of a trust because active involvement of trustees would support the separate existence of a trust. Dean v. United States, 987 F.Supp. 1160, 1165 (W.D.Mo.1997). Finally, the taxpayer demonstrated his domination of the trust by controlling its property to a high degree.

Once the District Court found that the taxpayer controlled the trust, the next steps were to determine whether he used that control to commit a fraud or a wrong against the government, in its capacity as a creditor, and whether that wrong resulted in an unjust loss. The court found these elements to be plainly satisfied by the facts and its previous findings with respect to actual fraudulent conveyance and the nominee doctrine. Therefore, the District Court concluded that the existence of the trust as a separate entity was a legal fiction. Under the alter ego theory, the government may collect against all assets held by the trust as if they were held by the taxpayer himself.

Therefore, the District Court held that the government may proceed to collect against all the assets held by the trust that the taxpayer established for benefit of his sons in order to satisfy his delinquent tax liabilities.

Should you have any questions relating to trusts and 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.

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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

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.

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Spouse’s Testamentary Trust is Included When Determining Medicaid Eligibility for Long Term Care

Spouse’s Testamentary Trust is Included When Determining Medicaid Eligibility for Long Term Care

Palomba-Bourke v. Dep’t of Soc. Services, CV116010448S, 2012 WL 2044788 (Conn. Super. Ct. May 10, 2012)

In a recent case before the Superior Court of Connecticut, a wife appealed the final decision of the Department of Social Services determining that her husband did not qualify for Title XIX (Medicaid) benefits to cover his long term care because the wife’s testamentary trust was considered an available asset. The Superior Court determined that the wife’s testamentary trust was appropriately classified and dismissed the appeal.

In 1976, the wife’s first husband died and made her the beneficiary of a testamentary trust. The provisions of the testamentary trust provide that the trustees will pay the wife during her lifetime “so much of the annual net income from the Residuary Trust and so much of the principal thereof as the Trustees in their sole discretion shall deem advisable for [her] more comfortable care, maintenance and support.” The wife later remarried. In 2009, her second husband entered a long term care facility and applied for Medicaid. In June 2010, the Department of Social Services determined that the Community Spouse Protected Amount (CPSA) was $109,540. The CPSA included the principal value of the testamentary trust in its calculations because the trust was deemed by the Department of Social Service’s legal counsel to be a resource that was available to the wife. Because the husband’s assets exceeded the allowable limit, the Department of Social Services denied his request for Medicaid.

At the November 2010 administrative hearing on the denial of the husband’s Medicaid application, the Department of Social Services hearing officer made several conclusions of law. First, he found that the wife and her husband were considered to be spouses as defined by the Medicare Catastrophic Coverage Act (MCCA) of 1998. Second, this act provides that all the resources held by either spouse, or by both spouses, are considered available to the institutionalized spouse. Third, effective June 2010, the wife’s assets were $514,977, which was the value of her testamentary trust. Fourth, the Department of Social Services correctly determined the CPSA to be $109,560. Fifth, the uniform policy manual (UPM) of the Department of Social Services provides that the assets of the spouse still living in the community in excess of the CPSA to be available to the institutional spouse. Therefore, after allowing the wife her CPSA of $109,560, the Department of Social Services determined that $405,417 of her assets were available to her husband. Sixth, the asset limit for Medicaid was $1,600. Therefore, because the husband’s available assets of $407,417 were in excess of the $1,600 limit, the Department of Social Services was correct in denying the husband’s request for Medicaid.

On appeal to the Superior Court, the wife contended that the Department of Social Services illegally determined that the corpus of her testamentary trust was available to her husband because the trust was created before the effective date of the MCCA. However, the court determined that the precedent cited by the wife in support of this argument was narrowly applicable a special type of self-created inter vivos trust that was affected by U.S. Congressional legislation purporting to close loopholes. This precedent did not propose a general role that would restrict the applicability of the MCCA to the husband’s Medicaid eligibility determination.

The Superior Court re-iterated the general rule that a Medicaid applicant is subject to the federal and state statutes regarding assets that are in effect at the time of the institutionalization or application. The MCCA rules for treatment of resources, 42 U.S.C. § 1396r-5(c)(2)(A), and the Connecticut implementation of federal law, UPM § 4025.67(A), both support this interpretation. Both statutes require assets held either by the spouse living in the community or by the institutionalized spouse to be considered available to the institutionalized spouse for the purposes of Medicaid eligibility. Furthermore, the legislative history of the MCCA regarding the attribution of resources requires “Any countable resources belonging to either or both spouses would be included in this determination, including resources from inheritance or previous marriages.” H.R. Rep. 100-05(II), at 70 (1998), reprinted in 1998 U.S.S.C.A.N. 893.

Therefore, the Superior Court determined that the Department of Social Services appropriately deemed the wife’s testamentary trust to be an asset available to her institutionalized husband when determining his eligibility for Medicaid, and that the denial of the husband’s request for Medicaid was correct. The wife’s appeal of the Department of Social Services determination was denied.

Should you have any questions relating to trusts and 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.

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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

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

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

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.

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Accepting Funds from a Charitable Trust may Create a Contract that Cannot be Unilaterally Modified

Accepting Funds from a Charitable Trust may Create a Contract that Cannot be Unilaterally Modified

Blumenthal v. Getraer, CV106007120S, 2011 WL 4953727 (Conn. Super. Ct. Oct. 4, 2011)

In a case before the Superior Court of Connecticut, the Attorney General of the State of Connecticut brought a declaratory judgment action to represent the public interest in protecting gifts intended for charitable purposes, pursuant to Connecticut General Statute § 3-125. The action posed four specific questions to the court regarding a charitable trust that was intended to honor a respected synagogue member and provide funds for capital improvements to the synagogue to which he belonged.

In 2002, a respected member of the synagogue passed away, and was survived by his wife and son. The following year, a charitable foundation in New York City gave the synagogue he attended a gift of $40,000 which was contingent upon the synagogue’s agreement to name its sanctuary after the deceased. The gift and additional donations of over $100,000 were placed in a memorial fund, which was controlled by the widow and her son. After receiving the gift, the synagogue erected a plaque over the entrance to the sanctuary declaring that it was named in honor of the deceased. At the synagogue’s next board of directors meeting, the widow offered, on behalf of the memorial fund, to give the money in the fund to the synagogue with the restriction that it be used only for capital improvements and not ordinary expenses. The widow and the son would act as the trustees of the fund and disburse monies for capital improvements at their absolute discretion. The board of directors approved the arrangement.

A dispute later arose between the widow and her son, and the board of directors. The widow and her son were dissatisfied because the memorial plaque was covered on several occasions so that it was not visible to people in the synagogue. For example, during the 110th anniversary celebration of the synagogue, a sign announcing the name of the synagogue was placed over the memorial plaque. During one Chanukah celebration, decorations were placed over the plaque and left there until July of the following year. The board of directors was dissatisfied because the widow and her son stopped paying for capital improvements. The board of directors that approved the arrangement with the widow and her son was dismissed and replaced with a new board. This new board of directors voted to request the widow and her son to turn control of the fund over to the synagogue.

In an action seeking declaratory judgment, the sole function of the trial court is to ascertain the rights of the parties under existing law. Ginsberg v. Post, 177 Conn. 610, 616 (1979). Four specific questions were posed to the court to determine the rights of the trustees and the rights of the synagogue. Prior to addressing these questions, the court found that a contract had been formed between the fund and the synagogue based on the synagogue’s acceptance of monies from the fund and other actions taken by the synagogue board of directors. Therefore, the court found that the vote by the new board of directors had no legal significance because they could not unilaterally change the terms of the previous contract with the widow and her son.

Based on finding the existence of a contract, the court determined that the widow and her son were entitled to continue to control the fund and act as its trustees. However, the court also found that equity required them, in their capacity as trustees, to reimburse the synagogue for the capital expenditures made in reasonable reliance on the agreement that the fund would pay for capital improvements. The trustees had discretion to determine what constituted a capital improvement. The fund was also required to continue to pay for capital improvements, on the condition that the memorial plaque was visible to all who would be able to see it. The court ordered that the memorial plaque not be covered and, if it was, that would constitute a breach of contract on the part of the synagogue. In that event, the widow and son would be free to terminate the trust and the fund, and either return the money to the donors or use it for other charitable purposes at their discretion. Finally, the court suggested that the fund cease soliciting further donations and allow the remaining monies to be depleted to that the relationship between the parties could be terminated.

Should you have any questions relating to charitable trusts 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.

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