Posts tagged with "real property"

Court Awards Wife Her Husband’s Interest in Several Businesses

In a recent decision rendered in the Superior Court for the Judicial District of Stamford, the Court awarded to a wife her husband’s interest in three separate limited liability companies. The parties were married in 1988, and are the parents of two adult children. The wife was a real estate broker, while, according to the court, the husband was unwilling to seek, obtain or maintain gainful employment. Rather, the husband owned and/or had an interest in several businesses, as well as several properties pursuant to his interests in various limited liability companies. During the proceedings, both the husband and his associates obstructed efforts to ascertain his assets, liabilities, income and expenses. The court found the husband’s behavior so egregious as to constitute litigation misconduct. As a result of the husband’s unwillingness to cooperate with the judicial process, the court was forced to appoint an expert to determine the value of his interests in several limited liability companies and partnerships.

Although the court did not necessarily find the husband at fault for the breakdown of the parties’ marriage, it did indicate that it held his conduct during the proceedings against him in formulating its final orders. Ultimately, the court ordered the husband to pay 100% of the costs incurred for their son’s college education, including costs already incurred by the wife, ordered him solely responsible for the cost of the court appointed expert retained to valuate his business interests, ordered him to pay a considerable sum toward the wife’s counsel fees, and awarded the wife the marital residence.

The Court also ordered the husband to transfer to the wife his entire interest in three separate limited liability companies, with the wife entitled to receive all income and distributions from the entities thereafter. To the extent the companies owned any real property, the court further ordered the husband to transfer his interest in the same to the wife, while remaining solely responsible for all financial obligations and liabilities, as well as any taxes or fees associated with the transfer. Additionally, due to the husband’s misconduct during the proceedings, the court ordered him to keep a detailed record of all cash transactions, including the date of each transaction, the name of the person making payment, the reason for the payment, the serial numbers and denominations of all paper currency received, and the place of deposit.

Should you have any questions regarding matrimonial matters, please do not hesitate to contact Attorney Michael D. DeMeola, Esq. He can be reached in the firm’s Westport office at (203) 221-3100 or by e-mail at mdemeola@mayalaw.com.

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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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Post Petition Divorce Property Settlement May Not Impact Spouses’ Homestead Exemptions in Bankruptcy Court

In re Gasztold, 11-21287, 2011 WL 5075440 (Bankr. D. Conn. Oct. 25, 2011)

In re Gasztold, 11-21287 ASD, 2011 WL 3607903 (Bankr. D. Conn. Aug. 16, 2011)

In two related cases before the United States Bankruptcy Court for the District of Connecticut, the Bankruptcy Court upheld a debtor-wife’s right to claim a homestead exemption in the primary residence that she owned and occupied as of the bankruptcy petition date, even though the post-petition divorce decree required the debtor-husband to buy out her interest in the residence.

In April 2011, the debtor-husband and debtor-wife jointly filed a petition for bankruptcy protection under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701 et seq. The debtors listed their jointly owned marital residence as a real property asset. Pursuant to 11 U.S.C.§ 522(b)(3), they claimed personal exemptions in accordance with Connecticut state law, including a homestead exemption of $125,900 for the unencumbered fair market value of marital residence. See Conn. Gen. Stat. § 52-352b(t).

In May 2011, after filing the bankruptcy petition, the debtors divorced. The property settlement under the state court judgment of dissolution provided that the debtor-husband obtain financing and pay the debtor-wife $62,950 for the value of her one-half interest in the marital residence and, upon payment, the debtor-wife quitclaim her interest in the property to the debtor-husband. The settlement further provided that if the debtor-husband was unable to obtain financing, the couple would sell the property and divide the proceeds.

In August 2011, the Chapter 7 trustee filed an objection to the debtor-wife’s claim of a homestead objection. The trustee also filed a motion to compel filing of a supplemental schedule by the debtor-wife to capture the cash payment from her husband that was ordered in the property settlement to liquidate her interest in the residence.

In Connecticut, any “natural person” is entitled to claim an exemption for his homestead up to $75,000, which is calculated based on the fair market value of the property less the amount of any statutory or consensual lien. Conn. Gen. Stat. § 52–352b(t) (2009). A “homestead” is defined as “owner-occupied real property … used as a primary residence.” Id. at § 52–352a (e) (2005) Case law has further refined this definition to establish three requirements for real property to constitute an individual’s statutory homestead: (1) the individual must “own[ ]” the subject real property within the meaning of Section 52–352a as of the relevant time; (2) the individual must “occup[y] ” the subject real property within the meaning of Section 52–352a as of the relevant time; and (3) the subject real property must be “used as a primary residence” within the meaning of Section 52–352a as of the relevant time. In re Kujan, 286 B.R. 216, 220–21 (Bankr.D.Conn.2002); see also KLC, Inc. v. Trayner, 426 F.3d 172, 175 (2d Cir. 2005) (citing Kujan as “setting out ‘homestead’ requirements for invocation of homestead exemption”).

The Bankruptcy Court established that the “relevant time” for determining entitlement to an exemption is the date that the bankruptcy petition was filed. At that time, the debtor-wife owned the property, occupied the property, and used the property as her primary residence. Therefore, her interest in the property satisfied the requirements for her to be entitled to a homestead exemption. Because this entitlement existed as of the petition date, the Bankruptcy Court overruled the Chapter 7 trustee’s objection to the debtor-wife’s homestead exemption.

The Chapter 7 trustee also argued that the cash payment to the debtor-wife required by the property settlement after the petition date was a new asset and, therefore, must be included in the debtor-wife’s estate. According to the federal bankruptcy code, the estate subject to bankruptcy proceedings includes any interest in property that would have been property of the estate “if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date…as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree. 11 U.S.C. § 541. However, the Bankruptcy Court concluded that the cash payment that the debtor-wife received to liquidate her interest in the marital residence was not a new asset acquired after the initiation of bankruptcy proceedings; the court characterized this payment as the proceeds of her exempt interest in the marital residence, which had been included and subsequently withdrawn from the estate. The property settlement did not alter the net value of the debtor-wife’s post-petition assets and liabilities, only the form of such interests. The Bankruptcy Court concurred with the majority of courts, holding that property exempted from the estate after the petition date does not re-enter the estate as a result of having changed form, even if the property in its new form may not be entitled to a state law exemption. Although the Connecticut exemption statutes initially determine whether, as of the petition date, a debtor’s interest in property is exempt from the claims of pre-petition creditors, the federal bankruptcy code protects the exempt property from these claims. 11 U.S.C. § 502. Because the settlement agreement did not add assets to the debtor-wife’s estate, the Bankruptcy Court denied the Chapter 7 trustee’s motion to compel a supplemental filing.

Based on common law, Connecticut statutory law and federal bankruptcy law, the Bankruptcy Court determined that the debtor-wife’s ownership, occupation and use of the marital residence prior to filing the bankruptcy petition was sufficient to entitle her to a homestead exemption for this interest and, once exempted from the bankruptcy estate, this interest could not re-enter the estate even if it changed form from real property to cash.

Should you have any questions relating to marital, bankruptcy or 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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Connecticut Appellate Court finds that Executor did have authority to bring a Summary Process Action on behalf of an Estate

Connecticut Appellate Court finds that Executor did have authority to bring a Summary Process Action on behalf of an Estate

Scott v. Heinonen, 118 Conn. App. 577, 985 A.2d 358 (2009) 

 

The plaintiff, Arthur E. Scott, Jr., executor of the Estate of Barbara H. Scott (the “Estate), brought a summary process action to evict the defendant, Mark M. Heinonen, who resided on certain real property that was owned by the decedent.  The property was specifically devised to the defendant and his brother in the decedent’s will.  However, the plaintiff sought to evict the defendant pursuant to Conn. Gen. Stat. § 47a-26d in order to market the property for sale and satisfy the Estate’s financial obligations.  The Superior Court ruled against the plaintiff and concluded that he lacked the power to evict without a contract of sale or a further order of the Probate Court.  Judgment of possession was entered in favor of the defendant.

On appeal, the plaintiff argued that the Superior Court incorrectly found he did not have the authority to evict the defendant.  The plaintiff claimed he was authorized by the Probate Court to market the property for sale.  The Appellate Court found that the plaintiff did have the power to bring the summary process action in his role as the fiduciary and legal representative of the Estate.  The Estate held title to the property pursuant to Conn. Gen. Stat. § 45a-321 and the Probate Court properly ordered the plaintiff to satisfy debts against the estate by selling the property pursuant to Conn. Gen. Stat. § 45a-428(a).  Therefore, the judgment of the Superior Court was reversed and the case was remanded so that judgment could be entered in favor of the plaintiff.

Should you have any questions relating to wills, trusts, estates or probate issues generally, please feel free to contact Attorney Russell J. Sweeting, a lawyer in the firm’s Westport, Connecticut office in Fairfield County by telephone at (203) 221-3100 or by e-mail at rsweeting@mayalaw.com.

Connecticut Superior Court denies Prejudgment Remedy and declines to impose a Constructive Trust

Connecticut Superior Court denies Prejudgment Remedy and declines to impose a Constructive Trust

Marinelli v. Estate of Marinelli, 2011 Conn. Super. LEXIS 1857 (2011)

 

The plaintiff, Michael Marinelli, brought an action against Joanne Marinelli, the executrix of the Estate of Anthony V. Marinelli, Jr. (the “Estate”) and the trustee of the Anthony V. Marinelli, Jr. Revocable Trust (the “Trust”).  The decedent, Anthony V. Marineeli, Jr., fraudulently induced the plaintiff, his brother, to believe that he would receive a 50% ownership interest in real property according to the plaintiff.  A family car repair business was operated on the real property in question and the plaintiff sought to impose a constructive trust.  The plaintiff filed an application for a prejudgment remedy against the Estate and the Trust pursuant to Conn. Gen. Stat. § 52-278d.

The Court held a hearing on the application and found there was an absence of probable cause to believe the plaintiff would prevail.   The plaintiff’s father clearly transferred title of the real property to the decedent who maintained the car repair business and assumed liability for all of its debts.  The evidence presented indicated that the plaintiff voluntarily relinquished his interest in the car repair business.  The apparent representations by his father and brother indicating that the plaintiff would be “taken care of” were imprecise assurances that did not persuade the Court.   There was no evidence of wrongdoing engaged in by the decedent.    As a result, the plaintiff’s application for a prejudgment remedy was denied.

Should you have any questions relating to wills, trusts, estates or probate issues generally, please feel free to contact Attorney Russell J. Sweeting, a lawyer in the firm’s Westport, Connecticut office in Fairfield County by telephone at (203) 221-3100 or by e-mail at rsweeting@mayalaw.com.

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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Beneficial Interest in a Trust Does Not Equate to Beneficial Ownership of Real Property Held in Trust

Beneficial Interest in a Trust Does Not Equate to Beneficial Ownership of Real Property Held in Trust

Fandacone v. Fandacone, NBSP052634, 2011 WL 4347935 (Conn. Super. Ct. Mar. 17, 2011)

In a case before the Superior Court of Connecticut, a beneficiary of a revocable family trust filed a motion to dismiss the summary process action brought by the trustee to regain possession of premises held in trust and occupied by the beneficiary. The trial court denied the motion to dismiss.

In 2003, the trustee and her husband created a revocable family trust, consisting of three sub-trusts. The trust named six beneficiaries, including the current trustee. The contested premises were allocated to “Sub Trust A” and occupied by one of the beneficiaries. The current trustee became the sole trustee upon her husband’s death in 2004. In June 2009, the trustee served notice to the beneficiary to quit the contested premises within three weeks, citing nonpayment of rent, lapse of time, and that the beneficiary never had a right or privilege to occupy the premises. The beneficiary moved to dismiss the summary process action.

According to Connecticut law, a summary process action requires the individual bringing the action to be the owner of the property. Conn. Gen. Stat. § 47a-23(a)(3). In a trust, the trustee holds legal title to the assets of the trust. See B.A. Ballou & Co. v. Citytrust, 218 Conn. 749, 753, 591 A.2d 126 n .2, 218 Conn. 749, 591 A.2d 126 (1991). A trust beneficiary has no legal title or ownership interest in the individual assets of the trust. The Connecticut Supreme Court has held that a beneficiary of a revocable trust does not have a vested property interest, but only an expectancy until the death of the settlor renders the trust irrevocable. See Bartlett v. Bartlett, 220 Conn. 372, 376–77, 599 A.2d 14 (1991).

Although the beneficiary did not dispute that the trustee held legal title to the contested premises, he argued that the trustee could not bring a summary process action against him because he was a co-owner of the contested premises. He contended that he was entitled to beneficial ownership of the premises and, therefore, fell within the definition of “owner” provided by Connecticut law, Conn. Gen. Stat. § 47a-1(e).

Connecticut law defines property ownership in terms of both legal title and beneficial ownership. Conn. Gen. Stat. § 47a-1(e). An “owner” includes one in whom is “vested…all or part of the beneficial ownership and a right to present use and enjoyment of the premises.” Conn. Gen. Stat. § 47a-1(e)(2). Beneficial ownership is the right to enjoy the premises where legal title is in one person, the right to beneficial use or interest is in another person, and the courts recognize and can enforce the right to beneficial use or interest. Bender v. Nuzzo, Superior Court, Judicial District of New Haven, Housing Session, Docket No. SPNH 9607 47892 (July 10, 1997, Levin, J.). Beneficial use is distinguished from the right of occupancy or possession because the right to beneficial use encompasses the right to use and enjoy property to one’s liking.

In hearing the motion to dismiss, the court refused to determine whether the beneficiary had a vested or contingent beneficial interest in the family trust, which would not become irrevocable until the trustee’s death. However, the court found that the beneficiary only demonstrated that he occupied the premises. He did not show that he had any right to the present use and enjoyment of the premises, under the terms of the trust or otherwise, as required to establish beneficial ownership. Absent legal title to the premises or vested beneficial ownership, the court found that beneficiary was not an owner of the property and that the trustee had proper standing to bring the summary process action against him.

Therefore, the court denied the beneficiary’s motion to dismiss the trustee’s summary process action to evict him from the contested premises.

Should you have any questions relating to real estate, trust 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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Property Conveyance May Satisfy the Statute of Frauds Requirement to Create a Trust

Property Conveyance May Satisfy the Statute of Frauds Requirement to Create a Trust

Ciccaglione v. Stewart, CV074008040, 2012 WL 671933 (Conn. Super. Ct. Feb. 8, 2012)

In a recent case before the Connecticut Superior Court, two daughters sought a declaratory judgment as to the validity of an unsigned document purporting to be their deceased mother’s trust agreement and quiet title to a contested piece of real estate. The daughters contended that the trustees held the contested property in fee simple; therefore, the real estate was not part of the mother’s estate to be distributed in accordance with her will. The trial court concluded that the trust was validly created and the contested real property was a trust asset.

The original executed copy of the mother’s 2004 trust agreement could not be found after her death. Two of her daughters sought a court judgment declaring that an unsigned copy of their mother’s trust agreement created a valid and enforceable inter vivos trust, They contended that an irrevocable trust had been created in August 2004 when their mother executed and recorded the warranty deed that conveyed the contested property to the trust because the conveyance and circumstances surrounding it manifested their mother’s clear intent to create that trust. The remaining heirs denied these allegations and raised several special defenses, including that the unsigned trust agreement did not comply with the Statute of Frauds, that the deed was invalid, that one or both of the daughters exerted undue influence over their mother and that their mother lacked capacity when she created the trust.

The requisite elements of a valid and enforceable trust are: (1) a trustee, who holds the trust property and is subject to duties to deal with it for the benefit of one or more others; (2) one or more beneficiaries, to whom and for whose benefit the trustee owes the duties with respect to the trust property; and (3) trust property, which is held by the trustee for the beneficiaries. Goytizolo v. Moore, 27 Conn.App. 22, 25, 604 A.2d 362 (1992). According to the Restatement of Trusts, if the owner of property declares himself to be the trustee of the property or transfers it “in trust” for a named person, such writing sufficiently demonstrates the purpose of the trust to satisfy the writing requirement of the Statute of Frauds. Restatement (Second) of Trusts § 46 cmt. (a) (1959).

The daughters alleged that the August 2004 warranty deed conveying the contested property to their mother’s inter vivos trust satisfied the Statute of Frauds because it set forth the trust property, the beneficiaries and the purpose of the trust with reasonable definiteness. Because the warranty deed transferred the property from the mother individually to the inter vivos trust, it was as if the property was transferred “in trust” for a named person and the warranty deed was a declaration of a passive trust. They also contended that because the mother signed the warranty deed as trustee, she was declaring herself to be the trustee of the property for the beneficiaries of the inter vivos trust. Although the court concluded that the execution of the warranty deed by itself funded rather than created the inter vivos trust, the court also concluded that the warranty deed was sufficient evidence to satisfy the Statute of Frauds. The deed was a writing signed by the mother demonstrating that she manifested an intent to create the trust and impose the duty of a trustee upon herself. Additional testimony from witnesses at the trial supported the court’s conclusion that the mother executed the trust agreement, along with her will and the warranty deed, in August 2004 as part of her overall testamentary plan and that unsigned copy of the trust agreement submitted by the two daughters was a true copy of the agreement which established the terms of the agreement.

The heirs contesting the trust alleged that the August 2004 warranty deed conveying the contested property to the mother’s inter vivos trust was invalid because the deed named the trust rather than the trustee as the grantee of the property. According to the Connecticut Standards of Title, a grantee of real property must be in existence and have capacity to take and hold legal title to land at the time of the conveyance. A trust does not have such capacity: the trustee, or other fiduciary of the trust, is the appropriate grantee. See Connecticut Bar Association, Connecticut Standards of Title (1999), standard 7.1, comments 1 and 4. Connecticut law, however, provides that deeds with certain defects are considered to be valid unless an action challenging the deed and a lis pendens are recorded in the town land records within two years of recording the defective instrument. Conn. Gen. Stat. § 47-36aa(a). This statute covers defective deeds made to grantees that are not recognized by law as having the capacity to take or hold an interest in real property. Conn. Gen. Stat. § 47-36aa(a)(4). Because the heirs contesting the trust did not file an action challenging the validity of the deed within two years of its recording, the trial court concluded that the August 2004 warranty deed had been validated by the operation of the statute, which confirmed the conveyance to the grantee and any subsequent transfers of the interest by the grantee to any subsequent transferees.

The heirs contesting the trust alleged that the trust was void because one or both of the two daughters seeking to enforce the trust exerted undue influence over their mother during its making. Undue influence is the exercise of sufficient control over a person in an attempt to destroy his free agency and constrain him to do something other than what he would do under normal circumstances. 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. Gengaro v. New Haven, 118 Conn.App. 642, 649–50, 984 A.2d 1133 (2009) (internal quotations omitted); see also Dinan v. Marchand, 279 Conn. 558, 560, fn.1 (2006). The heirs contesting the trust argued that their mother was susceptible to undue influence because of her medical condition and fear of being placed in a nursing home. They also alleged that one or both of the daughters who were seeking to enforce the trust were in a position to influence her because they had medical and financial control over their mother. At least one of the two daughters, who was the oldest female in a family of eleven, had the disposition to exert such influence. Finally, they argued that the terms of the trust revealed the extent of that influence because the terms benefitted the daughters seeking to enforce the trust. However, based on the testimony of witnesses at trial, the court concluded that the mother was not under any undue influence when she executed the trust and other testamentary documents in August 2004.

Finally, the heirs contesting the trust argued that the trust agreement was void due to their mother’s lack of capacity. Specifically, they argued that there was evidence that their mother did not understand the terms of the trust agreement because when she later wanted to sell the contested property, she discovered that she could not. The mother had medical and neurological conditions, including a stroke in 2003 and terminal cancer in 2006; therefore, she was preoccupied with her health and was concerned about being placed in a nursing home. Furthermore, she loved all of her children and wanted them to be treated equally and fairly, but the terms of the trust are unfair to some of the beneficiaries.

Capacity to make a trust is the same as the capacity to make a will or other testamentary instrument. Connecticut statutory law generally requires that at testator be “any person eighteen years of age or older, and of sound mind.” Conn. Gen. Stat. § 45a-250. Case law establishes the test for testamentary capacity as “whether the testator had mind and memory sound enough to know and understand the business upon which he was engaged at the time of execution.” City National Bank and Trust Co.’s Appeal, 145 Conn. 518, 521, 144 A.2d 338 (1958). Testamentary capacity is assessed at the time the instrument is executed, and not on the testator’s ability years later to remember the contents of the instrument. Therefore, based on testimony from several witness at trial, the court concluded that the mother had sufficient testamentary capacity to create an enforceable inter vivos trust at the same time she created her other testamentary documents. Furthermore, the mother’s expressed wishes were to preserve her property for her children and grandchildren; the court concluded that the trust was the most plausible legal means to carry out these wishes.

The trial court concluded that the trust was validly created and the contested real property was a trust asset. Therefore, the unsigned copy of the trust was an expression of the intent of the mother, in her capacity as grantor, and was a valid and enforceable trust instrument.

Should you have any questions relating to trusts, estates 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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Trustees May Evict Beneficiaries from Real Property Held by the Trust

Trustees May Evict Beneficiaries from Real Property Held by the Trust

Dudek v. Dudek, HDSP-150182, 2011 WL 767790 (Conn. Super. Ct. Feb. 9, 2011) aff’d, 136 Conn. App. 902, 44 A.3d 222 (2012)

In a case before the Superior Court of Connecticut, a sister, acting in her capacity as trustee of the family trust, brought a summary process action for possession of two properties against her brother, a beneficiary of the trust, alleging that his original right or privilege to occupy the contested properties had been terminated. The trial court entered judgment for immediate possession of the subject properties in favor of the trustee. The Connecticut Appellate Court affirmed this ruling in a later court proceeding.

Since 2006, the contested properties had been held in trust by the family trust, which was created by the siblings’ father and funded with his assets upon his death that year. The trust instrument named the sister as the trustee of the family trust and clearly laid out her duties. The brother lived at the contested properties for almost his entire life, and provided physical care and support to his parents at the properties in the years before their death. While the brother provided care for his parents, he did not pay rent to them because no rent was requested. After his parents’ death, the brother remained in possession of the contested properties, and did not pay rent or other monies to the trust. The trust paid all the real estate taxes, insurance bills and most utility bills for the properties. The sister alleged that the brother engaged in negative behaviors that prevented her from properly managing the properties as trustee. Such alleged behaviors included preventing an insurance company representative from inspecting the premises, which resulted in the loss of insurance on the property, and denying her access to the properties. She also alleged that her brother was unwilling to cooperate with her relocation to a portion of the property and to conduct repairs to another portion of the property so that it could be rented out to generate income for the trust.

According to Connecticut law, Conn. Gen. Stat. § 47a-23(a)(3), the essential elements of a summary process action are: (1) the plaintiff is the owner of the property; (2) the defendant originally had a right or privilege to occupy the premises but such right or privilege has terminated; (3) the plaintiff caused proper notice to quit possession to be served on the defendant to vacate the premises on or before a certain date; and (4) although the time given the defendant to vacate in the notice to quit possession has passed, the defendant remains in possession of the premises. The general burden of proof in a civil action is on the plaintiff, who must prove all the essential elements of the cause of action by a fair preponderance of the evidence. Upon reviewing the facts of the case, the trial court determined that that the trust was the legal owner of the contested properties, the actions that the sister took related to the summary process action were within her powers as trustee, and that she had established all the remaining essential elements of her case by a fair preponderance of the evidence.

The brother asserted several special defenses related to the nature of the family trust: (1) the intent of the grantors was to allow him to remain in possession of the subject premises during his lifetime; (2) as a trust beneficiary in current possession of the premises, he is co-owner of the premises and not subject to a summary process action; (3) his beneficial interest in the trust generally equates to an equitable interest in the individual assets of the premises as part of the trust estate; and (4) a constructive trust should be imposed on the premises based on the grantor’s promise that he could remain in possession for his lifetime and his sister would be unjustly enriched if he were to be dispossessed from the premises. Defendants have the burden of proving the allegations in their special defenses by a fair preponderance of the evidence.

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 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). Because the court found nothing within the plain language of the trust supported the brother’s proposition that the grantors intended for him to remain in possession of the contested properties during his lifetime, the court found that brother failed to establish his first special defense.

Connecticut case law further establishes that the trustee holds legal title and legal ownership of the property in the trust. Fandacone v. Fandacone, Superior Court Judicial District of New Britain, Housing Session, Docket No. NBSP-052634 (March 16, 2010, Gilligan, J.). A beneficiary of the trust enjoys only a beneficial interest in trust assets. Despite the beneficial or equitable interest that a beneficiary may hold in the trust estate, this does not equate to legal or equitable title to the individual assets of the trust. Stepney Pond Estates, Ltd. v. Monroe, 260 Conn. 406, 433 n. 28 (2002). Therefore, the court found that the brother failed to establish his second and third special defenses.

A constructive trust arises where an individual who holds title to a property is subject to an equitable duty to convey it to another on the grounds that he would be unjustly enriched if he were permitted to retain the property. See Filosi v. Hawkins, 1 Conn.App. 634, 639 (1984); Gulack v. Gulack, 30 Conn.App. 305, 311-12 (1993). A constructive trust may also be imposed to prevent the abuse of a confidential relationship. Schmaling v. Schmaling, 48 Conn.App. 1, 13, cert. denied, 244 Conn. 929 (1998). In order to find that a constructive trust exists and should be imposed, the court must first find that a special or confidential relationship existed between the parties. Id. In Connecticut, two types of confidential relationships give rise to a constructive trust: (1) where one party is under the domination of another and (2) where circumstances justify one party’s belief that the other party’s actions will be guided by his or her welfare or instructions. See Riccio v. Riccio, 75 Conn.App. 556, 559 (2003); Starzec v. Kida, 183 Conn. 41, 43 n. 1 (1981). The court found that the brother did not establish clear and satisfactory facts from which a constructive trust may be implied. He did not establish that his sister, in her capacity as trustee, had an equitable duty to convey the contested properties to him. The trust instrument did not dictate that the brother’s individual welfare was not the sole focus of the family trust; instead, the instrument dictated that the sister’s fiduciary duties as trustee extended to all trust beneficiaries. The brother did not establish that his sister, in any capacity, misappropriated or attempted to misappropriate trust assets. Finally, the brother did not establish that his sister, as an individual, would be unjustly enriched if the family trust were to regain possession of the contested properties. The sister would still be bound by the trust instrument, and the brother would still retain his recourse to legal action to safeguard his rights as a trust beneficiary. Therefore, the court found that the brother failed to establish his fourth special defense.

Because the court found that the sister had established the essential elements of her cause of action with a preponderance of the evidence and that the brother failed to establish any special defense, the court entered judgment for immediate possession of the subject properties in favor of the sister, acting in her capacity as the trustee of the family trust.

Should you have any questions relating to real estate 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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Connecticut Homestead Exemption Requires Actual Occupation of the Property, Not Merely “Intent to Occupy”

Connecticut Homestead Exemption Requires Actual Occupation of the Property, Not Merely “Intent to Occupy”

In re Taliercio, 11-51732, 2012 WL 441421 (Bankr. D. Conn. Feb. 10, 2012)

In a recent case before the United States Bankruptcy Court for the District of Connecticut, the Chapter 7 trustee objected to an aggregate homestead exemption claimed by debtors for property that they owned, but did not occupy, at the time they filed for bankruptcy. The court sustained the objection and denied the homestead exemption.

In August 2010, SunTrust Bank (“SunTrust”) commenced a foreclosure action against a property owned in Norwalk, Connecticut by a married couple (“the debtors”). The debtors and their children resided at this property as their primary residence until January 2011, when they rented the property to a third party for one-year under the terms of a residential lease.

Prior to the foreclosure sale in August 2011, the debtors filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701 et seq. The debtors testified that when they filed for bankruptcy relief they were residing with a relative at a street address other than the property being foreclosed upon. Pursuant to 11 U.S.C.§ 522(b)(3), the debtors amended their bankruptcy filing to claim personal exemptions allowed by Connecticut state law. Among the exemptions was a $150,000 aggregate homestead exemption. See Conn. Gen. Stat. § 52–352b(t) (2009). The trustee objected to the homestead exemption.

In Connecticut, any “natural person” is entitled to claim an exemption for his homestead up to $75,000, which is calculated based on the fair market value of the property less the amount of any statutory or consensual lien. Conn. Gen. Stat. § 52–352b(t) (2009). A “homestead” is defined as “owner-occupied real property … used as a primary residence.” Id. at § 52–352a (e) (2005) Case law has further refined this definition to establish three requirements for real property to constitute an individual’s statutory homestead: (1) the individual must “own” the subject real property within the meaning of Section 52–352a as of the relevant time; (2) the individual must “occup[y] ” the subject real property within the meaning of Section 52–352a as of the relevant time; and (3) the subject real property must be “used as a primary residence” within the meaning of Section 52–352a as of the relevant time. In re Kujan, 286 B.R. 216, 220–21 (Bankr.D.Conn.2002); see also KLC, Inc. v. Trayner, 426 F.3d 172, 175 (2d Cir. 2005) (citing Kujan as “setting out ‘homestead’ requirements for invocation of homestead exemption”).
The issue before the Bankruptcy Court was whether the debtors occupied the property within the meaning of Connecticut General Statute § 52–352a. Neither party disputed that the debtors owned the property; likewise, the Chapter 7 petition evidenced that the debtors were not using the property as their “primary residence” on the date of the filing of their petition.

The debtors argued that the word “occupy” must be broadly construed. They claimed that, even though they were not occupying the property, it was a temporary situation because they intended to move back when the one-year lease expired. The debtors testified that the property was rented solely because the family was experiencing financial problems. Finally, the debtors argued that they had not completely surrendered occupation of the property because they reserved the right to access storage areas in the attic and the basement to retrieve stored personal property during the term of the lease. However, this access agreement was not contained in the lease and was contrary to an explicit lease provision granting the renters quiet enjoyment of the property.

The Bankruptcy Court held that the essence of a “homestead” would be nullified if they construed the requirement to “occupy” to include an “intention to occupy.” Even if the debtors were permitted to access areas of the property, they had given up the right to use the property as a home eight months before they filed their Chapter 7 case. Therefore, the debtors no longer occupied the property in the sense required by Connecticut statutory and common law.

Because the Bankruptcy Court found that the debtors did not occupy the property when they filed for bankruptcy protection, the property did not satisfy the tripartite requirements to classify for a homestead exemption in Connecticut. Therefore, the court sustained the trustee’s objection to the claimed homestead exemption.

Should you have any questions relating to bankruptcy 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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