Posts tagged with "Superior Court of Connecticut"

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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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.

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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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Trusts Created For Personal Benefit Are Not Exempt From Judgment Creditors

Trusts Created For Personal Benefit Are Not Exempt From Judgment Creditors

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

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

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

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

Connecticut law exempts any “assets or interests of an exemptioner in, or payments received by the exemptioner from, a plan or arrangement described in Section 52-321a.” Conn. Gen. Stat. §§ 52–352b(m). However, the statute that describes which assets are unavailable to creditors, Conn. Gen. Stat. §52–321a, limits the definition to trusts or other instruments that were established as part of retirement plans or other plans qualified under various sections of the Internal Revenue Code. Such plans are “conclusively presumed to be a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under the laws of this state.” Id. The court found that the family living trust at issue was not a plan or arrangement described by the relevant statutes and, therefore, was not entitled to exemption from a judgment creditor on these bases.

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

The court reached the opposite conclusion and held that the cited statute does not apply to the living trust at issue, because it was a discretionary trust established by grantors for their own benefit. As a matter of public policy, this family living trust cannot enjoy the exemption afforded to a spendthrift trust; and as a matter of statutory interpretation, the exceptional provisions governing the liability of the income of trust find to creditors does not apply to the income of this trust. Conn. Gen. Stat. § 52–321(a). Connecticut common law has interpreted the statutory predecessor of Section 52-321(a) to mean that a trust created by a person for his own benefit cannot qualify as a “spendthrift trust” that is beyond the reach of his creditors. See Greenwich Trust Company v. Tyson, 129 Conn. 211, 219 (1942). The income generated by such a trust is also not protected from the just claims of creditors. Id. at 222.
The court denied the debtor’s claim of exemption, and permitted the amount removed from the bank account standing in the name of the family living trust to be applied to the satisfaction of the judgment held by the judgment creditor.

Should you have any questions relating to living 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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