Congress recently opened the door to allow a non-spouse beneficiary to rollover an IRA or 401(k) and stretch distributions over the beneficiary’s lifetime. 2007 was interesting because this new option was not required by all retirement plan administrators, it was optional. At the end of the day, there was confusion and to answer the question if it was even possible for a non-spouse beneficiary to qualify for a rollover you would have to check with each plan administrator.

In 2008 the IRS is attempting to put an end to the confusion and requiring that all plans provide the option for a non-spouse beneficiary to rollover an IRA. This is great news and a great opportunity for those families positioned to take advantage of it. For families that are not prepared, it is simply another sand-trap.

So what is the big sticking point?

Designated Beneficiary. Those two words are critical to how the IRS treats and taxes the transfer of an IRA or other qualified retirement account from the account holder to the beneficiary(ies). You may be thinking, well, as long as I have a beneficiary I am in good shape. That would be wrong, the IRS has dedicated volumes of paperwork to making it perfectly clear to those who are listening that not every beneficiary qualifies as a designated beneficiary.

The biggest example of a beneficiary that is not a designated beneficiary is if your IRA goes into your probate estate either on purpose or by accident. The IRS absolutely hates it when an IRA goes into a probate estate and will almost certainly treat the event as a transfer to a non designated beneficiary and your family would not be able to take advantage of the rollover option without jumping through a lot of costly hoops.

But I went to an attorney and setup a complete estate plan including a living trust etc.

That’s great. I’m glad you’ve embraced personal responsibility for your estate plan rather than run from it like a lot of people according the surveys over the last 10 years. However, all trusts are not the same. Some come from old books in a law library (I’ve seen trust documents reference King George in the Rule Against Perpetuities language. I don’t know if I’m more surprised that the attorney presented it to their client with a straight face or that the client did not think twice about who drafted the trust when they saw it.), some come from computer drafting assembly programs written in imprecise language by people that may or may not be experienced tax attorneys, and some are even drafted by competent attorneys that get it right. Simply having a trust or having an estate plan does not automatically mean your family will qualify for the new rollover benefits.

How can I qualify for rollover treatment?

The IRS has very specific rules for how a trust can qualify as a see through trust and treated as a designated beneficiary. The top level bullet point requirements are:

1. The trust must be valid under state law;
2. The trust must be irrevocable or become irrevocable when the IRA owner dies;
3. The trust beneficiaries must be identifiable from the trust instrument;
4. Proper documentation must be provided to the IRA custodian.

Seems simple enough right? Remember, this is the IRS we are dealing with and they take income tax deferral very seriously because they think they are losing money. They have regulations on top of regulations on top of Private Letter Rulings and court decisions defining each one of those bullets in extensive detail. There is enough material to write a book on those four issues, and people have. I can’t get into detail on all of them here because it would take forever.

The most common stumbling block for inexperienced drafters is the requirement that beneficiaries be identifiable from the trust document. Many trust documents I’ve seen coming in to my office do not contain adequate restrictive language to achieve compliance with this rule. If you don’t have this language or if the people administering your estate handle the IRA or retirement funds incorrectly you have a big flashing sign to the IRS saying your family does not qualify for rollover treatment.

Rollover treatment is a privilege, not a right. Your family will not qualify for rollover treatment if you do not follow the rules in your estate plan. Make sure you and your attorney understand the requirements and that your estate plan doesn’t fall apart on this critical issue.

Related posts:

1. Another Lost Asset Protection Opportunity
2. Estate Planning Beyond the Documents – Annuities
3. Trouble With Joint Property

A Power of Attorney is one of the most important legal documents a person can have. Without a comprehensive power of attorney, many people are neither able to handle their loved ones financial matters nor make health care decisions without seeking court intervention (Conservatorship). I often have clients come into my office assume that, just because their assets are titled jointly with their spouse, parent or partner, they are able to liquidate accounts to pay bills, hire attorneys, sell their jointly titled real estate, etc. Unfortunately, that isn’t the case.

In fact, a spouse who has a jointly titled investment account with their significant other in many cases does not have authority over the entire account. This can cost a family hundreds of thousands of dollars in lost asset protection opportunities when nursing home care costs begin. In a case like that, the healthy spouse has to petition the court to become the Conservator of the institutionalized spouse and probably spend tens of thousands of dollars on her nursing home care when he could have, had she had a proper power of attorney, transferred the account into his name, alone, and done some Medicaid Title 19 asset protection planning.

What is a Power of Attorney?

A power of attorney is a legal document where one person (the principal) authorizes another (the agent) to act on their behalf. There are financial powers of attorney which allow your agent to make decisions regarding your property and healthcare powers of attorney which allow your agent to make decisions regarding your health care needs.

Your power of attorney can be broad in scope, giving your agent the ability to make any and all financial and personal decisions for you (a General Power of Attorney) or you can limit your agents authority by specifying the types of decisions you would like them to make on your behalf (a Limited Power of Attorney).

You also have a choice whether you would like your agent to have the ability to make decisions both now and if you become incompetent (a Durable Power of Attorney) or your agent can be limited to make decisions only when you become incompetent (a Springing Power of Attorney).

What is a Conservatorship?

Conservatorship of the Person is a legal relationship whereby the Probate Court gives a person (the Conservator) the power to make personal decisions for another (the ward). A family member or friend initiates the proceedings by filing a petition in the Probate Court in the district where the individual resides. A medical examination by a licensed physician is necessary to establish the condition of the individual. A Court of law then determines the individual is unable to meet the essential requirements for his or her health and safety and appoints a Conservator to make personal decisions for the individual. Unless limited by the court, the Conservator has the same rights, powers and duties over his ward as parents have over their minor children. The guardian is required to report to the court on a regular basis.

A Conservatorship of the Estate is a legal relationship whereby the Probate Court gives a person (the Conservator) the power to make financial decisions for another (the ward). The Court proceedings are very similar to those of a Conservatorship of the Person except the Court of law determines an individual lacks the capacity to manage his or her financial affairs and appoints a conservator to make financial decisions for the individual. Often the court appoints the same person to act as both Conservator of the Person and Estate for the individual. Like the Conservator of the Person, the Conservator of the Estate is required to report to the court on a regular annual basis.

The Differences

A power of attorney is a relatively low cost and private way to decide which family member or trusted friend will have the legal authority to carry out your wishes if you can no longer speak or act for yourself. If you do not have a power or attorney or if your power of attorney is not drafted properly, and something happens that results in your inability to make decisions, your family/friends may later face court proceedings and court supervised Conservatorship. A court proceeding is not only costly, but the person appointed as your Conservator may not be the person whom you would have chosen yourself. And, as stated above, not having a properly drafted power of attorney could significantly limit financial and/or Medicaid planning that could be done on behalf of the principal.

Related posts:

1. All Powers of Attorney Are Not Created Equal
2. Planning for Disability & Incompetence
3. The Special Needs Trust – How to Secure the Future for Your Disabled Child

This is an important issue because the ultimate question of domicile for the purpose of probate and trust administration is not conclusively determined until a person passes away. There are some steps a person can take during life to tip the scale in the direction they want; however, a result can not be guaranteed until it is too late to change it ironically enough.

My first choice when I am confronted with a living trust case that spans two or more states is to create a living trust that works in both states. With this approach, at least my client’s goals will be carried out regardless of where the site of administration is determined. An important part of this approach is involving local counsel from the other state to review and contribute to the Connecticut living trust I have prepared. For example, if there is a possibility that my client’s estate plan may be administered in Florida, it is important that recent changes in Florida’s laws are included in the will or revocable trust I prepared.

Do you have to work with a local attorney to make sure your estate plan works in a different state than where you created it? In most cases the answer is no. This is because competent drafting will establish the site of the trust as the state where it was created. This means that even if there are judicial proceedings in Florida, the court will interpret the revocable trust according to the law of Connecticut. In my opinion this is a band-aid approach and I do not recommend relying on the court of another state to apply Connecticut law.

In addition to the potential difficulties of applying another state’s law, there may also be missed opportunities. Some states have more favorable trust laws than Connecticut (we still have not adopted the uniform trust code by the way). Working with local counsel to provide a complete estate plan gives you an opportunity to take advantage of special provisions that may not be available or less attractive than the law in Connecticut.

An effective estate plan for dual residency is a challenge and an opportunity. Multi-state estate planning can be a can of worms for the ill-prepared and can have unintended or unforeseen consequences to an estate plan that worked perfectly fine in one state. However, if you act carefully you can not only preserve your existing estate plan, but possibly enhance it as well.

Related posts:

1. Myths & Realities of Living Trusts in Connecticut
2. The FTC on Living Trust Seminars & Scams – How Not to Be a Victim
3. Know Your Estate Plan – Executor and Trustee

How do they decide who gets appointed to what position in what case?

What are the standards for acceptable billing by the court appointed attorney?

In some cases there are some rules that provide guidelines, however, with a lack of oversight who knows what really happens?

Earlier this summer I read this article from Houston. The Houston Chronicle newspaper conducted an investigation of hundreds of probate court records and thousands of billing records. What they found was disturbing and I encourage you to check it out for yourself.

Here are some interesting revelations:

• One Harris County judge approved paying $1,000 in fees to a lawyer for attending her ward’s funeral and burial. Most people would agree there is almost no circumstance where an attorney is needed at a funeral.
• In Harris County those who got the most business in probate cases contributed tens of thousands of dollars for the 2006 judicial races. Could there possibly be a connection between campaign finance and receiving lucrative appointments? Tune in next time on unsolved mysteries.
• Between 2003 and 2005, one judge ordered more than $400,000 in fees paid to one of his former law students — a 12-year lawyer who became one of his top-paid appointees during her first 18 months as an attorney. I started hearing echoes of “it’s not what you know but who you know” when I saw that one; ain’t it the truth. Really now, that is one judge effectively granting one attorney a $100,000+ salary for those years, and it was a newly licensed attorney.
• During the same time, the same judge also approved more than $375,000 to a former law school classmate who had recently returned to practice in Texas and mainly specialized in real estate law.
• In Harris County, the top-paid professionals in one probate court included one of the judge’s former law students, his law school friend and a lawyer with whom he has shared office space and real estate investments.

So where do we stand after learning about all these questionable acts? Well, for one, as a citizen I am glad I am not subject to the probate courts described in the study. Does something similar go on in Connecticut? I don’t know. I hope not, but until someone does their own investigation we won’t know.

This is not an attack on Connecticut probate and I hope you don’t read it that way. I’m sure that won’t stop some of the fanatics that stop by, but I can’t do anything about them. It is a reminder about the vulnerability to corruption that accompanies a politically elected judiciary. Probate judges are important, and they may be better off if they were free of campaign finance.

Related posts:

1. CT Probate Judges Fight for Their Right to Party
2. Storm Clouds – The Next Probate Scandal in Connecticut?
3. Important Reminders from Anna Nicole Smith

The CT legislature enacted a requirement this last session that Connecticut Probate Courts remain open at least 20 hours each week. The legislature did not address how to accommodate the 20 hour requirement. So, who decides when the courts should be open to satisfy this new requirement?

In July Connecticut’s Probate Court Administrator, James Lawlor, notified the probate judges that their courts should be open 4 hours each day. Judge Lawlor also provided that a court could ask for a waiver from the daily requirement if they had good cause.

The Probate Judge’s Association was not happy with being told to show up for work every day even if it is only for 4 hours. The President of the Association, Brookfield’s Judge Joseph Secola, has threatened legal action to avoid this draconian work order from the Probate Court Administrator. One of his more amusing comments is [Lawlor's] “position is not king. The judges aren’t serfs that have to go to him on their knees to request a waiver from a standard that the law does not require.”

Hey Probate Judges, this is not the way to improve your image and enhance the respectability of a court system that has been under regular attack for the last five or so years. Go to work, serve the public, and stop the grand-standing over someone expecting you to show up to your job for 4 hours every day. If it is really that horrible, you can find another job. Oh wait, you might have to work 8 hours a day somewhere else.

A lot of people have to show up for work at a lot tougher jobs than yours for 8 or more hours ever day, remember that.

Related posts:

1. Probate Judges and You – Independent Arbiter or Self-Dealing Politico?
2. Storm Clouds – The Next Probate Scandal in Connecticut?
3. Important Reminders from Anna Nicole Smith

The Coventry Funeral Home was the subject of a search warrant on Tuesday. The home’s former owner, Kevin Riley, has been under investigation by the Health Department and the state probate court. Riley is accused of entering homes of the deceased and disposing of items without the family’s permission. The probate court is investigating that complaint as well as 12 other cases while the health department decides whether to revoke Riley’s embalmer’s license.

You can read the full story from WFSB here.

I don’t really have anything to add to this. All I can say is “wow.”

Related posts:

1. CT Probate Judges Fight for Their Right to Party
2. Probate Judges and You – Independent Arbiter or Self-Dealing Politico?
3. Storm Clouds – The Next Probate Scandal in Connecticut?

When the federal government enacted the Omnibus Reconciliation Act of 1993, however, it made it possible for you to 1) provide funds to support your special-needs child and 2) retain your child’s eligibility for federal, state and private charitable benefit programs such as SSI and Title 19 Medicaid.

The Omnibus Reconciliation Act of 1993 excluded from benefit program eligibility requirements the legacy left to special-needs children in a properly created Special Needs Trust. A Special Needs Trust may provide no advantage if it is not properly established.

How to Secure the Future with a Special Needs Trust

The Special Needs Trust is simple to establish, and it not only provides immeasurable peace of mind, it also gives you complete control over your child’s care.

You work with your estate planning attorney to appoint Trustees for your child’s Special Needs Trust. The Trustees oversee your child’s well-being and manage the estate you or anyone else leave for his or her benefit. So there is no need for a probate court to determine your child’s fate.

Unlike the guardian or conservator a probate court might appoint, these Trustees are people you know and trust. Relatives or close family friends can be appointed to supervise your child’s personal care.

To work with financial institutions and manage the estate, you may want to appoint a professional financial advisor, as a Co-Trustee.

As part of setting up your child’s Special Needs Trust, you provide detailed written instructions in the trust to direct the Trustee’s activities. By law, Trustees must follow these instructions to the letter. So you have a tremendous degree of control over your child’s education, housing, and other needs.

Best of all, the Special Needs Trust preserves your child’s eligibility for federal, state and charitable benefit programs such as SSI and Title 19 Medicaid. The only requirement is that the funds withdrawn from the Special Needs Trust must be for purposes other than those covered under the governmental and private benefit programs. The concept is fairly simple, but the execution is technical and complex. Special Needs Trusts are carefully scrutinized by government benefits agencies and one error in the language of the trust can undo everything it is designed to accomplish.

Related posts:

1. ERISA Reimbursement v. Special Needs Trust
2. Critical Medicaid Mistake #2
3. Celebrity Estate Plan – Leona Helmsley

Privacy concerns in Probate are nothing new. Attorneys have spread the word about these privacy concerns to the public over the years. Many families recognize the disadvantage of having their information in the public domain and have implemented an estate plan to protect their privacy. Some continue to be skeptical and do nothing. I understand the initial reaction of: “who could possibly be interested in my family’s probate records in small town Connecticut which contain nothing valuable other than a house?” One person that may be interested is that real estate investor down the street…

For those of you that think “it won’t happen to me”, consider the following. First, Diamond Farming Probate Real Estate Kit. This is a real estate investing program for sale throughout the United States that, in the words of its creator, “… explains in detail how you can make bargain, and even super-bargain buys, of real estate property going through probate.” Do you still think nobody is going through the Probate Court records to identify desperate sellers in order to make a low bid?

Second, take a look at Court Records Online. This is a company gathering up court records, including Probate records, to have available for retrieval on its website to anyone that is curious. Do you still think your records are going to stay relatively unknown and anonymous in the basement of the Town Hall?

Today’s topic is your information is valuable to someone. It can be someone you never imagined and someone with no personal agenda other than profit. Whether it is someone trying to make a low bid on your real estate for personal gain or a company just collecting public information for curious people someone is watching.

Are you committed to an estate plan that protects your privacy? I can show you proven techniques to preserve your privacy during disability and death. You can reserve your consultation by calling (860) 593-0404.

Related posts:

1. Probate Judges and You – Independent Arbiter or Self-Dealing Politico?
2. CT Probate Judges Fight for Their Right to Party
3. Important Reminders from Anna Nicole Smith

The Executor is the person or company responsible to administer the instructions contained in your Last Will and Testament.  In practical terms, there are almost no requirements to qualify as an Executor other than that the person be eighteen years of age or older.  The Executor can even be in a different State.  In many cases, the person you nominate as Executor will be approved by the Probate Court without incident.  However, anyone interested in the Estate will have an opportunity to object to the nominated Executor and may persuade the Probate Court to reject the nominated Executor if there are concerns about financial responsibility or trustworthiness.

The Executor of an Estate will be required to secure a bond in an amount determined by the Probate Court.  You can excuse this requirement for bond in your Will.  The bond requirement exists to provide any beneficiaries wronged by the Executor’s actions an opportunity to recover some or all of their loss.

Now that we know what an Executor is, what does an Executor do?  In general terms, the Executor collects all of the Estate’s assets, pays the Estate’s debts, files the required tax returns, and then distributes the remaining assets in accordance with the terms of the Will.  The Executor has significant control over the administration of the Estate.  Many Wills grant the Executor broad discretion on certain matters.  The Executor can exercise that discretion, although they are not permitted to substitute their own judgment for what is embodied in the Will.  The Executor has a full plate, is yours up to the task?

A Trustee is responsible for many of the same duties as an Executor.  One important difference is that in many cases a Trustee is not under the active supervision of the Probate Court.  In this situation, it is even more important that someone you trust is in the position of Trustee.

How do you choose an Executor or Trustee?  The advice I give my clients is to choose someone you trust, someone that is responsible, and someone that understands your goals.  The Executor or Trustee is responsible for your property upon death or disability, it is only reasonable that you have a certain comfort level with them.

In addition to your own comfort level, consider the other beneficiaries that will be depending on the Executor.  This is particularly important in second marriages where a step-parent may be in control of a step-child’s inheritance and some children may be uncomfortable with that arrangement.  You may trust your second spouse entirely, but do you want to risk your children hauling your spouse into court all the time because of petty arguments when a more sensible arrangement may be available?  If you can not settle on an Executor or Trustee that everyone is comfortable with, you can consider an independent fiduciary to fill those roles.  It may cost more in dollars and cents, but it may also save your family a lot of headaches and argument.

Now that you know the basics of the Executor and Trustee positions, check your documents and see who you’ve put in those positions.  In many cases the Executor of a Will is nominated in the very last Article or near the end.  Trustee nominations can be found anywhere in a trust document, but it should be clearly identified with something to the effect of “Appointment of Trustee” as a title.

Now that you know who you have appointed to the positions of Executor and Trustee, you are already ahead of the game.  Some people I meet with bring in documents for me to review and are surprised when the attorney that drafted the document appointed themselves or their law firm as a fiduciary when they don’t remember agreeing to such an arrangement.  That is a big red flag to me.  In other cases, people have designated parents that are no longer fit to serve as Fiduciary or other individuals that may have become estranged since the documents were originally drafted.  Make sure your Executor and Trustee appointments reflect your goals today and get them updated if they do not.

Related posts:

1. Myths & Realities of Living Trusts in Connecticut
2. Consumer Alert: The Estate Plan, or No Estate Plan?
3. Celebrity Estate Plan – Leona Helmsley

1) Using a Will as an instrument of significant distributions. This is not something I would recommend for someone in Leona Helmsley’s position, especially if this was taking place in Connecticut. First, as is obvious by now, Wills are public and everyone now knows she disinherited some grandchildren, left a very large sum to her dog, and imposed visitation requirements on other beneficiaries. Maybe it is just me, but I find it difficult to believe someone with Leona’s history in the news would invite public scrutiny of her last wishes.

Second, the Will creates several ongoing trusts. Maybe it is different in New York, but in Connecticut creating even one trust in a Will is synonymous with ongoing Probate Court involvement for years and years as well as the accompanying legal and accounting fees. Not exactly the model of efficiency and savings. If this was my client in Connecticut, I would recommend using inter-vivos trusts for ongoing matters rather than the testamentary trusts used by Leona Helmsley.

2) Article Four Section D of Leona Helmsley’s Will requires her grandchildren visit the grave of her son annually. Failure to comply with this provision will terminate their trust share. I bring this provision up to highlight the flexibility you have in structuring your estate plan. Within the bounds of the law, you are free to create any framework you like for the distribution of your assets; including steering your beneficiary’s behavior to continue personal values you believe are important.

3) Leona Helmsley took advantage of a Charitable Trust to provide a tax efficient legacy to her beneficiaries. There are different types of Charitable Trusts and the terms of Leona’s are private, so I can’t get into specifics on this one. In general terms, if Leona did not take advantage of a Charitable Trust the tax impact on her estate would have been significant. If setup properly, the Charitable Trust allowed her to re-structure some of her estate into a more tax efficient distribution to her own family as well as charitable organizations. As proof of what I described above, compare how much we know of Leona’s Will because it is public with what we know of her Charitable Trust, because it is private.

This is a good opportunity to clear up a popular misconception of Charitable Trusts. Sometimes when people first hear the words Charitable Trust offered as a suggestion for their own estate plan they think it means leaving everything to charity. Not true, you have a lot of flexibility for dividing the interests in the Charitable Trust between your own family and the charitable organization(s). In many cases where I recommend a Charitable Trust, the primary family beneficiaries will receive more after taxes than if the distributions did not use a Charitable Trust. So the next time someone mentions this opportunity, look at the numbers closely before thinking it is not for you.

Sometimes celebrity estate planning attorneys get it done right, and sometimes they get it done not so right. The general consensus is Anna Nicole Smith’s estate planning was a disaster. Leona Helmsley’s estate plan was a little better, if not more public than necessary.

Related posts:

1. Consumer Alert: The Estate Plan, or No Estate Plan?
2. Know Your Estate Plan – Executor and Trustee
3. A Living Trust Plan for Dual Residency