As we kick off the new year it is a good time to take a look back at 2007.

I am proud of what this site accomplished in 2007. Starting with no visitors as all sites do and moving up to 600 visitors a month is great, and exceeded my expectations. I appreciate everyone that stops by and takes the time to get educated about Connecticut estate planning and elder law issues. I hope you find the information here valuable and will visit again.

The most popular posts of 2007 were:

1. Estate Planning for Title 19;
2. 9 Questions to Ask BEFORE Entering a Nursing Home;
3. Revocable Trusts and Connecticut Medicaid;
4. Title 19 Penalties and Gifts;
5. Myths and Realities of Living Trusts in Connecticut.

Five is enough. I won’t bore you with a top ten.

I’m already working on making 2008 a great follow-up to what we accomplished in 2007. Stay tuned for details. Have a happy and healthy new year.

Come January 1, 2008 every non-spouse designated beneficiary will have the option to rollover an inherited IRA and stretch distributions. However, in order to take advantage of this opportunity your estate plan must be setup correctly to qualify for this rollover opportunity. You are not entitled to a rollover, you must prove you meet the technical legal requirements. Let’s take a look at why your family would not qualify for the new IRA rollover opportunity.

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.

Many people enjoy splitting their time between two different states. As winter is quickly approaching here, many Connecticut residents spend the winter in Florida. A common question that arises when a person spends time in two different states (dual residency) is: how do you create a living trust estate plan that works as intended when you are not sure where the probate or trust administration will take place?

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.

Probate Judges do some important things. A lot of people don’t give it much thought because in reality, most people don’t deal with the probate court until something unexpected has happened and they just find themselves trying to get through the system. One common function probate judges perform is the appointment of attorneys in various roles including independent executor or other fiduciary.

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.