Transferring property to minor children, such as money or other valuables, can be problematic. Most children do not have enough (or any) experience in dealing with valuable assets so they would be more likely to mismanage it. Third parties, such as financial institutions, will not risk doing business with minors because even though minors can enter into contracts, they can also void them without any consequences. Even so, there can be many estate planning reasons for transferring assets to minors.

What is the Uniform Transfers to Minors Act (UTMA)?

Instead of transferring property directly to a minor, what the Uniform Transfers to Minors Act authorizes is custodianship. This means that the transferred property would be owned by the minor but custody and control are in an adult or appropriate financial institution. In Connecticut, the custodianship remains in place until the minor reaches the age of 21 (this age may vary in other states), after which the minor will own and control the property.

How Is a Transfer Made Under the Uniform Transfers to Minors Act?

Custodianship is created by using the language provided in the Act itself. The custodian is given statutory authority to deal with the property and third parties regarding the property on behalf of the minor. This gives third parties greater comfort in the knowledge that they are dealing with the custodian. Furthermore, the transfer is a complete and irrevocable transfer to the minor, under applicable tax laws.

Isn’t This Just Like a Trust?

A trust is similar to a transfer under UTMA because it gives control and management of assets over to a competent and qualified person who serves as trustee.  Yet, a trust differs because it can provide tailored instructions for the use of the property. The cost to set up and manage a trust, however, can make a trust impractical for smaller transfers.

What Are the Benefits of Transferring Assets Under UTMA?

A transfer under UTMA is both cheaper and less complicated than putting the assets in trust. Unlike a formal trust agreement, which controls how the trustee must deal with the assets, a transfer under UTMA simply transfers ownership of assets. Once the child reaches age 21, he or she has unfettered discretion as to how they may be used. As discussed below, however, this can turn out to be a blessing or a curse.

There may be tax advantages in transferring assets under UTMA. For example, if your estate is likely to exceed the federal gift and estate tax exemption limit, you may be able to reduce the size of your taxable estate by making transfers under UTMA. If this is your goal, you may want to designate someone other than yourself as custodian because if you die before the child is old enough to take them over, the transferred assets may be taxed as part of your estate.

What Are the Potential Downsides Using An UTMA?

Even though there are many ways to benefit from using UTMA to transfer property to a minor, there can also be some drawbacks. You might come to realize that your precocious little genius did not mature into a thoughtful young adult the way you expected or hoped. So, even upon reaching the age when control of the property passes to them, they still may not be able to handle the responsibility of managing valuable assets.

Another potential problem is the effect an UTMA transfer might have on the minor’s eligibility for financial aid. Even though your original motivation might have been as a way to establish college savings, the transfer can actually make getting financial aid more difficult because the asset is treated as being owned by the minor child and the financial aid formula penalizes the applicant for assets he or she owns.

It would be very frustrating if you transferred a large sum of money to a minor and then your circumstances changed and you discovered that you have a legitimate need for the money; or, you set up a UTMA account for one child and then have more children but your wealth isn’t sufficient to establish comparable accounts for the younger siblings.

It is important for you to thoroughly consider your estate planning needs as well as what might happen in the future to avoid regretting your decision to transfer assets under UTMA. Contact an experienced estate planning attorney to assist you in making these important decisions.

Assisted living is a housing option for elderly people who need help with some of the activities of daily living. The staff at an assisted living facility help residents with a wide variety of tasks depending on the residents level of functioning. Some residents just need help monitoring their medications and housekeeping. Other residents might have complex medical needs or may need help with basic care functions like bathing and dressing.

Assisted living emerged in the 1990’s as an eldercare alternative for people who can’t live alone but also don’t need the intensive 24-hour care provided by a nursing home. Most assisted living facilities have private apartments where residents have their own bedroom and bathroom and may have a separate living area or small kitchen.  Common areas provide an opportunity for activities such as seminars, games, crafts, and movies. Residents gather in the dining room for nutritious meals, and socializing.

In Connecticut, an assisted living facility consists of a managed residential community (MRC) registered with the Department of Public Health and an assisted living services agency (ALSA) licensed with the Department of Public Health.  The MRC is the landlord and the ALSA provides nursing and care services.  

Most assisted living facilities create a service plan for each individual resident upon admission.  The service plan details the personalized services required by the resident and guaranteed by the ALSA.  The plan is updated regularly to assure that the resident receives the appropriate care as his or her condition changes.

How does an assisted living facility differ from a nursing home?

Nursing homes care for very frail people who are not able to care for themselves and have numerous health care issues requiring the assistance of a doctor or nurse. Assisted living facilities assist elderly people who can live independently but need some help with activities of daily living. Residents of assisted living facilities may move to a nursing home as their health care needs increase beyond those a companion or homemaker can provide.

How do assisted living facilities differ from continuing care retirement communities (CCRC)?

Facilities with units for independent living and a licensed nursing home on the same premises are known as continuing care retirement communities. The resident can transfer between the independent living residences and the nursing home as his or her condition and needs change without having to look for a new facility, relocate, or adapt to a new setting. For example, the resident may begin in the independent living residences and eventually move to the nursing home as ongoing care becomes necessary. To enter a CCRC, you have to be able to live independently just like in assisted living.

Assisted living facilities are just one option in a wide range of senior housing options available. Selecting the right facility for you or your parent is a daunting task in part because there are so many options. That is why we wrote the “Southeastern Connecticut Senior Services Guide” which you can recieve by filling out the short form on our home page.

A Transparent Trust is a trust in which the sole beneficiary (the person receiving the assets) serves as the sole Trustee (the person responsible for managing and distributing the assets). This means an adult child can both receive and manage the assets of the Trust.

For example, Bill and Judy set up a Transparent Trust for their son, Matt.  Matt will be the Trustee of the Transparent Trust.  As beneficiary, Matt could appoint the property at any time to his children free of any gift tax.  The Transparent Trust lasts for Matt’s lifetime.  When he dies, the Trust goes to his children.

The benefit of a Transparent Trust is that it requires Matt to keep the funds in a trust account that is separate from his own funds.  Matt, as the Trustee, can only spend the trust funds on his own health, education, maintenance and support; his spouse, for example, has no access to the trust.  After Matt dies, the trust assets go to his children.

The trust account is usually named “Trust for [Child] u/a [Parent] dated [mm/dd/yyyy].” (The ‘u/a’ means “under agreement”).  The “agreement” is his parents’ Revocable Trust that contains the Transparent Trust.  Matt must then set up a trust account at a financial institution and manage it, as Trustee, in accordance with the Transparent Trust provisions of his parent’s Revocable Trust.

WHEN IS A TRANSPARENT TRUST APPROPRIATE?

A Transparent Trust is often recommended so that that property bequeathed to a child could then be passed down to the grandchildren.  Without the Transparent Trust, if Matt, for instance, were to remarry, his property, upon his death, would go to that spouse instead of his own children.  So, a Transparent Trust is ideal for those who want to make sure the property passes to their grandchildren if the child dies and to prevent property from going outside the family.

Also, a Transparent Trust is ideal for those who do not want to burden their child with a bank trustee, regular accountings and yearly income tax returns.  The child just reports the trust account income on Schedule E of his or her income tax return.  And, the child does not have to ask a bank or other Trustee for money. 

WHAT ARE POTENTIAL DISADVANTAGES TO A TRANSPARENT TRUST? 

Like an outright inheritance, the child has control over the disposition of the funds in a Transparent Trust.  And, as such, it is subject to the claims of creditor including spouses or state or federal governments.  In that regard, a Transparent Trust is NOT advised if the child is deep in debt, on the verge of a divorce, subject to lawsuits because of malpractice claims, or receives or will likely receive public benefits.  The lender, spouse, victim, or the state could seize the funds in the Transparent Trust.  In those instances, there are better ways of protecting the inheritance such as an Asset Protection Trust.

An Installment Trust is a type of trust where the assets in the trust are disbursed in installments based on the age of the recipient. For example, a typical payment schedule is to pay the trust property to the beneficiary in three installments.  The trust gives the beneficiary  one-third of the trust at age 25, one-half at age 30, and the balance at age 35.

There are 3 roles in an Installment Trust: 

• The Settlor – the person creating the trust
• The Trustee – the person responsible for investing and protecting the trust property until it is paid out to the beneficiary
• The Beneficiary – The person who will receive the assets of the trust

So in an Installment Trust, the settlor sets up a trust for the beneficiary and the trustee manages the assets and then gives them to the beneficiary at certain triggering events.

The settlor typically also gives the trustee the discretionary power to pay Trust income and principal to the beneficiary at any time, if needed, prior to the set distributions.  These discretionary payments are typically limited to certain goals, such as education, health, maintenance, and support.   

When is an Installment Trust appropriate?

An Installment Trust is appropriate for clients who want to eventually leave property outright to their children, but don’t want to give it to the children while they are young.  For instance, if you pass away when your children are ages 6 and 8 and leave them money outright, two things happen.  First, the court has to oversee everything that goes on with the funds while the children are minors.  Second, at the age of 18 they get it all with no strings attached.  That can be a disaster.  Picture an 18 year old with all of your money to spend freely on new cars, boats, gambling, risky investments, parties, and gifts for a girlfriend/boyfriend.  The priorities the child has at age 18 are not likely the ones the child will have at age 30 or 35.  For most people, their child’s fiscal immaturity is a problem.  One solution is to use an Installment Trust to allow them to delay when the child gets the funds, but then ultimately give the funds to the child at a more mature age.  For certain clients, that’s exactly what they want.

 Are there other scenarios when an Installment Trust is appropriate?

An Installment Trust can also be combined with certain goals that the child must attain before becoming entitled to payment, such as completing college or remaining drug and crime free.  These added conditions are known as Incentive Trusts.

 Are there any potential downsides or times when an Installment Trust is not a good idea?

Like all types of trusts, an Installment Trust has a specific purpose – to delay control of the property until the child is mature enough to manage it.  If a client is concerned about a child having creditor problems or losing property in a liability lawsuit or divorce settlement, or if the client wants to ensure the money stays in the family after the child’s death, an Installment Trust might not be the best choice.  An Asset Protection Trust  or Transparent Trust is more suitable for these situations.  Yet, for many parents, an Installment Trust is an ideal solution to protecting property for young children until they become mature enough to use it responsibly.  

As you can imagine, there are many potential future situations to think through when drafting an Installment Trust. At Cipparone & Zaccaro, we have over 75 years combined experience in estate and trust planning. Call (860)442-0150 today to learn how we can help you.

Definition of Asset Protection Trust 

An Asset Protection Trust is an arrangement in which an independent person or financial institution (“the Trustee”) holds the property of your child or grandchild (“the Beneficiary”) for his or her benefit.  The child or grandchild may also be one of the Trustees if he or she is an adult. The Trustees can distribute funds to the beneficiary as the Trustees deem necessary and advisable. 

Who owns the Asset Protection Trust?  The Trustee.  The child can even be a Co-Trustee.  If the child is going to serve as a Trustee, the child needs an independent Trustee.  If the child is the sole Trustee, his or her creditors will claim that the child has control over the property and can legally turn it over to creditors.  

Who is typically the other Trustee?  A Trustee is usually a family member, a wise friend or a professional such as an attorney , accountant or a trust company.  Siblings, however, are not recommended as Trustees because anything involved in the distribution of money can affect the relationship the child and his or her siblings. 

Examples of How an Asset Protection Trust Works 

1.  A couple has a daughter who graduated from medical school. The couple wants to leave most of their estate to their daughter.  If they leave the estate to their daughter outright, and then if the daughter is sued for medical malpractice, she’s going to lose her inheritance from her parents.  The parents agreed that this type of Trust is the best plan for such a scenario. 

How does an Asset Protection Trust save them in that situation?  The Trustees own the property, not the child.  Therefore, the property is protected and the creditor cannot go after the property in that Trust.  It cannot be subject to the lawsuit. 

2.  Jennifer owned a lovely home in Mystic, Connecticut.  She was divorced.  She had a wonderful teenage daughter named Lisa.  She wanted to leave the home to Lisa.  Jennifer was concerned that if she died, her ex-husband (the daughter’s father) and her (Jennifer’s) meddling sister would take over the house and force Lisa to live elsewhere.  Jennifer transferred her home to a revocable trust that contained an Asset Protection Trust.  Jennifer designated the revocable trust as beneficiary of an account with enough money to cover one year of house expenses. She chose a good friend as Trustee.  Then, unfortunately, Jennifer passed away.  The ex-husband made a claim against her estate for the house repairs he paid during Jennifer’s life.  But, because the house in the revocable trust was not part of Jennifer’s probate estate, he could not involve the house in a legal dispute.  Lisa has a good job now, pays the house expenses, and continues to live in her mother’s lovely Mystic home.

When An Asset Protection Trust Is Not a Good Idea 

An Asset Protection Trust requires a yearly fiduciary income tax return.  Therefore, the Trust might incur tax return preparation fees.  If a professional is appointed as Trustee, the Trust will owe Trustees fees. Because of the annual cost involved, an Asset Protection Trust is usually not recommended if a child or grandchild is an adult and, the value of property transferred to the trust will be less than $100,000.

Most people do not realize that there are many ways to leave property to your children.  For children who do not receive public benefits, these include:

Outright.  Your children receive your property, no strings attached.  It is simple and clean.  It also means that a child can spend it unwisely or fail to properly manage it.  A child can commingle it with other money, and creditors can seize it.  Your grandchildren might never receive it.  If your child dies, the property could pass to the child’s spouse, the spouse could remarry, and all of it could go to the spouse’s new mate. 

Uniform Transfers to Minors Act.  If your child is a minor, you can have your Executor choose a Custodian for the child under the Uniform Transfers to Minors Act (UTMA) and transfer the property to the Custodian.  The Custodian would then put the funds in a UTMA account and spend the funds on the child’s needs as they arise.  At the age of 21, the child receives the balance of the account outright.  Once the child receives the balance, all of the advantages and disadvantages of outright distribution apply. 

Installment Trust.  You can choose to delay the receipt of property until the child reaches a certain age by leaving it for them in trust.  It does not prevent the child from obtaining access to the property; the child can always ask the Trustee for distributions of principal or income.  The Trustee may provide for expenses such as a wedding, purchase a home, or establish a business or profession.  You can give direction to the Trustee on proper distributions from the trust.  When the child reaches the age you chose in the trust document, the Trustee distributes the balance of the trust to the child.  Once the child receives the balance, all of the advantages and disadvantages of outright distribution apply. 

Transparent Trust.  A Transparent Trust holds property in trust for the life of an adult child.  The child would be the sole Trustee of the trust.  The Trustee can make distributions for his or her support in reasonable comfort, maintenance in his or her accustomed manner of living, education, and health.  The child can appoint the property at any time to his or her own children.  Upon your child’s death, all of the property goes to your grandchildren.  The advantage of a Transparent Trust is that it requires the child to keep the funds in a separate account as Trustee and spend it only for the child or his or her children.  If a spouse of a child wants to spend it, the child can say “I am sorry, that money was given to me by my parents for my health, education, maintenance and support, and after I die, it goes to our children.”  The funds in the trust would be subject to claims of creditors because the child has control over the disposition of the funds.  The child would show any income from the trust on Schedule E of the child’s income tax return, so no separate tax return is required. 

Asset Protection Trust.  An Asset Protection Trust protects assets from creditors and spouses during your child’s lifetime.  Either you or your child can appoint an independent Trustee.  A trusted family member, friend, or professional trustee would be the best to choose for an independent Trustee.  As the Trustee deems advisable, the Trustee can spend the funds on behalf of your child.  The child could also borrow funds from the Trust, and the Trustee could buy property for the child’s use.  The child would have the power to remove the Trustee for any reason, but then an independent successor Trustee would have to be appointed.  When a child reaches a certain age, the child can become the Co-Trustee.  The Trustee would have to file a separate income tax return (Form 1041) to report income earned by this trust, unless certain provisions are added to make it a grantor trust under the tax law.  Although an Asset Protection Trust is more cumbersome, it can protect the property and keep it in the family.  

Which is the best way to give to your children?  It all depends.  Make an appointment with an experienced estate planning attorney to discuss how to leave your estate to your children.

For elderly parents, once simple tasks become harder to accomplish.  One of those tasks is financial management. Without help, a parent can become confused and derail his or her retirement plan.  Bills go unpaid.  Dividend checks get lost. Duplicate checks to the same charity or vendor begin to appear. The situation begs for children to step in and organize the parent’s finances.

If your parent is in this situation, you need to take these five steps:

1.  Inventory Assets and Income.  Get a clear picture of the parent’s assets and income. Start by collecting the latest statements from banks, stock brokers, deeds, and the U.S. Treasury.  Create an Excel spread sheet of the date and totals of each account.  Create a separate listing of the name of each financial institution, the contact information of the key person at each financial institution, the account numbers and any online usernames and passwords.

2.  Get a Durable Power of Attorney and Use It.  Have your parent sign a Durable Power of Attorney to manage his or her finances.  It allows you to talk to the parent’s stock broker or banker.  Don’t wait until it’s convenient to get a Durable Power of Attorney.  If your parent is unable to sign the Durable Power of Attorney or acknowledge that it was their free act and deed to sign it, you may lose the power to help them with their finances without court intervention.  It can take several weeks to get it signed.  Visit the parent’s lawyer to get it signed.  Have 4 originals signed because most financial institutions will want to see the original.  Once it is signed, go to the financial institution with the parent and present the Durable Power of Attorney to the financial institution.  The banker or broker will feel confident that the parent wants your help in managing their finances if your parent tells them so.  If it is not possible to visit the financial institution with your parent, have your parent call the banker or broker to assure him or her that your help in managing the account is desired.

3.  List Their Expenses.  Everyone has regular, periodic expenses that require payment.  You need to create a listing of each household expense and when it comes due.  Include the name and contact information of each service provider, the usual amount or payment range, the monthly due date, and any account numbers.

4.  Put Everything on Automatic.  You can eliminate lost and bounced checks by arranging direct deposit of income from annuities, dividends, and bond interest.  You can avoid late charges, utility shutoffs and lost services by paying mortgages, utilities, condo fees, heating oil and other expenses with automatic bill pay through your parent’s checking account.

5.  Report Regularly to the Whole Family.  If you have siblings, they will likely want to know how you are managing Mom or Dad’s finances.  Financial management rarely occurs in a vacuum.  Your parent and siblings may have suggestions on better ways to meet your parent’s needs.  Keep good records and consult them.  Initially, report to your parent and siblings in writing at least every 3 months.  Outline what you have done for them financially.  Send it to siblings by e-mail; go over the report with your parent in person.  Once most of the above steps are completed, you can report less regularly.   

      It is not easy helping a parent manage his or her finances. But if done thoughtfully and reported regularly, you can make a meaningful difference in the future of a parent and maintain good relations in the family.

When many local families take their parents financial information and meet with a caseworker, they are told their parents do not qualify for public benefits because their income is too high. Their parents may have worked for an employer that provided their parents with a pension like the Navy, the State of Connecticut, or Electric Boat.  Because their income exceeds poverty levels, their parents can’t get Title 19 (Medicaid), Veterans Aid & Attendance or the Medicare Savings Program.  Their parents own nothing other than a home and a beat up Buick and yet they do not qualify for benefits?  It leaves those families scratching their heads.

Families want Title 19 because it pays for medical assistance.  Veterans Aid & Attendance can provide a monthly check that helps the veteran and his spouse remain safely at home.  The Medicare Savings Program, sometime referred to as the Qualified Medicare Beneficiary Program, helps a parent pay for Medicare Part B health insurance premiums.

Our message to families is don’t give up.  There is a trust that can reduce your parents income to the level that parents will qualify for Medicaid, Veterans Aid & Attendance or the Medicare Savings Program (QMB).  It is called a Pooled Trust and it is administered by a non-profit corporation in Hartford, CT, called Planned Lifetime Assistance Network (PLAN) of CT.

Let’s take an example.  Dad is 80 and lives at home. He wants to get Medicaid on the Connecticut Home Care Program for Elders.  This program has an asset limit of $1,600 and a monthly income limit of $2,163. Dad has monthly income of $3,200 from his years in the Navy.  He initially was told that he could not get Medicaid because his income was too high.  His daughter set up an appointment with an elder law attorney.  The attorney recommends that Dad create a Pooled Trust and place Dad’s excess income into the Trust on a monthly basis.  Dad places his excess $1,000 into the trust monthly and PLAN as Trustee pays any unreimbursed medical expenses, additional caregiver services, and other living expenses such as his mortgage (if any), property taxes, utilities, etc.  Dad now gets approximately 72 hours of assistance a week through the Program, which includes companion care, homemaker services, and home health aides.  This Medicaid program also covers co-pays, deductibles, and prescription drugs. Problem solved.

If your parent’s income is too high to qualify for public benefits, call Jack Reardon or Joseph Cipparone.  They can help you create a Pooled Trust.