A “Special Needs Trust” is designed to supplement a disabled person’s quality of life without affecting that person’s eligibility for means tested programs. There are two main types of Special Needs Trusts.  A First-Party Special Needs Trust and a Third Party Supplemental Needs Trust.  This article will focus on First-Party Special Needs Trusts.  For information on the other type, see my prior blog on a Third-Party Supplemental Needs Trust.      

Programs like Supplemental Security Income (SSI) and Medicaid (also known as Title XIX or Title 19) are referred to as “means tested” programs, because eligibility is based upon the disabled person’s low income and low asset level.  Sadly, a disabled person can be ineligible for means-tested programs like Medicaid and SSI if they are even one dollar over the asset or monthly income limits.  One solution is a First-Party Special Needs Trust. 

A disabled beneficiary funds a First-Party Special Needs Trust with his or her own funds. Hence, the term “First-Party.”  A First-Party Special Needs Trust is also known as a self-settled trust.  As a general rule, self-settled trusts are deemed to be either countable assets or penalizing transfers for Medicaid and SSI purposes.  Thankfully, federal law (OBRA ’93) creates an exemption for certain types of self-settled trusts.  

There are two subcategories of a First-Party Special Needs Trust that are exempt.  The first is commonly referred to as a “Special Needs Trust” and sometimes referred to as a “d4A Trust”.  The second is commonly referred to as a “Pooled Trust” and sometimes referred to as a “d4C Trust.”  The terms d4A and d4C come from the federal statutory authority for these trusts found in 42 U.S.C. 1396p(d)(4)(A) and in 42 U.S.C. 1396p(d)(4)(C).  

There are some characteristics common to both Special Needs Trusts and Pooled Trusts.  The disabled person establishes both a Special Needs Trust and a Pooled Trust with his or her own funds.  If the disabled person is not capable of establishing the trust, the parent, grandparent, or guardian of the disabled person or a court can create the trust.    Both types are intended to hold the amount of assets or excess monthly income necessary to bring the disabled person within eligibility limits for programs such as Medicaid, SSI or Qualified Medicare Beneficiary (“QMB”).  Each trust can have only one current beneficiary and the Trust funds can only be expended for the disabled person’s sole benefit during his or her lifetime.  As a compromise for allowing eligibility for government benefits, these Trusts must contain a payback provision.  A payback provision requires that, upon the disabled beneficiary’s death, the balance of the trust repays the state for all amounts of benefits expended on behalf of the disabled person.  Both types of trusts are irrevocable; they cannot be changed after signing.  

There are also distinct differences between a Special Needs Trusts and a Pooled Trust. A Special Needs Trust can only be established and funded by a disabled person while that person is under the age of 65.  In contrast, a Pooled Trust can be established by a person of any age, including those 65 and over. If the disabled person is over 65, however, the income transferred to the trust in a month cannot exceed than average cost of one day in a nursing home (currently $414 in Connecticut) unless the Connecticut Dept. of Social Services approves a spending plan showing the beneficiary will expend all of the income in either 6 months or over the beneficiary’s life expectancy.      

Another major difference between a Special Needs Trust and a Pooled Trust is the management and choice of Trustee.  The disabled person can name any independent, competent adult to serve as Trustee of a Special Needs Trust.  In comparison, only a government-approved, non-profit association can serve as the Trustee of a Pooled Trust.  Moreover, the Trustee of a Pooled Trust does not separately manage the disabled person’s funds. Instead, the Trustee pools the investments of all of its beneficiaries and only separately accounts for the disabled person’s portion of those pooled investments.  Connecticut has only one approved non-profit association -- PLAN of Connecticut, Inc. of New Britain, CT. Only attorneys who are members of PLAN of Connecticut can set up a Pooled Trust for a disabled beneficiary.   

Perhaps the most significant difference between a Special Needs Trust and a Pooled Trust arises when the disabled person dies.  With a Special Needs Trust, if any balance remains after the payback to the government, it can go to the remainder beneficiary named by the disabled person (such as a sibling or parent).  For a Pooled Trust, the beneficiary can designate that all of the remainder goes either to the pooled trust charitable fund (used for other needy plan beneficiaries) or all to the state of Connecticut.   No funds in a Pooled Trust can return to the family of the disabled person. 

If you think a First-Party Special Needs Trust could be appropriate for you or a loved one, contact the estate planning attorneys at Cipparone & Zaccaro, PC to discuss this option. Call (860) 442-0150 today.

In the 2015 legislative session, the Connecticut General Assembly authorized the creation of a new type of investment account – the Achieving a Better Life Experience (ABLE) account.  An ABLE account allows family members to save funds for the care of a disabled individual without jeopardizing the individual’s eligibility for government programs.

Federal law allows a state, a state agency or a state-authorized entity to maintain ABLE accounts. The states that currently have ABLE Accounts are Alabama, Alaska, Washington D.C., Florida, Georgia, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Washington. 

You can compare the requirements and characteristics of each state’s ABLE account at www.ablenrc.org . 

Connecticut does not presently have an ABLE account.  The Connecticut State Treasurer announced in October, 2017 that the State of Connecticut will partner with the State of Oregon to create its ABLE Account. 

ABLE accounts operate in much the same manner as 529 College Savings Plans. You can invest in another state’s ABLE account just like you can invest in another state’s 529 Plan. Any person may contribute to an ABLE account on behalf of the eligible individual.

Who Is Eligible for an ABLE Account?

To be eligible as a beneficiary of an ABLE account, the beneficiary must have a disability that occurred before age 26 and be either entitled to benefits under the Supplemental Security Income (SSI) program or under the Social Security disability, retirement, and survivors program or provide a qualified disability certification from the disabled individual or his or her parents or guardian.

The qualified disability certification must state that:

• the individual has a medically determinable physical or mental impairment, which results in marked and severe functional limitations, and which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months; or
• the individual is blind consistent with the Social Security definition of blindness; and
• the blindness or disability occurred before the individual reached age 26. 

The certification must include a copy of the diagnosis describing the individual’s functional impairments and signed by a qualified physician.

Contribution Limits

You can contribute up to the annual gift tax exclusion amount per year (in 2018, $15,000) to each ABLE account. Contributions must be in cash and must come from non-retirement funds. Ultimately, the total amount contributed to any ABLE account over time must not exceed state-established limits for 529 accounts. Connecticut legislation establishes an overall maximum account balance limit of $300,000.

Distributions from the Account

A designated beneficiary can take distributions for qualified disability expenses. Qualified disability expenses are any expenses related to the eligible individual’s disability. The ABLE Act specifies that qualified expenses include the following:

• education
• housing
• transportation
• employment training and support
• assistive technology and personal support services
• health
• prevention and wellness
• financial management and administrative services
• legal fees
• expenses for oversight and monitoring
• funeral and burial expenses
•  basic living expenses

Medicaid Eligibility

Distributions from ABLE accounts are not considered income.  Investments held in ABLE accounts are considered exempt assets for purposes of Medicaid eligibility. Note that contributions to and distributions from an ABLE account are also disregarded for purposes of the Temporary Family Assistance, Low-Income Home Energy Assistance Program, any other federally funded assistance program, as well as need-based institutional aid grants offered by state colleges and universities. 

SSI Eligibility

SSI will disregard the first $100,000 in an ABLE account. If and when the amount in an account exceeds $100,000, SSI will consider the excess to represent resources and will suspend the individual’s SSI benefit until the account is reduced to $100,000 or less. Distributions that are used for housing expenses will be treated by SSI analogously to all other housing costs that are paid by other sources.  Trustees of Third-Party Supplemental Needs Trusts can contribute to ABLE accounts.

Tax Implications

Contributions to ABLE accounts qualify for the annual gift tax exclusion (in 2017, $14,000). They become completed gifts once made.  Earnings on contributions to ABLE accounts are not taxable income for either the person who made the contribution or the eligible beneficiary. 

If an eligible beneficiary’s qualified distribution expenses exceed distributions from his or her ABLE account, the distributions are not includable in his or her gross income. If distributions exceed qualified expenses, the excess incurs an additional 10% tax unless the distribution was made after the beneficiary’s death.

Without incurring income tax, the owner of an ABLE account can roll over an ABLE account into another ABLE account either for the designated beneficiary or for a qualifying member of his/her family (siblings or step-siblings).

Probate Claim

Note that following the death of a designated beneficiary and payment of any remaining qualified disability expenses, the amount remaining in an ABLE account is subject to recovery by the State of Connecticut in an amount equal to the total medical assistance paid under the Medicaid program for such individual after creating the account. Premiums paid by or on behalf of the beneficiary to a Medicaid Buy-In Program reduce the State’s claim.

If you want to consider an ABLE account investment, come to see the attorneys at Cipparone & Zaccaro, PC to confirm that it is a good option for you and your family.

We recently closed an estate that had an issue surrounding the enforceability of a lien in favor of the State of Connecticut for Medicaid payments that were made on behalf of the decedent.  The decedent spent her last days in a nursing home.  Before she died, she applied for Medicaid to absorb the cost of her stay in the nursing home.  The Connecticut Department of Social Services approved her Medicaid application and paid her nursing home expenses. She died owning nothing.  

Sometime after her death, her eldest son told us that he received a letter from an attorney in another state telling him that his deceased mother’s brother died leaving a modest estate.  The letter indicated that his uncle died before his mother and the only beneficiaries of the uncle’s estate were his surviving siblings. That meant that his mother’s estate stood to inherit from his uncle’s estate.  

Would the State of Connecticut make a claim for medical assistance paid to his mother?  The beneficiaries of his mother’s estate were the eldest son and his two younger brothers.  The youngest brother was developmentally disabled and living in a group home in another state.  The state provided public benefits for his care.

Federal law says that any adjustment or recovery of any medical assistance correctly paid on behalf of an individual by a state may be made only at a time when the individual has no surviving child who is under age 21 or who is blind or permanently and totally disabled.  In addition, the Connecticut Department of Social Services Uniform Policy Manual (hereinafter “UPM”) states that “[t]he Department recovers funds for Medicaid benefits correctly paid from the estate of an institutionalized individual regardless of the individual’s age … [and] [r]ecovery is only … if the individual has no surviving child who is under age 21 or who is either blind or disabled.”  

We opened his mother’s estate in the probate court.  During the estate administration process, the State of Connecticut – through its collection arm, the Department of Administrative Services (hereinafter “DAS”) – filed a claim asking the court to order that the money that the mother received from her late brother, be distributed to the State of Connecticut.  The lien was in the approximate amount of $176,000.00!  Near the end of the estate administration process, we submitted a Financial Report in which we asked the court to deny the State’s claim pursuant to the federal statute and the Connecticut UPM. We also provided the probate court with a copy of the youngest brother’s medical record to substantiate his developmental disability.

After DAS reviewed the law and the medical records, they withdrew their claim for reimbursement of the $176,000.00.  Thereafter, the court approved the Financial Report and ordered the distribution of the mother’s estate to her three sons.  As you can imagine, our client was very happy with the outcome.

Every estate requires a deep analysis of the facts and the law because no two estates are alike.  If the Connecticut Department of Administrative Services makes a claim in an estate in which you are the Executor - or a beneficiary - seek an experienced probate lawyer who will do a thorough analysis of the claim.  Do not assume that the State will recover estate assets in every case.  The money you spend to determine whether you may prevail against the State could be well worth the inheritance you ultimately receive.  Please don’t hesitate to call the probate attorneys at Cipparone & Zaccaro, PC.  We’d be happy to discuss your unique situation and help you determine whether you might inherit from a loved one’s estate. 

What Is an LLC?

Effective July 1, 2017, Connecticut has a new law controlling limited liability companies. An LLC is a business entity like a corporation and one of its’ purposes is to insulate the member of the LLC from creditors. If you conduct business as an LLC, a lawsuit cannot reach your personal assets. Only the assets of the LLC are exposed.  Of course, an LLC does not insulate a doctor or lawyer from professional negligence.  

Many people use LLCs to hold real estate. For instance, if you own a business and the real estate on which it is located, you might own the business as a corporation but own the real estate in an LLC.  We have clients who own their vacation home in an LLC.

LLCs can have an income tax advantage over corporations in that they are usually taxed as partnerships or sole proprietorships instead of as corporations.  Thus, losses of the LLC are fully deductible.  Many new businesses, professionals, and consultants operate as an LLC for this reason. Members of LLCs remain subject to self-employment taxes.  Like a corporation, an LLC allows you to set up both retirement funds and life insurance policies with greater contribution limits so you can set aside money for your future and your family. LLCs do not have as many formalities as a corporation.  

What Does the New Law Require?

The Connecticut Uniform Limited Liability Company Act (known as “CULLCA”) sets default rules for how an LLC is to be run. If you do not have an Operating Agreement, the provisions of CULLCA apply.  The new law does not void any existing Operating Agreement or any provisions of a new Operating Agreement except to the extent that the Operating Agreement violates Section 5(c) of the new law.  Under Section 5(c), an Operating Agreement may not: 

(1) Make the law of another state govern a Connecticut LLC; 

(2) vary a limited liability company’s capacity to sue and be sued in its own name; 

(3) vary any requirements of the Connecticut Secretary of State’s Office; 

(4) vary the right to petition the Connecticut Superior Court to record a document on the records of the Connecticut Secretary of State’s Office; 

(5) alter or eliminate the duty of loyalty or the duty of care, except in certain limited situation under Section 5(d); 

(6) eliminate the implied contractual obligation of good faith and fair dealing except that the operating agreement may prescribe the standards, if not manifestly unreasonable, by which the performance of the obligation is to be measured; 

(7) relieve or exonerate a person from liability for conduct involving bad faith, willful or intentional misconduct, or knowing violation of law; 

(8) unreasonably restrict the duties and rights of members in member-managed LLCs to information about the operation of the LLC, except that the operating agreement may impose reasonable restrictions on the availability and use of information obtained and may define appropriate remedies, including liquidated damages, for a breach of any reasonable restriction on use; 

(9) vary the provisions of the new law related to judicial dissolutions; 

(10) vary the requirement to wind up the company’s activities and affairs as specified in the new law;

(11) unreasonably restrict the right of a member to maintain a legal action against the LLC or its members; 

(12) vary the provisions related to derivative actions under the new law, except that the operating agreement may provide that the company may not have a special litigation committee; 

(13) vary the required contents of a plan of merger or, a plan of interest exchange as allowed by the new law; or 

(14) except as provided Sections 6 and 7(b) of the new law, restrict the rights of a person other than a member or manager.

How Has the Connecticut Law Changed?

Connecticut LLCs no longer have Articles of Organization.  You now file a Certificate of Organization with the Connecticut Secretary of State’s Office. The new Certificate of Organization does not have to state if the LLC is a member-managed LLC.  The Operating Agreement now controls whether the members manage the LLC or a manager manages the LLC. The new Certificate of Organization no longer requires you to state the purpose of the LLC.  That information belongs in the Operating Agreement. The terms of the Operating Agreement control over the Certificate of Organization. We recommend that all LLCs have an Operating Agreement so that you consciously make decisions on how to operate your LLC. 

The new law spans 102 sections.  It covers everything from setting up an LLC, operating the LLC, merging it with another LLC, and dissolving the LLC. If you want to understand how the new law affects your business or real estate, you should consult a Connecticut attorney who is willing and able to digest and explain how this new law affects you.   

In a previous blog, I wrote about whether a Will was valid if it was signed by someone with dementia.  In that blog, I mentioned three generally accepted criteria that the proponent of the Will must prove for a court to determine whether the testator had the capacity to sign their will.  In this blog, I’d like to explore those three criteria in more detail.

Did the testator know what property she owned when she signed her Will?

When I set an appointment to prepare an estate plan, I ask the client to complete an estate planning questionnaire.  This questionnaire asks them to tell me such things as whether they have any life insurance, annuities, retirement plans, non-retirement accounts, real estate holdings, bank accounts or business interests.  Typically, before the first meeting, clients have sent the completed questionnaire to me for my review.  Armed with this information, I can then explore the best possible estate plan for them by carefully reviewing each asset at the initial meeting.

This exercise forces people to stop, consider what they have and record that information in writing.  As I review each asset with the client, I am in a unique position to determine whether they have an understanding of the property that they own and whether they have the capacity to move beyond merely discussing their estate plan, to actually creating that plan.  If the ultimate estate plan is ever challenged on the ground that the testator had dementia and did not have the capacity to understand what property she owned when she signed her will, as her estate planning attorney, I could testify in a court hearing to her understanding.

Did the testator know who were the natural objects of his or her bounty?

Another way to ask this question is did the testator understand who is in his or her immediate family?  In addition to asking them to set forth their asset information, our estate planning questionnaire asks clients to tell us about their children and other descendants.  Once again, the testator must go through the exercise of providing detailed information including names, dates of birth, addresses, telephone numbers and other biographical information about potential beneficiaries.  In cases where the client does not have children, we ask the client to provide us with similar information relative to other family members. This information helps us determine who may contest a will. We may need to know whether a client’s parents, siblings, cousins, nieces, or nephews are living.  We also record information about the beneficiaries that the testator would like to inherit their estate.

After I have gathered this information, I must be satisfied that the testator understands what she is doing and in cases where she chooses to leave one child with something less than another, I document the reasons why.  In my experience, people may leave an unequal distribution to their children with perfectly valid reasons for doing so. I must determine whether the testator had the capacity to understand what he or she was doing.

Does the testator understand that a Will disposes of her property at death?

After going through the analysis set forth above, how does someone demonstrate that their Will disposes of their property when they die, especially if there is a concern about possible dementia?  In my experience, the Will signing ceremony could not be more important.  After creating the Will, I get a draft copy of that document to my client about a week or two before the actual Will signing ceremony.  This is critical because it gives the testator time – when they don’t feel rushed or pressured – to carefully review his or her Will.  If, after reviewing it, they have any questions, concerns or corrections, that is the time to discuss them and make adjustments.  Once those questions are answered, the testator is ready to sign the Will.

At the Will signing ceremony,  ask questions of the testator which are intended to test her capacity to understand the document she is signing.  This interview of the testator always occurs before another disinterested witness.  Most of the time, there is no doubt as to the capacity of the testator to sign.  Nevertheless, in cases where I have a concern about dementia, I will ask several probing questions that are intended to prove to my satisfaction – as well as that of my witness – that the testator had the requisite capacity to execute her Will.  First, I may ask the testator if she read the Will.  I then follow that question by asking if the testator can state – in her own terms – how the Will disposes of her assets and to whom they will be distributed.  I may even ask the witness to take copious notes of the ceremony so that if there is a later challenge to the will, the notes can refresh the witness’ recollection as to whether the testator had the requisite capacity to sign her will.

Ultimately, you must sign your Will well before you get to this point.  Talk to an estate planning lawyer about putting a plan together when you are capable of doing so.  Most people work very hard all of their lives to create an estate for themselves or to leave property to a loved one.  It makes little sense – when you get towards the end of your life – to have no plan at all or worse still, to create one under conditions where it could be challenged due to lack of capacity.

If you or someone you know needs an estate plan, please don’t hesitate to call the estate planning attorneys at Cipparone & Zaccaro, PC.  We’ll be happy to discuss the client’s situation, assess capacity to make a Will and recommend a course of action that best honors their intentions. 

Parents often come to us asking how they can protect an inheritance they want to give to a child who has a shaky marriage. A trust can provide protection if it is properly crafted and implemented.  It all hinges on whether the child has the ability compel a distribution from the trust.

Let’s take as an example. the case of Ferri v. Powell-Ferri. This case shows us how a trust can provide no protection of the assets for the benefit of a child embroiled in a divorce. It also clarifies how giving the people managing the trust (“the Trustees”) complete authority over whether and when to make distributions can provide effective protection of assets in a divorce. 

In 1983, Paul J. Ferri funded the Paul John Ferri, Jr. Trust with $1M for the sole benefit of his 18 year old son, Paul John Ferri, Jr. (known as “the 1983 Trust”). The trust was created in Massachusetts and is governed by Massachusetts law. The 1983 Trust established two methods by which the Trustees can distribute assets to Paul Jr. First, the Trustees may "pay to or segregate irrevocably" trust assets to Paul Jr. This means the Trustees can either pay trust funds directly to Paul Jr. or can set aside funds for his future use. Second, after Paul Jr. reaches the age of thirty-five, Paul Jr. may request certain withdrawals of up to fixed percentages of trust assets, increasing from 25% of the principal at age 35 to 100% after age 47.

In 1995, when Paul Jr. was 30 years old he married Nancy Powell. Fifteen years later in October, 2010, Nancy filed for divorce in Connecticut. In March, 2011, the current trustees of the 1983 Trust, Michael Ferri (Paul, Jr’s brother) and Anthony Medaglia (the “Trustees”) create the Declaration of Trust for Paul John Ferri, Jr. (known as “the 2011 Trust”) in order to shield the trust assets from Paul Jr.’s soon to be ex-wife. They subsequently moved the assets from the 1983 Trust to the 2011 Trust.

As with the 1983 Trust, Paul Jr. is the sole beneficiary of the 2011 Trust. Under the 2011 Trust, the Trustees have complete authority over whether and when to make payments to Paul Jr., if at all; Paul Jr. had no power to demand payment of trust assets. The spendthrift provision of the 2011 Trust bars Paul Jr. from transferring or encumbering his interest. This means the 2011 Trust shields the trust from Paul's creditors including his ex-wife Nancy. The Trustees moved the assets into the 2011 Trust out of concern that Nancy would get part of the assets of the 1983 Trust in the divorce. They moved the assets without informing Paul Jr. and without his consent.

At the time the assets were moved from the 1983 Trust to the 2011 Trust, Paul Jr. had a right under the 1983 Trust to request a withdrawal of up to 75% of the principal. During the course of the divorce, his vested interest matured into 100% of the assets in the 1983 Trust.

In August, 2011, the Trustees of the 1983 Trust and the 2011 Trust commence a declaratory judgment action against Nancy and Paul Jr. in the Connecticut Superior Court. A declaratory judgment action is a type of lawsuit that interprets a legal document like a trust. The Trustees asked the Court to declare that: 

(1) the Trustees validly exercised their powers under the 1983 Trust to distribute and assign the property and assets to the 2011 Trust; and 

(2) Nancy has no right, title, or interest, directly or indirectly, in the 2011 Trust or its assets, principal, income, or other property. 

Nancy moved for summary judgment asking the court to rule in her favor without a trial, and the Trustees filed a cross motion to block Nancy from receiving any of the Trust assets. In support of their cross motion, the Trustees filed an affidavit from Paul Sr. (“the Settlor”) who was still alive. The affidavit stated that the Paul Sr. intended to give the Trustees of the 1983 Trust the specific authority to do whatever they believed necessary and in the best interest of Paul Jr., including irrevocably setting aside the trust principal in a separate trust for Paul Jr.’s sole benefit.

In August, 2013, the Connecticut trial judge struck Paul Sr.’s affidavit and granted Nancy's motion for summary judgment. If upheld on appeal, the court’s ruling would allow Nancy to reach the Trust assets in the divorce. The court determined that the affidavit was not necessary to the disposition of this case because the 1983 Trust document itself was clear. According to Judge Munro, allowing the assets from the 1983 Trust to move to the 2011 Trust would improperly remove the provisions of the 1983 Trust that gave Paul Jr. the right to withdraw money from the trust. If Paul Sr. had wanted to make the Trustees power absolute, he could have done so in the 1983 Trust. Anything less than giving the Trustees absolute power over the trust principal could not defeat the intent of the trust section giving Paul Jr. the absolute right to withdraw the trust property. 

The Connecticut court ruled that the Trustees of the 1983 Trust moved the assets to the 2011 Trust without the proper authority to do so. In June, 2014, Judge Munro ordered restoration of 75% of the assets of the 2011 Trust to the same terms as the 1983 Trust, an accounting of the 2011 Trust from inception to the date of restoration, and an award of reasonable attorney's fees to Nancy.

Paul Jr. appealed the decision to the Connecticut Supreme Court. The Connecticut Supreme Court referred the case to the Massachusetts Supreme Judicial Court (“Mass. SJC”) because it is the state in which the 1983 Trust was set up.  In a decision dated March 20, 2017, the Mass. SJC ruled that under Massachusetts law the Trustees had the power to move the assets from the 1983 Trust to the 2011 Trust.  The Court found that the Trustees had a lot of latitude when it came to deciding what to do with the 1983 Trust. The 1983 Trust plainly allows the Trustees to act with no oversight other than the requirement to provide reporting at the request of Paul Jr. The Court noted that the 1983 Trust allowed the Trustees to "segregate irrevocably for later payment to” Paul Jr. and show that Paul Sr.’s intent was to allow the Trustees to move assets to a new trust for Paul Jr. The Court also mentioned that the Trustees not only had the power to pay trust assets directly to Paul Jr.; they could apply the payment for his or her benefit which included moving the assets from the 1983 trust to the 2011 trust. Because the language of the trust was almost identical to another case where assets were moved from one trust to another in Morse v. Kraft, a 2013 case, the Court said the Trustees could move the assets from the 1983 Trust. 

Nancy’s lawyers argued that the assets in the trust should be included in the divorce because Paul Jr. had the ability to ask for trust assets. The Mass. SJC recognized that Paul Jr. had the power to withdraw the trust principal.  Yet, the Court found that Paul Jr.’s ability to request assets from the trust did not prevent the Trustees from being able to move the assets from the 1983 Trust to the 2011 Trust. The Court reasoned that if the Trustees couldn’t move the assets over which Paul had the power to withdraw, it meant that the Trustees would lose the ability to exercise their fiduciary duties over those assets. Under Nancy' s interpretation, the Trustees would be without a role when Paul Jr. turned 47. At the time the Trustees moved the assets from the 1983 Trust to the 2011 Trust, Paul Jr. had withdrawn only a small percentage of the assets. Therefore, a substantial portion of the trust assets remained in the 1983 Trust, subject to the Trustee's authority and stewardship. This means that just because Paul Jr. had the ability to withdraw assets from the trust, it did not mean the Trustees lost the authority to move the assets from the 1983 Trust into the 2011 spendthrift trust.  In other words, the Trustees did have the power to deny creditors like Nancy access to the trust assets.

In a concurring opinion, Chief Justice Gants made clear that the Mass. SJC was not deciding whether Massachusetts law will permit assets to be moved from one trust to another for the sole purpose of removing trust assets from the marital estate that might be distributed to the beneficiary’s spouse in a divorce action. Chief Justice Grant wrote, “I do not offer any prediction as to whether this court might invalidate as contrary to public policy a new spendthrift trust created for the sole purpose of decanting the assets from an existing non-spendthrift trust in order to deny the beneficiary’s spouse any equitable distribution of these trust assets. I simply make clear that, in this opinion, we do not decide this issue; we will await a case that presents such an issue before we decide it.”     

In conclusion, the case of Ferri v. Powell-Ferri recognizes that trusts can play an important role in protecting family assets in a divorce.  Trusts with withdrawal powers or that allow the child to compel distribution will not work.  For instance, a trust that requires distributions be made for the child’s health, education, maintenance and support will not protect the trust principal. Instead, like the 2011 Trust, the Trustee must have complete authority over whether and when to make payments to the beneficiary.  

Come see the estate planning attorneys at Cipparone & Zaccaro, PC if you want to leave an inheritance to a child with a shaky marriage. 

A “Special Needs Trust” is a type of trust structured to supplement a disabled person’s quality of life without affecting that person’s eligibility for means tested programs such as Medicaid. A Third-Party Supplemental Needs Trust is just one subcategory of Special Needs Trusts, which I will discuss in this article.  For information on two other types of Special Needs Trusts, see my articles on a (d)(4)(A) First Party Trust, and a (d)(4)(C) Pooled Trust.      

Programs like Supplemental Security Income (SSI) and Medicaid (also known as Title XIX or Title 19) are referred to as “means tested” programs, because eligibility is based upon the disabled person’s low income and low asset level.  Sadly, a disabled person can lose eligibility for means-tested programs like Medicaid and SSI if they receive a gift or inheritance that pushes their resources even one dollar over the asset limits. In Connecticut, the asset limit is $1,600 in total for Medicaid (in a skilled nursing facility) and $2,000 for SSI. Losing eligibility may not matter if the gift is enough to provide for the lifetime needs of the disabled person.  Most times, however, the gift ends up being spent down rapidly on healthcare costs, and the disabled person receives no real benefit.  

In the past, parents were faced with a difficult choice – give the disabled child an inheritance that will interrupt government assistance, or disinherit the disabled person.  Thankfully, the government recognized this inequity and now allows some exceptions to the rules to help improve the quality of life for disabled people.

A Third-Party Supplemental Needs Trust (“Supplemental Needs Trust”) is one solution to this problem. This type of Trust is established and funded by a person who is not the disabled beneficiary - Hence the term “Third-Party.”  The Trust is intended to supplement the needs that are not covered by public benefits, which is why this trust is often referred to simply as a “Supplemental Needs Trust.”  There are several reasons a Supplemental Needs Trust is the preferred type of Special Needs Trusts. 

First, a Supplemental Needs trust is typically created by a spouse, parent, grandparent, sibling, or just a friend.  Once one person establishes the Supplemental Needs Trust, others can contribute funds to it for the disabled person’s benefit.  The Trust becomes a vehicle for family members to contribute funds for the disabled person.  

Second, the Trust can be funded at any time.  Family members should consider setting up a Supplemental Needs Trust for a disabled person even if there is not yet a source of funding.  People can fund the Trust in the future by a bequest under a Will or Trust, or a beneficiary designation on a life insurance policy or retirement fund.  Of course, if funds exist now, the Trust can be funded immediately upon establishment.  A Supplemental Needs Trust can also hold real estate.  There is no limit to the size of the trust fund.  A properly drafted Supplemental Needs Trust will protect the Trust property from claims of the beneficiary’s creditors, including the state.  

Finally, a Third-Party Supplemental Needs Trust has no “payback provision.”  Other Special Needs Trusts require a “payback provision.”  A payback provision is a requirement that, upon the beneficiary’s death, the trust must repay the state for all amounts expended on behalf of the disabled person before the balance, if any, can go to a remainder beneficiary. Because the funds in the Third-Party Supplemental Needs Trust never belonged to the disabled person, the government is not entitled to reimbursement for Medicaid or SSI payments made on behalf of the disabled person. 

Upon the disabled person's death, the assets in a Supplemental Needs Trust can pass to the donor's other descendants (children or grandchildren). Thus, the Supplemental Needs Trust provides for the disabled person during his or her life while preserving funds for other descendants in the family upon the disabled person’s death. If the donor does not have other descendants, the donor can leave the trust balance to charity after the disabled person’s death. 

If you think a Third-Party Supplemental Needs Trust could be appropriate for your estate plan, contact the estate planning attorneys at Cipparone & Zaccaro, PC to discuss this option. Call (860) 442-0150 today.

When planning for the end of your life, it is only realistic to think about what would happen if you become physically or mentally incapacitated. Advance directives were created to enable you to give clear directions for what to do to ensure that your wishes are carried out if you become unable to communicate your wishes to a doctor.

An advance directive is a written statement of a person’s wishes regarding medical treatment. To be clear, as long as you are medically competent, you get to make decisions for yourself.  Advance directives only come into play when you become incapable of making decisions and are not able to communicate your wishes to a doctor. 

Both an Appointment of Health Care Representative and a Living Will are known as advance directives.  It is important to have both because one appoints someone to make decisions on your behalf and the other describes the steps you do – and do not - want taken.

What Is a Health Care Representative?

Let’s start with the Appointment of Health Care Representative.  In this document, you appoint someone to make health care decisions for you when you are no longer able to make them for yourself.  That person is known as a health care representative. 

What kind of health care decisions can your health care representative make?  

They can consent to any care, treatment, service or procedure to maintain, diagnose or treat an individual's physical or mental condition. The representative can also refuse to consent or withdraw consent to any care or treatment and they can decide whether or not to provide or withhold life support.  Much like a durable power of attorney, an Appointment of Health Care Representative shall not be affected by the  subsequent disability, incompetence, incapacity or the lapse of time of the person being represented.  This means that if you create an Appointment of Health Care Representative while you are competent and you later become incompetent, the Appointment of Health Care Representative is still valid.

When does “incapability” come into play in an advance directive?  

Here’s where you need a doctor to weigh in.  This is what the law says: If your attending physician determines that you are unable to understand and appreciate the nature and consequences of health care decisions and to reach and communicate an informed decision regarding treatment, then your health care representative is authorized to make health care decisions for you.  

By the way, the law requires both an Appointment of Health Care Representative and a Living Will, to be signed before two disinterested witnesses.  Why?  Because if documents like these are ever challenged in court, the witnesses could potentially be called to testify that you were of sound mind when you signed either document and you were able to understand the impact of each document at the time that you signed them.

What Is a Living Will?

Let’s go over to the Living Will.  In this document, you tell the world that if your medical condition is ever deemed to be terminal or you are permanently unconscious, you want to be allowed to die and not kept alive through life support systems.  

What is meant by “terminal condition” and by “permanently unconscious?” 

Terminal condition means the you have an incurable or irreversible medical condition which, without the administration of life support systems, will in the opinion of your attending physician, result in death within a relatively short period of time.  Permanently unconscious means that you are in a permanent coma or persistent vegetative state which is an irreversible condition in which you are at no time aware of yourself or the environment and show no behavioral response to the environment.

How does the law define “life support systems?” 

Life support systems are the artificial means of supporting someone’s life.  They include: 

• artificial respiration 
• cardiopulmonary resuscitation 
• artificial means of providing nutrition and hydration 
• kidney dialysis
• antibiotics that are administered for a reason other than for your physical comfort

When someone signs a Living Will, these are the measures that they do not want if they are in a terminal condition or permanently unconscious and they are not capable of communicating their wishes to their doctor.  Now that’s not to say that they don’t want things like pain medication or food (if they’re hungry) or something to drink (if they’re thirsty).  They will still receive those things.  They are simply telling the doctors and their loved ones that they do not wish to prolong their life by artificial means. 

Where the Appointment of Health Care Representative and the Living Will Intersect 

Your health care representative has a duty – under the Appointment of Health Care Representative – to enforce your wishes under your Living Will.  In other words, your health care representative is your advocate in the health care system.  He or she is there to make sure that your wishes under your Living Will are implemented.  So if you’re intent on have a Living Will for yourself, it makes good sense to also have an Appointment of Health Care Representative in place as well.

These are documents that should be put in place well before a crisis occurs.  In addition, you should talk to the person you intend to name as your health care representative so they understand your feelings about “end of life” decisions.  Finally, it also makes sense to name a successor to your primary health care representative to make sure you have a back-up in the event that the first person is not around.

If you have questions about an Appointment of Health Care Representative or a Living Will in particular or advance directives in general, please don’t hesitate to call the estate planning attorneys at Cipparone & Zaccaro, PC.  We’ll be happy to discuss those documents with you and how they can be used in your loved-one’s best interests.   

If a loved one has recently been diagnosed with dementia or another cognitive abnormality, it may not be too late for them to create a will.  However, there are some potential problems with creating a will after a diagnosis of Alzheimer’s or dementia. Signing a will now, even after diagnosis, could be your loved one’s last best chance to dispose of property in a manner that is consistent with his or her wishes.  In order to lessen the likelihood of a challenge to the will, certain criteria must be followed.

Considering that 64% of Americans don’t have a will or other type of estate plan and 5.5 million Americans have been diagnosed with Alzheimer’s (present in 60 – 70% of people with dementia), you can easily see that there are hundreds of thousands of Americans who have not created an estate plan until after they begin suffering from symptoms of dementia.  Waiting until after a diagnosis of Alzheimer’s or dementia can lead to unintended and devastating consequences that might result in costly litigation and further lead to division among family members.  

A common situation our firm sees is one where a will is created after the testator was diagnosed with dementia.   Then, someone who is left out of the will or does not approve of how the assets are being distributed, contests the will claiming that the testator lacked the testamentary capacity to sign it.  The term “testamentary capacity” essentially means that the person authoring the will must understand the nature and the content of the document that they are signing.

If a court agrees with the challenger and determines that the will is invalid, the court will typically look to a prior will because the law prefers that the testator’s estate be distributed under a prior will, as opposed to the laws of intestacy which is how the court distributes a person’s assets if they don’t have a will. The problem with either scenario is that the testator probably did not want their estate distributed either by the terms of an old will or by the laws of intestacy.  Ensuring that your assets go where you want them to is why you need to create a will or estate plan, if not before you are diagnosed with dementia, then certainly shortly thereafter.

How Does the Court Decide if a Person with Dementia Is Capable of Executing a Will?

If the testator is suffering from Alzheimer’s or dementia, they do not automatically lack the required testamentary capacity to execute their will. As long as the testator has periods of lucidity and the testator signs the will during one of those periods, a court can rule that the testator had the necessary capacity to sign a will.  Generally speaking, “periods of lucidity” means periods of time where the testator knew what was going on, was thinking clearly and actively participated in the execution of the will.      

There are three generally accepted criteria that must be proven in order for a court to determine whether someone was mentally competent when they signed their will.  

1. First, the testator must have understood what property they own.  This means that the testator must know what they own and how much they have.  
2. Second, the testator must remember and understand who their relatives are and be able to articulate who should inherit their property and how much that person should receive. 
3. Finally, the testator must understand that a will disposes of his or her property at death.

Demonstrating that a testator meets these 3 criteria is a complex topic I will address in the near future.

Waiting until the last minute to create a clear, coherent plan for the distribution of your estate is seldom a good idea.  In this age when people are living longer, more and more people are becoming afflicted with Alzheimer’s and dementia.  Many of those people are simply waiting too long to put their affairs in order.  The best advice is to talk to a competent estate planning lawyer about creating a plan at a time when you are able to understand things and you have the capacity to put a well-thought-out plan in place.  

If you have a loved one who has recently been diagnosed with Alzheimer’s or dementia and you are concerned that they may not have their affairs in order, please don’t hesitate to call the estate planning attorneys at Cipparone & Zaccaro, PC.  We’ll be happy to discuss their situation, their capacity to make a will and recommend a course of action that best honors their intentions.