Cantor Floman Blog

 An ILIT is an irrevocable trust that enables a grantor to transfer insurance policy proceeds to family members without having the proceeds included in his or her estate.  By working closely with an attorney and a financial adviser, an individual may transfer an existing life insurance policy into an ILIT, or purchase a life insurance policy on the grantor’s life through an ILIT, resulting in the ILIT owning the policy.  The ILIT is named as the beneficiary of the policy so that the policy proceeds are excluded from the grantor’s estate.  Upon the death of the grantor, the terms of the ILIT can instruct the Trustee to continue to manage the proceeds for the beneficiaries, distribute the proceeds outright to beneficiaries, or distribute the proceeds to separate trusts established for the beneficiaries.

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A GRAT is an irrevocable trust with a specific term used to achieve the goal of transferring future appreciation of an asset to family members while incurring little or no gift tax.  GRATs must satisfy certain requirements under the Internal Revenue Code.  To establish a GRAT the Grantor identifies property he or she believes will appreciate significantly over time, such as stock, or closely held business interests (including S Corporations).  The Grantor transfers this property into the trust, which is set up as an annuity, but retains the right to receive payments, at least annually, for a fixed term of years (i.e. 2 years or longer).  The annual payments that the grantor will receive are generally calculated so that in their entirety they are equal to the fair market value of the asset(s) originally transferred into the GRAT plus interest at a prescribed interest rate set by the IRS (the prescribed IRS interest rate changes monthly).  The prescribed IRS interest rate for September 2011 is 2% per year. 

By calculating the payments in this manner, the annuity payments of the GRAT term will equal or almost equal the value of the property originally contributed to the GRAT (called “zeroing out”).  Since the IRS focuses on the prescribed interest rate, not the actual interest rate, the assets in the GRAT that grow at an interest rate that surpasses the prescribed IRS interest rate can be passed on to trust beneficiaries tax-free at the end of the GRAT term. 

Although the assets pass to beneficiaries tax free, setting up a GRAT can trigger a tax.  If the calculation results in additional assets left over at the end of the GRAT term, the transfer of those assets is a taxable event. 

Generally, GRATs are a wealth transfer tool to be used in a low interest rate environment because the lower interest rate increases the chance that the gift will be larger.  Please note that this is a very simplified explanation of a complicated topic.  GRAT planning is particularly complex and there are certain risk factors, including tax law risks, valuation risks, and the possibility that the grantor might die during the term of the trust, that must be reviewed and analyzed in each individual case.

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Business Transactions: Entering into a lease. If your business entity is entering into a lease, there are many important questions you need to address. Here are just a few.

• What is the length of the lease? Striking a proper balance between a lease that is too short and one that is too long is very important.
• Is there an option to extend the lease if the location is profitable?
• What assurance do you have that the landlord can’t rent space nearby to someone who competes with you?
• What protection do you have if the landlord experiences financial difficulty?
• Will a personal guaranty be required? For how long?

We can help you address these and the myriad of other important issues that inevitably arise when you are about to lease premises for your business.

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Real Estate Transactions: The conveyance tax has increased. When you sell your home, you will be required to pay a conveyance tax to the State of Connecticut and the City/Town where the property is located. 

• The State conveyance tax had been .5% of the gross sales price.
• Effective as of July 1, 2011, the State conveyance tax rises to .75% of the gross sales price under $800,000.00.
• Here is an example. You sell your home for $350,000.00. Prior to July 1, the State conveyance tax would have been $1,750.00; now, the State conveyance tax will be $2,625.00.
• If the gross sales price exceeds $800,000.00, the State conveyance tax is 1.25% of the gross sales price above $800,000.00.

Although the State conveyance tax may have increased, we continue to provide affordable legal representation to individuals who are selling and/or buying homes. Feel free to contact us for a detailed description of our legal services.

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Personal Injury Cases: Good news for Connecticut workers. If you are injured at work and your injury is the fault of a third party, you have a right to sue the third party for damages and losses caused by the injury. This is independent of and in addition to your rights under the Connecticut Worker’s Compensation Act.

• When you settle your claim against the at fault third party, Connecticut law, prior to July 1, 2011, allowed the employer to recover 100% of any worker’s compensation benefits it had paid you.
• This session of the legislature changed the law to cap the employer’s recovery at 1/3 of the amount you recover from the third party.
• Here is an example. Jim was driving a company car as part of a work assignment. He is injured in an automobile accident when a truck goes through a red light. As a result of his injuries he missed several months from work, spent time in the emergency room, and had other medical expenses. His employer paid Jim $30,000.00 in worker’s compensation benefits.
• Jim settles his case against the truck driver’s insurance company for $60,000.00.
• As a result of the new law, Jim’s employer receives $20,000.00 from the settlement, not $30,000.00; the extra $10,000.00 goes to Jim.

We have years of experience helping people who have been injured by others. We make it a point of staying abreast of changes in the law that may affect our clients. Feel free to contact us if you have been injured and have questions about your rights.

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Medicaid planning: Bad news for Connecticut spouses applying for Medicaid.  If one spouse is in a nursing home (“Institutionalized Spouse”) and the other spouse remains at home (“Community Spouse”) federal law allows the Community Spouse to keep ½ of the couple’s non-excluded assets, but subject to a maximum of $109,560.00. This session of the legislature repealed a Connecticut statute (see Summer, 2010 newsletter) that had allowed the Community Spouse, automatically, to keep the full $109,560.00; now we are back to the old system which requires the division of non-excluded assets. Here is an example.

• Joe and Sally own their home, a new car, and have $100,000.00 in cash assets. Joe has had progressive dementia and Sally no longer can care for him at home so Joe is now living in a nursing home.      
• The home is protected as an excluded asset because Sally is living there.    
• The car is protected as an excluded asset.
• Sally now can keep only 50,000.00, not the full $100,000.00 she would have been allowed under the Connecticut statute repealed as of July 1.

Please contact our office if you need help with long term care issues. We stay abreast of changes in Medicaid law, and have experience preparing and filing Medicaid applications. We are prepared to counsel you on the options you have if a family member requires long term care.  

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Estate planning: Complicating news for Connecticut estate planning. This session of the Legislature reduced the Connecticut Estate Tax exemption for property passing to a non-spouse beneficiary from $3,500,000.00 to $2,000,000.00.

• The reduction of the exemption is effective as of January 1, 2011.
• The tax rate begins at 7.2% of the taxable estate above $2,000,000.00.
• Although $2,000,000.00 is a lot of money, you may be surprised at how quickly you can get there. The gross taxable estate for the Connecticut Estate Tax includes the value of your home, the value of your retirement accounts, and the gross proceeds received from any insurance policy that insures your life.
• A married couple can use credit shelter trust planning to double the amount passing Connecticut Estate Tax free to non-spouse beneficiaries.

We encourage you to call us to discuss how this change in Connecticut law affects your estate planning needs. We have experience preparing sensible and cost effective estate plans for individuals and couples.   

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The general background. Nursing homes continue to feel the same financial squeeze that individuals and families have been feeling. As a consequence, we have noticed much more aggressiveness by nursing homes in going after all potential sources of payment for unpaid nursing home charges.  Typically, an account for a resident is unpaid during a gap in coverage for the nursing home resident: Medicare and/or private insurance coverage has ended, and Medicaid eligibility has not been established. With private pay rates in Connecticut averaging $10,000.00 and more per month, a 3 month gap can put quite a dent in the nursing home’s financial structure.

The underlying facts of a recent case, Aaron Manor, Inc. v. Janet A. Irving. William Ammon was admitted to Aaron Manor, a skilled nursing facility, on October 29, 2002. The Patient/Resident Admission Agreement (“Agreement”) was signed by his daughter, Janet Irving, as a “responsible party”. The Agreement included a paragraph that said “if the responsible party has control of or access to” the resident’s income and/or assets, the responsible party agrees to use the funds for the resident’s welfare, including “making prompt payment for care and services rendered to the Patient.”

Medicare paid for the cost of Mr. Ammon’s care from the date of his admission March 1, 2003. There was no coverage from March 1, 2003 through June 11, 2003. On June 11, 2003 coverage for the cost of care resumed through private health insurance. So, the gap in coverage was between March 1, 2003 and June 11, 2003 during which time charges totaled $27,340.00.

Mrs. Irving was not the conservator of her father’s estate, nor had her father appointed Mrs. Irving as his attorney-in-fact pursuant to a Durable Power of Attorney Instrument. In fact, Mr. Ammon had appointed his son, William Ammon, Jr., as his attorney-in-fact to make financial decisions for him. This had been disclosed to Aaron Manor at the time of Mr. Ammon’s admission.

What must have irked Aaron Manor is that during the time between March 1, 2003 and June 11, 2003, Mr. Ammon had enough money in the bank to pay his bills, he owned stock in publicly traded companies, had certificates of deposit, and owned his home. Moreover, during that same period of time Mr. Ammon, Jr. made gifts of his father’s assets to himself and his sister, and reimbursed his sister (Mrs. Irving) for money she previously had spent to buy things for their father.

The lawsuit. Aaron Manor sued Mrs. Irving seeking to recover from her the unpaid charges of $27,340.00. The theory of Aaron Manor was that Mrs. Irving, as the “responsible party”, had breached the terms of the Agreement by receiving money from her brother and not applying it towards the unpaid charges of her father. The trial court found in favor of Mrs. Irving and Aaron Manor appealed that finding to the Connecticut Appellate Court. The Connecticut Appellate Court decided the case in an opinion officially released on February 22, 2011. You can find the opinion of the Court at 126 Conn. App. 646. The Court found that Mrs. Irving did not have “control of or access to” her father’s funds. Since this was an essential predicate to finding a breach of the terms of the Agreement, the trial court was correct in deciding the case in favor of Mrs. Irving. The money given to her by her father (acting through her brother as her father’s attorney-in fact) became Mrs. Irving’s property as soon as she received the money; she had no legal obligation to use her money to pay her father’s bills.

Why didn’t Aaron Manor sue Mr. Ammon, Jr.?  There was no contractual undertaking between Aaron Manor and Mr. Ammon, Jr. Moreover, the mere fact that he is his father’s attorney-in-fact creates no statutory or common law basis for establishing such liability. That issue was decided by the Connecticut Appellate Court on November 23, 2010 in the case of Kindred Nursing Centers v. Morin, which can be found at 125 Conn. App. 165.

The lesson to be learned?  Be assured that nursing homes will continue to look for all sources of potential payment for the cost of care. If you are admitting a family member be cautious about what you sign, particularly if you are an attorney-in-fact or Court appointed conservator for the person being admitted.

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All too often, when individuals or businesses hire website developers, there is confusion over who “owns” the domain name.  A domain name is the last two portions of a web address, for example “cantorfloman.com.” 

Who “owns” a domain name?

Legally speaking, individuals and businesses cannot “own” a domain name. By way of example, when you purchase real property to build your new home, your ownership is evidenced by taking title to the property in the form of a legal deed.  In contrast, when you purchase a domain name to build your new homepage, you do not take title to the domain name.  Rather, you acquire the rights to use the domain name, very much like your right to use a phone number.  The person who owns the rights to use the domain name is referred to as the “Registrar” of the domain name.  Therefore, it is important to be clear as to WHOIS the Registrar of your domain name.

WHOIS the Registrar?

The Registrar is the person whose name and contact information is submitted to the WHOIS database upon registration for and purchase of the rights to use a domain name.  The WHOIS directory is a directory maintained by domain registering agents such as NetworkSolutions and GoDaddy.  The Internet Corporation of Assigned Names and Numbers (ICANN) requires the Registrar to submit contact information to the WHOIS domain registering agent, including name, phone number, address, domain name, and email.  This contact information will become public in the online WHOIS directory.  It is possible to have the Registrar’s information kept private by paying a monthly fee to a third party to act as a proxy contact.  

The Administrator:

Another important position not to be overlooked is that of the Administrator.  The Administrator, or Administrative Contact, is the person who has the legal right to approve any requested changes to the domain, including changing the Registrant.  The Administrator also has access to usernames and passwords.   

What to look for:

To perform a free WHOIS search to see if you are the Registrant and/or Administrator, you can check the WHOIS database of domain registration companies, such as www.NetworkSolutions.com and www.GoDaddy.com. 

Website designers and developers and their clients should work together to ensure that the site design, development, and hosting contacts are clear about whether the client or the developer will be the Registrant and/or Administrator of the domain name.  It is advisable that you retain an attorney with experience in drafting website design and development contracts to advise you in negotiating any terms and conditions of these contracts.  We would be happy to draft or review a website design/development contract for you.

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If your business entity has multiple owners, it is important to have a buy/sell agreement describing what happens following the death or disability of one of the owners. Typically, the agreement provides for the mandatory or optional buy-out of the deceased/disabled owner’s interest in the business.

• Often life insurance owned by the business or by the other owner can be an important tool to assure the availability of liquid funds to purchase the ownership interest of a deceased owner.
• In the absence of life insurance, the purchase price for the deceased owner’s interest will need to come from the operating income of the business; this may put a big strain on the cash flow of the business.
• Although disability buy-out insurance is available, it often is very expensive. For that reason most buy/sell agreements provide that the ownership interest of a disabled owner is paid for over a number of years with the payments coming from the operating income of the business.
• The goal in planning is to balance the need of the deceased/disabled owner to be bought out with cash as quickly as possible against the need of the remaining owner to continue to operate the business profitably.

We can help you sort out all of the complex issues associated with planning for business continuity following the death or disability of a business owner.

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