TRUST & ESTATE PLANNING

Connecticut Modernizes Its Trust Laws

06.11.2020 - Jennifer McCarthy

In an effort to attract residents and non-residents looking to preserve family wealth and minimize taxes, states across the country are improving their trust laws. In most cases, this means adopting key features of the Uniform Trust Code; including provisions for directed trusts, dynasty trusts, asset protection trusts and other options that could open up new planning opportunities for you and your family.

Connecticut Joins the Movement

The most recent example of this migration to modern trust law can be seen in Connecticut, which recently joined 34 other states and the District of Columbia in adopting a modified version of the Uniform Trust Code. Connecticut’s “Act Concerning the Adoption of The Connecticut Uniform Trust Code” went into effect on January 1.

At the same time, Connecticut also raised the exemption amount on its gift and estate tax to $5.1 million, up from $3.6 million in 2019. Connecticut remains the only state to impose a gift tax.

States with Some Version of the Uniform Trust Code

Alabama

Kentucky

Nebraska

South Carolina

Arizona

Maine

New Hampshire

Tennessee

Arkansas

Maryland

New Jersey

Utah

Colorado

Massachusetts

New Mexico

Vermont

Connecticut

Michigan

North Carolina

Virginia

District of Columbia

Minnesota

North Dakota

West Virginia

Florida

Mississippi

Ohio

Wisconsin

Illinois

Missouri

Oregon

Wyoming

Kansas

Montana

Pennsylvania

 

Directed Trusts for Complex Estates

In general, more states are embracing directed trusts because they address the increasingly complex needs of individuals and families. Directed trusts offer the ability to assign different trust responsibilities to individuals or trust companies with expertise in a specific area of trust management.

Here’s how directed trusts work under Connecticut’s new trust laws.

The creator of the trust grants certain powers to a non-trustee called the trust’s director. The trust director is considered a fiduciary and is subject to the same legal liabilities and duties as a trustee in a similar position but has the freedom to assign specific responsibilities to other “directed trustees” with special skills. For example, a trust director might assign investing responsibilities to a portfolio manager, delegate distribution decisions to a family attorney, and hire a corporate trustee (such as a trust company) to handle the administration of the trust.

Directed trusts can be especially helpful if you own assets that are unique or require expertise to manage, such as a closely held business, because they allow you to isolate the responsibilities related to those assets from the trustee handling the administration of the trust. Although directed trustees are required to comply with the director’s instructions, they are not held liable for following those directions unless they result from the directed trustee’s own willful misconduct.

Asset Protection Trusts for Creditor Claims

The new legislation also makes Connecticut one of 17 states to authorize the use of domestic asset protection trusts. The new law allows you to create an irrevocable trust, retain certain rights and powers, and protect your assets from creditor claims under certain circumstances.

As the creator of a domestic asset protection trust in Connecticut, you may have the right to:

  • Receive income from the trust.
  • Receive income and principal from a charitable remainder trust, as mandated.
  • Use any real property held in a qualified personal residence trust.
  • Receive annual distributions up to 5% of the trust’s value.
  • Veto the trustee’s distribution decisions.
  • Remove or appoint a trustee or director.
  • Serve as an investment director or advisor.

Connecticut’s new trust laws do not protect against pre-existing claims, claims of fraud and fraudulent conveyance, breach of an agreement, a court order concerning child support or alimony; or claims of causing property damage, personal injuries, or death.

Dynasty Trusts for Future Generations

Dynasty trusts allow you to pass down family wealth to multiple generations, free of estate tax and generation-skipping transfer (GST) tax, according to the terms you set forth in your trust document.

In Connecticut, the maximum allowable lifespan of a trust has been increased from 90 years to 800 years, opening new opportunities for Connecticut residents to create multi-generational dynasty trusts in their home state.

Finding the Best State for Your Trust

Directed trusts, asset protection trusts, and dynasty trusts are all complex trust structures that require careful consideration. While Connecticut’s new law opens up the possibility of creating these trusts in Connecticut, it is always important to consider the benefits you are trying to capture and evaluate the options to best achieve those benefits through the range of jurisdictions and different trust laws available.

Fiduciary Trust offers trust services to clients in all 50 states and the District of Columbia, with offices in California, Delaware, Florida, Massachusetts, New York and Pennsylvania. Your Fiduciary Trust representative can help you evaluate your options and review your current estate plan to determine whether any planning opportunities exist in light of the recent changes to trust law.




This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact regarding any market, industry, sector or security. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

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