October 19, 2015
Q&A

Dying in CT gets more costly

Q&A talks about changes to Connecticut probate court fees with Dane Dudley, a law partner with Day Pitney in Hartford.

Q: Paul J. Knierim, Connecticut's probate court administrator, recently said funding for the state's probate courts has changed dramatically for the worst. What happened?

A: The new probate court fee schedule for estate settlement applies to people who died on or after Jan. 1, 2015. Basically, it now costs more if you die as a resident of Connecticut, or are an owner of real property in the state.

The most significant change to the fees is that there is no longer a cap on how much an estate must pay. Prior to the change the fee was capped at $12,500. Now, for example, an estate of $10 million (assuming no surviving spouse) would pay about $45,000.

The probate fee also increased from 0.25 percent to 0.5 percent on estates worth more than $2 million. It is my understanding that the 0.5 percent probate fee, which is assessed on the overall value of the estate, is the highest probate fee in the country.

Q: What's wrong with funding the courts from user fees? What's the issue with no cap?

A: The problem with this funding approach is that the fee being charged to an estate may have little if any correlation with the services being provided by the court. A perfect example of this is someone who has arranged their assets so that the assets pass completely outside of the probate system at death (everything is jointly owned with someone else, is owned by a revocable trust, passes by beneficiary designation, etc.). In that case, the probate court may have no role in the administration of the deceased person's estate, and yet a fee will be charged.

The fee also does not take into account whether any portion of an estate is passing to charity. The funding is relying completely on an adequate number of people dying in a particular year with a certain level of assets.

As far as having no cap on the fee, the concern is that the fee is based on the size of the estate, not on the amount of work that has to get done in the probate court. This fee structure looks more like a tax and we already have an estate tax in Connecticut.

Q: Probate courts handle many social service needs. What mechanisms could be used to fund those, or should their support continue to be a state function?

A: In my view the probate court system is vital. Having practiced in two other states, I also think the system in Connecticut is very user friendly and does a great job of meeting the needs of those who need to use it.

Keep in mind that the probate courts handle essential services other than the administration of decedents' estates, such as services for children, the elderly and individuals with mental illness. These sorts of social services should be paid for from the state's general fund. This current fee structure places the burden of funding all of these services on decedents' estates. That is not fair.

Q. What are the ramifications of this new fee structure? Knierim says there is a possibility of estates being driven away from the probate court system. How is this possible? Can large estates be settled outside of probate?

A. Clients often talk about moving to a different jurisdiction to avoid a state-level estate tax like the one we have here in Connecticut. As I stated earlier, the new probate court fee looks very much like an additional tax and, with no cap, is yet another economic incentive to move elsewhere. Yes, anyone can structure their estate to avoid needing the probate court but based on how the current fee is structured, I don't see how a person dying as a resident of Connecticut or who owns Connecticut real estate can avoid paying the fee.

Q: What strategies can wealthier people use to reduce the new fees' impact on their estates?

A: Besides moving away and not owning real estate in Connecticut, they can use lifetime giving strategies to reduce the size of their estates so when the time comes there are fewer assets on which to impose the fee.

If they reside outside of Connecticut, they may also choose to rent real property instead of owning it.

Q: With regards to their estates, what are some mistakes business owners make in terms of succession plans? What are some common errors that could be avoided with proper planning?

A: One mistake is a lack of objectivity and business mindedness when it comes to succession planning. Unfortunately, many business owners let emotions get in the way of sound business practices. For example, many owners think that the business will simply pass down from generation to generation. In fact, most family businesses don't make it past the first generation.

Another mistake is that business owners wait too long to start the succession planning process. It is essential to have a plan for next steps now even if those steps end up changing over time.

Finally, businesses fail to seek the best advice from those who can really provide it. Too many times we see clients who feel a loyalty to a long-time friend or advisor who really is not equipped to deal with current or future business planning issues.

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