A More Convenient Death Listing for your Tangible Personal Property

NOTE: The supplemental document I discuss below is good for minor changes for lesser-valued tangible personal property. However, I would not use this separate document for tangible personal property with significant value or family sentiment. Instead, make any designations actually in your Will, or prepare a codicil, with the appropriate notary and two witnesses, etc. I see far too many seriously emotional disputes among family members fueled highly by fights over tangible personal property.

Now directly to the topic of this post. Georgia has a revised statute under O.C.G.A. Section 53-4-5 (effective January 1, 2021) that now allows a more convenient method of preparing a listing of your tangible personal property for your named beneficiaries at the time of your death. This statute applies only to tangible personal property; and not cash or intangible property. Tangible personal property is essentially your personal “stuff” that you can actually touch, such as jewelry, art, musical instruments, furniture, household items, clothing, automobiles, etc. Click here for Section 53-4-5.

Under Section 53-4-5 — after you have already signed your existing Last Will and Testament — you can prepare a separate, supplemental written document that describes the tangible personal property and the beneficiary who is to receive that item at your death. This document must: (i) be signed and dated by you (the testator); (ii) describe the items and the beneficiaries with reasonable certainty; and (iii) the option of using this separate document method must already be referenced in your Will. See the sample Will language below.

No notary or other witnesses are required under Section 53-4-5 for the above separate document. Although, the document I use refers to the option (but not a requirement) of including a notary signature. I recommend adding the notary so as to help reduce disputes over your signature, or that you were unduly influenced to sign the document, etc.

The required cross-reference to this method within your existing Will can be something along the line of the last sentence in the following sample provision:

4.2 This section 4.2 covers who at my death gets my tangible personal property,” defined generally as my personal items that are physically movable, such as automobiles, clothing, jewelry, watches, rings, art, household goods, furniture and furnishings, and other personal-use items generally similar to what I just described above that I own at my death.  I give all my tangible personal property outright to Jane, if she survives me, and if Jane does not survive me, [ . . . ] , or in accordance with any separate designation I make in writing subsequent to my execution of this Will with such separate writing referring specifically to this section 4.2 and to my date of execution of this Will.  

No-Contest Clauses; Still Only Slowly Evolving in Georgia

The Georgia court advance sheets recently included Slosberg v. Giller et al., No. S21G1226, Georgia Supreme Court (June 30, 2022) dealing with a no-contest clause in an irrevocable trust. The point of this blog post is that “no-contest clauses” in Georgia are still in a state of uncertain flux. Judicial opinions like this Slosberg case are part of the slow evolution of the body of law in Georgia for the design and use of these clauses.

In Slosberg a settlor created an irrevocable trust that, upon his death, left the bulk of the trust to his two daughters, and only a nominal amount to his son. The trust included a no-contest clause providing that any beneficiary who contested the validity of the trust would lose all benefits under the trust.

The son filed a lawsuit alleging his two sisters unduly influenced their father as to the creation and provisions of the trust document. After some head-spinning motion for summary judgment and jury trial activity in the trial court, a jury ultimately found undue influence existed with a result that the trial court ruled the trust was void.

But, the case then went up on appeal, and the Georgia Court of Appeals declared that the son nonetheless violated the no-contest clause by initiating the litigation, even though the jury found undue influence. See Giller v. Slosberg, 359 Ga. App. 867, 858 S.E.2d 747 (2021).

The Georgia Supreme Court reversed and held that a no-contest clause does not bar a beneficiary from asserting a claim for undue influence, referring to the longstanding Georgia common law rule that the valid formation of a trust may be challenged.

But, now here is the kicker. The Supreme Court went on to state that if an undue influence challenge fails, the challenging beneficiary is then deemed to have triggered against himself or herself the no-contest clause in the trust. A potentially quite costly Pyrrhic victory.

Here is my take. For years I have (and still do) complain that Georgia does not have a “probable cause” exception to filing challenges to a Will or trust that potentially might trigger a no-contest clause. See, for example, Duncan v. Rawls, 345 Ga. App. 345, 812 S.E.2d 647 (2018)(no good faith/probable cause exception exists under O.C.G.A. Section 53-12-22 [trust no-contest clauses]).

A probable cause exception could enable a claimant to challenge the validity of a trust document, but even if the challenger loses would not trigger the no-contest clause as long as the challenger had sufficient probable cause. There will remain a risk for a losing challenger; but a probable cause exception broadens the opportunity for potentially necessary challenges in some cases.

For example, a test case I wait for is a situation where a lawyer, or other close financial advisor with a confidential relationship to the settlor, himself or herself becomes a beneficiary in a trust, or in some other financially beneficial manner, etc., by potentially having unduly influenced the trust settlor.

Under current Georgia law without a probable cause exception, another beneficiary challenging the lawyer’s (or other advisor’s) potential undue influence may well be a risk the beneficiary simply cannot take. Or, more importantly, cannot afford to lose.

By contrast, if Georgia did have a probable cause exception, I would argue that any lawyer, or other advisor, who has placed himself or herself in a financially beneficial position within a client’s trust document — on its face — provides probable cause reasonably warranting a protected no-contest clause challenge.

Email me and I can send you copies of both this Slosberg opinion, and the Duncan opinion. james@ktlawllc.com

CPE / CLE in Seattle. October 24-25, 2022. Join Us.

As part of my shift away from litigation and return predominantly to trust and estate planning, I will be speaking at the 67th Annual Seattle Estate Planning Seminar, October 24-25, 2022 (Seattle, WA). Click here. My topic is “Will Your SLAT Fit the Right Slots?“. Come join us. The seminar blurb for my presentation is:

“The trust planning interest in SLATs (spousal lifetime access trusts) has become exponential over the past several months. Cocktail party fodder. Almost an effortless sell. This presentation touches on certain SLAT checklist items and potential pitfalls that may otherwise get overlooked in the SLAT design, such as the effect of divorce, substantive postnuptial agreement issues, creditor claims, the relation-back doctrine, long-arm litigation (jurisdiction) statutes, potential Code Section 2036 issues, cash-flow needs, and a brief commentary on fundamental differences with an inter-vivos QTIP trust.”

Adult Adoption. Expand Your Inheritance Grab?

The gist of this blog post is to make sure you know what “adoption” provisions exist in your estate planning documents. The recent Georgia testamentary trust case I discuss below goes directly to adoption, and provides fodder for some possible augmented, creative estate planning by use of adult adoption. I am not judging below whether such planning is good, bad, or appropriate; but, rather note there exist many creative minds in the field of estate planning.

The recent Georgia Court of Appeals opinion is Morse v. Suntrust Bank, N.A., No. A22A0200, 2022 Ga. App. LEXIS 242 (Ct. App. May 16, 2022). This opinion raises an important question about estate planning and adoption. In this instance, adoption of an adult.

Let me preface my comments with the point that I am in favor of the inclusion of adopted individuals in estate planning documents, subject to final decision by each client. I typically under the express language of the estate planning document (Will, trust, etc.) include a limitation that adopted persons must be adopted prior to the age of majority (e.g., 18).

In this Morse opinion the appeals court had to address a multi-generational family trust (a 1967 testamentary trust under a Will) that included equal subtrusts for each of 13 grandchildren named in the trust document. The trust included language also that the number of grandchildren would increase for any grandchildren “born to me, whether during my lifetime or after may death . . .”, with the number of grandchildren trusts to increase accordingly.

The trust also provided that if a grandchild dies without descendants, his or her share is divided and added equally to the other remaining trusts. The 1967 Will included no express exclusion of adult adoptees.

Here is the kicker:

One of the 13 named grandchildren (“Molly”) never had biological children. But, in 2018 Molly adopted two adults, ages 34 and 36. The trial court record included an acknowledgment by Molly that she adopted the two adults, in part, so that they could receive distributions from her trust share. The other trust beneficiaries objected to Molly’s inclusion of the two adopted adults as beneficiaries of her trust share under a judicial theory of “subterfuge”. This is a legal doctrine involving committing fraud on a court by doing something the law allows, but creating a circumstance the law otherwise seeks to avoid (or should seek to avoid). The trial court agreed with the opposing beneficiaries on this theory of subterfuge.

However, the Court of Appeals reversed the trial court, and rejected the subterfuge argument. The appeals court concluded the trust document placed no limitation on an adult adoption, neither did the applicable Georgia adult adoption statute include language contrary to Molly’s inclusion of the two adopted adults so as to make them beneficiaries of her trust share.

[This Morse case, dealing with a 1967 trust, involved the Georgia adoption statute that existed prior to the current version enacted in 1990. In my view, the pre-1990 and 1990 statutes are sufficiently similar so that the rational expressed by the appeals court in Morse would arguably apply to a trust or Will created 1990 and thereafter.]

So, again bottom line, see what your documents state about adoption, or if silent in reference to adoption. Also, review what language is in your document for a beneficiary’s limited power of appointment, such as a class of appointees “related” to the beneficiary by adoption or birth, etc. Creativity, especially in trust and estate litigation, is abundant. And, most often costly.

Email me and I will be glad to send you a pdf copy of the above Morse opinion, and the current Georgia adult adoption statute. james@ktlawllc.com

A Common, Explosive Estate Planning Landmine; the “Pretermitted Spouse”

Assume Dad remarries new-wife Jane after Mom’s (Susan) death. Dad does not update his 20-year old Will. And, assume Dad’s 20-year old Will still includes Mom as the primary beneficiary, with their children as the secondary beneficiaries in the event Mom predeceases Dad (which she did). This Will — on the surface — looks normal, without problem.

But, with this 20-year old Will there can be a substantial, unintended result. That is, in Georgia (with a variation of results in other states), at Dad’s death while married now to new spouse Jane, Dad’s remarriage to Jane does not operate to revoke entirely his 20-year old Will; but Dad’s Will will be deemed revoked to the extent necessary to give Jane an intestate share of Dad’s estate as though — only as to Jane — Dad died without a Will. Jane, in this example, is under the law referred to as a “pretermitted spouse”. The intestate share varies by state law; in Georgia a surviving spouse stands to receive no less than one-third (1/3) of the estate.

An exception to the above result arises if Dad’s 20-year old Will expressly contemplates a subsequent marriage, such as stating “In the event of my remarriage, all of the provisions of my Will shall remain fully effective with no provisions or benefits from my estate for any such subsequent spouse”, or language along this line. Note, Georgia case law provides that this contemplation of marriage provision in a Will does not have to contemplate or name a specific potential future spouse. It can be a general, unnamed contemplation provision.

This landmine caution is that I believe this remarriage surprise exists within many families where spouses have remarried, and either never updated their Wills for the new marriage or have Wills that in no manner address subsequent marriage. Or, are simply not aware of this issue.

A simple cure, in my opinion, is to include a contemplation of marriage provision in every married-couple’s Will, and then discuss during the drafting stage whether in specific cases the spouses prefer to exclude the contemplation language.

Sample language in the Will can be along the lines of this example:

“4.3   Contemplation of Remarriage. Although neither Susan nor I in any manner presently contemplate the occurrence of a divorce from one another or a remarriage to another spouse, if for any reason for purposes of this Will following my execution of this Will I enter into marriage with anyone else (other than Susan), my express and clear intention is that any such other spouse shall not receive any property from my estate nor under the provisions of this Will, with the result that all provisions in my Last Will and Testament shall remain fully in effect and unchanged by reason of my remarriage.”

You can google the Georgia pretermitted spouse statute O.C.G.A. Section 53-4-48. My above discussion is also for general purposes. Each client’s particular situation, and the applicable state law, need to be considered before including or excluding any such preventive provisions.

For 2022 I am Adding Simpler Estate Planning to My Law Practice

This blog post is to inform my readers that, beginning this year 2022, I am reducing substantially my trust and estate litigation practice. I am returning to a greater concentration on trust and estate planning, including flat-fee options for less costly, more-basic estate plans for certain clients who do not need the most complex planning available, and its inevitable higher fees. I will still handle complex planning, particularly for trusts, but will recommend simpler estate plans when appropriate.

Below are some observations that touch on my decision to return more fully to the above planning:

One. I admit I enjoy litigation, almost too much. [Ask my wife.] I love the aggressive warfare, complexity, strategy, the uncertainty, and the Sun Tzu “The Art of War” psychological aspects of the challenge. I thoroughly enjoy fighting opposing lawyers. But, after the past 15-years of intense litigation, I would like to see what life is like (both at the office and at home) without the effects on me of this constant warfare (and how the absence of this persistent aggression might play into a novel, interesting chapter both in my personal and professional life). I realize also I am simply not capable of handling litigation without my enjoyment of a heavy expenditure of aggression.

Two. Now that I have a few years (5 years) experience as a smaller-firm lawyer, it finally dawned on me that my previous 20+ years in the large law firm environment, at least for me, fueled a kind of intellectual pride that prevented me from being open to the notion of recommending simpler planning for clients, at least as an option. In a large firm setting, lawyers are understandably very proud of the elevated status and scope of their legal knowledge, and a large firm gives them an excellent platform in which to implement the most complex planning available, with the concomitant collection of larger fees. Simplicity does not invite accolades within a large law firm, and can be perceived as signalling laziness or lack of intellectual sophistication, etc. In other words, for many years for my estate planning work I had a great deal of pride in being able to demonstrate to my clients and my law partners the depth and complexity of my legal knowledge. This complex approach worked very well for the right kind of clients; but, not all clients need this vast level of unbridled complexity.

Three. The most important observation, however, is that it is the depth and complexity of a lawyer’s knowledge that can, or should, enable the lawyer to recommend simpler options, if simpler options are suitable for a particular client. A simpler option, in certain instances, may well be in the best interest of the client, but not in the best pecuniary interest of the lawyer. I also have said for years that an estate plan in which I am able to throw in every conceivable, complex feature and option is, in my experience, easier work than having to exercise judgment for designing and implementing a simpler plan. A simpler plan, ideally, requires that a lawyer be very well versed with the most complex planning so as to exercise good judgment as to when, and how, simpler options are suitable for a client.

Four. I will continue to keep up with all the latest estate and trust developments, including my yearly CLE attendance at the highly-informative University of Miami Law School “Heckerling Institute on Estate Planning”, so as to stay fully in the loop with the latest, complex planning options.

My 1.12.22 Steve Leimberg Newsletter: Two 2022 Pluses for Inter-Vivos QTIP Trusts Compared to SLATs

I continue to believe the inter-vivos QTIP marital trust is one of the best options for tax / asset protection trust planning, especially during 2022 in view of the unsettled uncertainty about Congress reducing the estate / gift exemption. Click here for my 1.12.22 Leimberg newsletter. You are welcome to print, pdf, and forward this newsletter to anyone else. Please also contact me at james@ktlawllc.com if you have any thoughts or questions about this QTIP trust planning.

POSTSCRIPT re Colin Kaepernick Netflix Series 1.10.22

Postscript re the Netflix series “Colin in Black & White”: Kaepernick’s compelling statement below in this series (he was given up for adoption only days old) is a perfect example of why we each need to see the humanity in everyone, regardless of their political views, race, religion, etc. What is the pain within their unique lifetime that may have propelled them along a trajectory that someone later judges as unacceptable or wrong? Every single person, even the lowest of thugs and criminals, is seeking a level,of bliss in their lives. Sometimes their pain and hurdles end up too heavily stacked against them, and is blinding. This also is where we need to PRACTICE trying to be more compassionate. BTW, Kaepernick speaks to this point from a perspective of adaptive strength; not simply rudderless whining. The photo and caption below are from the Netflix series

The Colin Kaepernick Netflix Series. Excellent. Excellent. (for the reasons below)

This is not a political commentary on whether one agrees or disagrees with Colin Kaepernick’s response to the NFL debacle (although I am not a critic of Kaepernick). I am watching his Netflix series and find it phenomenal for the following broader reasons. It is titled “Colin in Black and White”. Click here for the link. Click here also for my earlier 2017 blog post in which I referred to Colin Kaepernick.

My point is that this Netflix series conveys very powerfully the question every individual faces in life (and in work). That is, how independent is one going to be versus how much will he or she follow what others want (or direct) them to do. This is, in my view, the most important question one must contemplate in life, and it is a contemplation that warrants repeated revisiting depending on the person’s evolving stage in life, considerations of the upside and downside of these decisions, temperament, consequences, etc.

My point also is not to indulge the reader with what my own long-winded views are in this regard. It is not my view that is important; but, rather how this universal question sits and is addressed by each individual. I will say generally that I am not one who has readily during my entire lifetime followed or acquiesced to the dictates and preferences of others. I certainly consider their suggestions, responses, etc., with an open mind. But, I then have relied fully on my own decisions. Some have backfired, no doubt. There are others who relish the idea of going-along-to-get-along. I do not fault these others; but simply realize that approach is not in my makeup.

Back to the Netflix series. I highly recommend everyone watch it regardless of any narrower focus on the Kaepernick-NFL situation. In my view, this series demonstrates the nuance and persistent nature of the above broader question that we all face throughout the entirety of our lives.

It is very easy (I assume) in life merely to do what others desire or impose. But, my guess is most people do not sleep well under such conditions. Even those decisions that backfired for me provide me with quality sleep resting on the notion that I followed my path, and with an enjoyable spirit, take full responsibility for that path. This ownership of our own pathway is, in my view, the broader reward and the essence of what Kaepernick conveys in the Netflix series. Finally, I will say that Colin Kaepernick in this series displays a level of courage to himself and his values that I believe warrants great respect and acknowledgment.

A Novel SECURE Design for a Tax-Deferred Retirement Accounts “Conduit” Trust

This post addresses a novel written irrevocable trust planning option under the current SECURE Act (effective beginning December 20, 2019). The SECURE Act eliminated the prior-law longer pay-out stretch option and, in general terms, allows only a 10-year payout period for non-spouse beneficiaries who inherit a retirement account from a deceased primary owner. [There are some other limited exceptions that allow a longer payout than this 10-year period that I do not address for purposes of this post.]

This planning centers on both Roth and non-Roth income tax-deferred retirement accounts, such as, but not limited to, corporate or self-employed (“Keogh”) pension, profit-sharing, defined-benefit, and stock bonus plans, SEPs, 403(b) plans, IRA and Roth IRA plans, 401(k) and Roth 401(k) plans, 457 plans. This trust design can work collectively for both Roth and non-Roth accounts.

An Example: You have decent sized non-Roth and Roth IRAs. You presently have four children, all different ages. The SECURE Act tax-law limitations generally now eliminate — after your death — the longer life-expectancy payout periods for beneficiaries for these retirement accounts; now limited in most cases to a 10-year maximum payout period. What is an effective planning option for your retirement accounts in this situation? For purposes of this blog post, I use both a Roth IRA and non-Roth IRA as examples.

For both these Roth and non-Roth IRA accounts, I recently designed a written tax-deferred retirement accounts trust that is a good SECURE option. [NOTE: this blog post is not a primer with fundamentals on how to set-up and use a trust for retirement accounts. It merely highlights key points to consider for this recent new trust design.]

The essence of this retirement account trust design is that:

(1) The trust agreement is a sprinkle trust that allows the trustee to make trust beneficiary distributions of periodic retirement account withdrawals to and among the named class of beneficiaries, depending on their needs, own marginal income tax rates, etc., in equal, unequal, or in no amount as to the class members;

(2) This is a key design point: The trust agreement must be drafted purposely so as to avoid each trust beneficiary from having substantially separate and independent trust shares. The reason is to enable trust distributions to carry out DNI only to those beneficiaries who, in a given year, actually receive distributions from the trust. Otherwise, for example, separate and independent shares can result in one beneficiary ending up with a trust distribution in excess of the trust’s total DNI, causing the trust to be taxed on such income at the trust’s substantially higher compressed marginal income tax rates. By contrast, the goal is for the trustee to sprinkle distributions from the trust to and among the class of trust beneficiaries depending on their needs, their own marginal income tax rates, etc.

As a relevant aside, creating separate and independent trust shares for retirement accounts trusts — now and prior to SECURE — requires that the retirement account beneficiary designation itself refer to separate trusts; e.g., 1/3 of my IRA at my death is payable to the Jane Doe Trust; 1/3 to the Susan Doe Trust; and 1/3 to the Sam Doe Trust, etc. My point here is that it is not easy under my proposed SECURE trust planning simply to fall inadvertently into an independent and separate share regime for this kind of retirement trust planning (see, e.g., IRS Private Letter Ruling 200317041). But, nonetheless, one optimally needs to understand these concepts in order to avoid a separate trust share situation for this SECURE trust design.

(3) In broad terms this SECURE retirement trust will be named as the retirement account beneficiary; and treated as a pass-through “conduit” trust. This means, again generally, that any periodic retirement account withdrawal the trustee obtains from a retirement account must — within that same taxable year — be sprinkled on out from the trust to and among one or more of the trust beneficiaries;

(4) One important point ideally is that this trust should not be used to accumulate withdrawals from non-Roth retirement accounts. Otherwise, a trust’s withdrawal from a non-Roth retirement account, if the trust thereafter holds and accumulates that withdrawal within the trust itself without distribution to a trust beneficiary, will cause the trust to be liable for income tax on that withdrawn amount at the trust’s own substantially higher, compressed income tax rates; than if taxed to a trust beneficiary at his or her lower marginal income tax rates.

As to the above income tax, generally a trust’s receipt of income is not taxable to the trust itself in situations where (under the tax law) that trust income is shifted out to a trust beneficiary by a distribution of that trust income as a trust distribution out to a recipient beneficiary. For 2021, a trust that pays its own income tax (when the trust itself holds undistributed taxable income) hits the top 37% marginal income tax rate beginning at $13,050 of trust taxable income; for a single individual, this 37% marginal rate kicks in when that individual’s taxable income is more than $523,600.

(5) But, contrary to the preceding point, note the following Roth account exception is important for this SECURE trust design: As stated above, the trust is a “conduit” trust for non-Roth tax-deferred retirement accounts. However, the trust also includes an express exception clause that allows the trustee to accumulate (thus disregard the conduit mandate) for any Roth account distributions the trustee receives. The trustee can accumulate and invest these Roth distributions for later distribution to the trust beneficiaries, well outside the 10-year SECURE distribution period;

(6) Back to broader comments. This SECURE trust design must still meet the requirement that all beneficiaries are qualified beneficiaries so as to avoid application of the five (5) year payout no-beneficiary distribution rule, rather than the 10-year rule;

(7) As to any mandated conduit distributions from the trustee to the beneficiaries, this trust design provides additional flexibility for the trustee to deal with minor-age or disabled trust beneficiaries, etc., using the following (or similar) trust provision:

“The Trustee may (without court approval) make distributions of any portion of a distribution required or permitted to be made to any person under this trust agreement in any of the following ways:  (i) to the person directly; (ii) by distribution in further trust in the manner provided under section 20.1; (iii) to the guardian of the person or the person’s property; (iv) as to such distribution by selecting and designating an individual or financial institution to serve as Custodian for such minor beneficiary under the Uniform Transfers/Gifts to Minors Act of any state; or (v) by reimbursing the individual who is actually taking care of such person (even though the individual is not the legal guardian) for expenditures made by the individual for the benefit of such person. Written receipts from the persons receiving such distributions (other than if held in continuing trust under section 20.1) shall fully and completely discharge the Trustee from any further responsibility for such expenditures. The Trustee shall not exercise any power under this section 17.7 in a manner that would cause any trust holding S corporation stock not to qualify as a permitted shareholder of that stock for federal income tax purposes.”; and

(8) Finally, under the SECURE Act’s 10-year distribution mandate, the trustee has the option to make no withdrawals from the retirement accounts until late in the 10th-year so as to let those accounts continue to be invested income-tax deferred within the retirement accounts until later withdrawn. In essence, this substantively allows for an accumulation of tax-deferred value continuing within the retirement accounts during the 10-year period, although this SECURE trust is ostensibly a conduit trust during that same 10-year period.