I published a very good primer on directed trusts last week for Leimberg Information Services. Click here for a copy of the primer. You are welcome to reprint or email this pdf primer for other readers. For many of you I believe my discussion about using a directed trustee for investment management is important, and can greatly help prevent Madoff scams. Please contact me if you have any questions: firstname.lastname@example.org
This is my second blog post dealing with the increasing Brave New World of “digital assets” and how these assets fit with a person’s estate planning. Below are a few of my brief comments about cryptocurrency:
(1) In the cryptocurrency world, a person’s “private key” is the crucial element separating access to one’s cryptocurrency and its loss (likely permanent). The private key is analogous to a password. My strong point here is to keep a backup of your private key, and let trusted family members know where they can find your private key in the event you are unable to provide it (your death, disability, etc.). There are hundreds of web references to individuals having permanently lost millions of dollars in cryptocurrency due to lost private keys. Click here for an example from Wired magazine referring to a CEO who recently died; and no one can find his private key to an estimated $137 million in cryptocurrency;
(2) The above access / backup problem is particularly elusive, and difficult, as many cryptocurrency users are extremely private about this subject, often to the intentional exclusion of their family members, etc.;
(3) As a related aside, the IRS, no doubt, is interested in your cryptocurrency. IRS Notice 2014-21 is its first published guidance in the form of answers to frequently asked questions. Click here to read this notice;
(4) The above IRS Notice includes a great deal of information. Two points likely a surprise to most readers are: (i) the IRS is treating cryptocurrency transactions for income tax purposes as a “sale or exchange”. For example, if you use $50,000 of cryptocurrency to purchase an item; you will trigger gain or loss on the $50,000 depending on your cost basis in your cryptocurrency, etc. I purposely do not include more detail about this gain / loss treatment for this post; and (ii) Notice 2014-21 expressly states the IRS will treat cryptocurrency as property, not as currency. For estate tax planning purposes, this means cryptocurrency will be inludable in the owner’s estate at death, with a stepped-up (or stepped-down) cost basis based on the cryptocurrency FMV at the person’s death;
(5) Finally, I strongly recommend an express provision dealing with crypocurrency be included in a person’s estate planning documents (trustee, executor, power of attorney powers, etc.). Below is my current draft of possible language for dealing with cryptocurreny (again, this is merely my example language for this post; no reader may rely on this provision as legal or any other advice from me or my law firm):
“To handle on my behalf any of my digital asset “cryptocurrency“, defined for purposes of this DPOA [durable power of attorney] as digital assets that are exchanged electronically and based on a decentralized network or exchange, with such exchanges not requiring a reliable intermediary and managed using distributed ledger technology. In broad terms I give my agent under this DPOA the power to accept or pay on my behalf any cryptocurrency, digital asset currency, funds, or other value that substitutes for currency from one person to another person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. The above term “other value that substitutes for currency” encompasses situations in which the transmission does not involve the payment or receipt of cryptocurrency, but does include, but is not limited to, my private and public keys, blockchain and ledger information, bitcoins, bitcoin addresses, and any other cryptocurrency user or account data or information related to such transactions or to any convertible currency related thereto on my behalf. My intent also is that my reference to “cryptocurrency” under this paragraph be read together as broadly as possible in the broad context of my reference to electronic communications content and the definition of “digital assets” under O.C.G.A. Section 53-13-2 (as amended) included in paragraph (gg) below;”
The title of this blog post is purposely a teaser, hopefully getting you to take a moment to read it. But, on a serious note, this title goes to a theme I believe we all should follow; a theme I also express consistently to my daughters to help them chart their way in life more successfully, more powerfully, with greater happiness, and with fewer hurdles and stumbling blocks created by others.
I express these same points often to clients as a preventive recommendation in an effort to help them avoid problems and issues (legal and non-legal) that otherwise occur from merely responding to life with a “go along to get along” attitude. I also refer further below to a related book I just finished yesterday about the Vietnam war: “The Things They Carried” (1990), by Tim O-Brien.
The key point is that we all should not simply, and without question, accept 80 percent of what anyone tells us. Yes, from anyone. My reasoning is not that others are necessarily dishonest or purposely trying to mislead us with misinformation. But, rather, that we all communicate with inevitable limited information, bias, partiality, dogma, etc. We most often communicate only within the limited sphere of our own experience. This is normal. We also shade our communications frequently in a way to try and trigger a certain feeling in the listener (or reader). It is extremely difficult, and ineffective, to communicate only with unbiased, objective, neutral facts. This might sound possible in theory, but, in my view, it is fundamentally unrealistic.
Therefore, resting on the notion that there can be no (or very little) unbiased, objectively neutral discourse, we should discount most of what we hear from others, until we thereafter run it through our own framework. In other words, stop and view the information through your own perspective before simply accepting the information someone else places before you. You will be much happier in life, and (because this is a legal blog) likely end up with fewer unintended, or blindsided, problems that require you to seek costly legal counsel.
Now, my last point. Feelings? Seriously? Why do I refer to our wanting to convey a certain feeling to others in the context of our communications? What I am trying to say is that our communications are much more effective if we can trigger a desired feeling in the context of what we are trying to communicate. Whether we are consciously aware of it, we are bombarded every day with communications, arguments, platitudes, dogma, advertising, all designed to influence how we feel about the information.
This idea of purposely triggering feelings really jumped out to me in the book The Things They Carried, by Tim O’Brien. Click here for more info about this book. It is about O’Brien’s late-1960s infantry stint in Vietnam. It is one of the most powerful Vietnam books I have ever read. O’Brien discusses along the way in this book how he purposely augments and fictionally shades certain of his war stories in order best to convey the feeling he trying to express to the reader.
In other words, without O’Brien augmenting his war stories with these shadings, a reader might become aware only of the objective, factual nature of the war event, but will not feel the experience. I have never prior to reading The Things They Carried had anyone better than O’Brien express this “feeling” distinction about the art of writing. I also have never felt a war experience from any book more powerfully than from The Things They Carried. I highly recommend this book for anyone who is interested in further refining the art of writing, or who simply wants to envision and feel what it was like to have fought in the Vietnam war.
Finally, and as to my legal work, I am not suggesting we shade or fictionalize facts when we are required to present those facts ethically, truthfully, and honestly. But, we need to be aware (and be on alert) that even a recitation of ostensibly truthful facts can be presented in a manner (with inflection, rhythm, adjectives, related metaphors, etc.) substantially coloring how one might feel or react to those facts.
For most of us our lives are deeply tied to digital content and access, both in our work and leisure. My law practice is virtually paperless, and has been for the past few years. In another progressive move, the Georgia legislature during 2018 enacted the “Revised Uniform Fiduciary Access to Digital Assets Act”. This is under O.C.G.A. Section 53-13-1 et seq. In short, these laws set forth the authority, manner, and powers that enable your agent to act on your behalf as to your digital assets. An agent is a guardian, conservator, trustee, executor, etc. In other words, if I were to drop dead today, what happens to my digital world, and who will have the ability to pick up the pieces?
The purpose of this blog post is not to provide an extensive discussion of Georgia’s new digital assets law. Others have already prepared numerous, excellent posts and articles. Click here for a comprehensive Fall 2018 Georgia State University Law Review article on this subject.
The point of my blog post is to share the following provision that I designed for inclusion in a revocable living trust in response to this new law. This trust language might be helpful to readers as a real world example of how this digital assets factor might fit with one’s estate planning. I also invite readers to give me their comments about this illustrative provision. The topic of “digital assets” is exponentially changing and expanding all across the country (and world) as well as in the courts. In my view, there is not yet clear-cut, consensus on the optimal way to address this new-world topic. My approach, therefore, is to provide a provision that is as broad as desired, and flexible, to take into account these continuing, exponential changes in our digital world.
I also realize fully that one might possibly, and simply, cross-reference the above new Georgia statutes in a trust or other document without the need also for including more-expanded digital assets language in the document beyond the mere cross-reference. But, until (and if) all states eventually enact these uniform digital assets laws, I am not comfortable merely adding a statutory cross-reference in the document, without more; especially if the document may later need to operate in jurisdictions other than Georgia.
Below is my revocable trust document provision (which I have to disclose to readers cannot be relied on by readers of this blog post as legal advice from me for any reader’s own situation). I provide this provision only as food for thought:
6.2 This section defines my “electronic communications content“ with my intent that this definition be construed as broadly at my death as possible to take into account my digital assets and electronic communications content as defined herein and in O.C.G.A. Section 53-13-2 (as amended), as well as changes in the digital and electronic-communications technology that will continue to occur after the date of my execution of this trust agreement; provided, however, that any direction at the time of my death as to my digital assets and electronic communications content that I have implemented using an online-tool (as to such digital assets and electronic communications) shall override any contrary provisions under this trust agreement. Except as may limited by my online-tool designation otherwise, my electronic communications content under this section 6.2 includes the digital content as to any computer software, account or digital app that I access on a computer where such digital information is stored on my computer or on the digital web, or for which I have user-name / password access, including, but not limited to, any of my accounts, webpages, URLs, and domain names (as examples: account login information and passwords, account profiles, photos, posts, passwords, crypto currency blockchain network, wallet, and key data, emails, texts (including phone texts), financial account information, email account information, blogs, bulletin boards, Facebook, iTunes, Instagram, Snapchat, all other social networks, and to obtain any administrative or user-profile information pertaining to any of the above accounts (digital or hard copies, or otherwise), summaries, data files, statements, photos, videos, audio files, texts, e-mails and attachments to such e-mails, within these accounts). More broadly, my digital content also includes all digital files stored on my digital devices, including but not limited to, desktop computers, laptops, tablets, peripherals, storage devices, mobile telephones, smartphones, password apps and any similar digital device that currently exist or may exist following my execution of this trust agreement, my emails that I send and receive, email accounts, digital music, digital photographs, digital videos, software licenses, social network accounts, file-sharing accounts, financial accounts, domain registrations, DNS service accounts, web hosting accounts, tax preparation service accounts and data, online stores, affiliate programs, other online accounts, and similar digital items that currently exist or may exist, or such other comparable items that come into existence as technology develops, regardless of whether I own the physical device on which the digital item or data is stored; provided, however, my digital assets and electronic communications content shall not include any underlying assets or liabilities referenced by, or accessible with, such digital content unless the asset or liability exists exclusively and solely in digital form only as a digital electronic record, such as, but not limited to, crypto currency, photos, audio files, videos, music playlists, emails, iTunes content, Kindle reading and audio files, etc.
6.3 As to my electronic communications content, in order to facilitate the Trustee’s administration of this trust agreement, including after my death the administration of my estate, I give both my Trustee and my duly-appointed executor access to my electronic communications content as may be reasonably necessary from time to time for the administration of this trust agreement and my estate.
6.4 Following my death, and after taking into account the preceding provisions of this trust agreement, the remaining property under this trust agreement (including any distributable interests in my electronic communications content) is for purposes of the following trust provisions referred to as my “Trust Remainder“.
Note that I designed the above provisions so that any digital content that is an asset or liability (see above definition on this point) becomes part of the trust remainder to be distributed by the trustee under the following provisions of the trust document. Typically, I am more comfortable having the trustee designated for handling these items rather than making a specific bequest of any such digital assets or liabilities to an individual beneficiary.
Ponder also, for instance, if a person, to others’ great surprise, dies with $10 million of crypto currency. Where does that unanticipated digital asset fit with the estate planning? Under my trust remainder language above, this crypto currency would be available, for example, for a QTIP marital deduction trust under the terms of the revocable trust, etc., to be addressed and held in the hands of the trustee with greater oversight, flexibility, and so forth.
I am working with a lawyer who grew up, and lives, in California, virtually her entire life in LA, and who attended undergrad at UC Berkeley as an English literature major. She has never lived in the South. Over lunch recently in LA we were talking about our favorite books, etc. To my great surprise, she said Gone with the Wind (by Margaret Mitchell) is one of the books she most frequently has re-read over the years.
I was shocked. I asked “why”? I told her I had never read it, and candidly never had an interest in reading it. I thought Gone with the Wind was just a simple, overly-long, southern romantic novel. To the contrary, her response was that Gone with the Wind conveys more powerfully than most any other book she has read the difference between those who survive and those who do not survive, and the dimensions of that distinction.
I am now one-third into reading Gone with the Wind, and admit I was greatly mistaken, narrow-minded, and uninformed about this brilliant Margaret Mitchell novel.
This blog is merely to convey my recent reaction to one extremely powerful passage from Gone with the Wind, as I state further below. [Mitchell was a phenomenal writer; there are dozens of other such passages that struck me very powerfully.]
But, let me first clear the air in stating Gone with the Wind very effectively conveys the broader, tragic, and costly narrow-minded ignorance of the South in its Civil War opposition to the abolition of slavery. Also, Gone with the Wind is the only portrayal of the horror of war that took place in the geographic area I know so well, Atlanta. No doubt, wars that have taken place elsewhere are no less tragic, but reading Gone with the Wind as it took place in Atlanta, with Americans killing other Americans, gives me a powerfully vicarious extra-dimension, that I have never previously experienced.
Now my primary blog point. And, this is a spoiler if you plan for the first time to read Gone with the Wind. The excerpt below from Gone with the Wind is after Scarlett O’Hara returns to her home “Tara”, in Jonesboro, Georgia, after General Sherman overtook Atlanta. She is 19. Her mother Ellen died the day before Scarlett makes her arduous journey back from Atlanta to Tara. I purposely, so as not to expand this spoiler, do not detail what events lead Scarlett up to her following internal dialogue, as she pondered her horrific, changed world:
Nothing her mother [Ellen] had taught her [Scarlett] was of any value whatsoever now and Scarlett’s heart was sore and puzzled. It did not occur to her that Ellen could not have foreseen the collapse of the civilization in which she raised her daughters, could not have anticipated the disappearing of the places in society for which she trained them so well. It did not occur to her that Ellen had looked down a vista of placid future years, all like the uneventful years of her own life, when she had taught her to be gentle and gracious, honorable and kind, modest and truthful. Life treated women well when they had learned those lessons, said Ellen. Scarlett thought in despair: “Nothing, no, nothing, she taught me is of any help to me! What good will kindness do me now? What value is gentleness? Better that I’d learned to plow . . . .
Oh, Mother, you were wrong!” She did not stop to think that Ellen’s ordered world was gone and a brutal world had taken its place, a world wherein every standard, every value had changed. She only saw, or thought she saw, that her mother had been wrong, and she changed swiftly to meet this new world for which she was not prepared.
Excerpt from Gone with the Wind (Chapter 25) [I added the bolding].
So, why do I like the above excerpt enough to include it in this blog post? I will not bore you with a long-winded explanation. But, I state two reasons. One, in my view Scarlett arrives at the correct realization that the world is not simply some nice, loving, everyone-should-be-good, kumbaya platitude. This platitude in my view, generally from parents, schools, religious organizations, those already holding the upper hand, is too frequently and easily expressed, with a silent denial of the other side of life (which Scarlett is forced to observe and accept). As a father of daughters, I also believe girls — to their longer-term detriment — are expected to buy-into this little nice, neat platitude as an unfortunate goal so as to “go-along to get-along”.
Two. This point goes to why I enjoy being a lawyer. With a realistic acknowledgment that the world is not simply made up of positive, mutually loving, lack-of-self-interest elements, my primary goal is to help level the playing field for my clients as to the other negative side of the coin, especially when the other party greatly overextends its own self-interest, power, advantage, etc. Also, from a preventive perspective, I find many clients end up with costly litigation or other legal problems simply because they signed documents, or agreed to inequitable terms or circumstances, or failed to object to situations, on the notion that they did not want the other side to get mad, or they assumed the other side was being fair and equitable, etc.
Finally, the more-balanced conclusion Scarlett expresses above, in my view, will add to her longer-term happiness and response to life, even though she has to dismiss the fairy-tale notion of a kumbaya world. A more realistic, and balanced, acceptance of both the good and bad elements of life is akin to the comfort of knowing you have on your seatbelt. Realistically take into account the worst, but hope for the best.
This anti-SLAPP blog post should be an item you keep on your litigation check-list in the event you are a defendant in a lawsuit. If anti-SLAPP applies, it can significantly short-circuit and give you an early-end to the litigation in your favor, stop costly discovery, and put you in a strong position to obtain attorneys’ fees and expenses of litigation from the person who sued you. “SLAPP” stands for “strategic litigation against public policy.” A number of states, including Georgia, have anti-SLAPP laws that provide the above relief to defendants in certain situations.
Two days ago, June 24, 2019, the Georgia Supreme Court issued an opinion for the first time that deals with Georgia’s 2016 broad revision of its anti-SLAPP statutes under O.C.G.A. Section 9-11-11.1. The case is Wilkes & McHugh, et al. v. LTC Consulting, L.P. et al., No. S19A0146 (Ga. June 24, 2019). Click here for this opinion, which also has an excellent discussion by the Georgia Supreme Court setting forth the history and operation of Georgia’s anti-SLAPP statutes (and Georgia cases prior to the 2016 change in these statutes).
This is part one of three blog posts I will provide on this anti-SLAPP topic.
A 15-second short summary of anti-SLAPP is that if you are in litigation that enables you to file a defensive anti-SLAPP motion, the person suing you (the plaintiff) has to convince the court in response to your anti-SLAPP motion that the plaintiff’s lawsuit claims against you (his or her Complaint) are both (i) legally sufficient and (ii) supported by a sufficient prima facie showing of facts to sustain a favorable judgment in favor of the plaintiff.
Now, for a slightly longer introductory summary. Another substantial benefit of you filing an anti-SLAPP motion is that all discovery and pending hearings or motions in your lawsuit are stopped (“stayed” in lawyer jargon). And, the court generally is required to conduct a hearing on your anti-SLAPP motion within 30 days after you file it.
The above June 24 Georgia Supreme Court opinion, in its opening paragraph, states the 2016 revision of the Georgia anti-SLAPP statutes substantially mirrors California’s anti-SLAPP statutes. Wilkes & McHugh at 1. In expressly acknowledging that California has developed a considerable body of case law interpreting its anti-SLAPP statutes, the Georgia Supreme Court states that it may look to California case law for interpreting the Georgia anti-SLAPP statutes. Id. at 15. [I have experience with the California anti-SLAPP statutes and their litigation application.]
For this first blog post on Georgia’s anti-SLAPP statutes, I purposely do not get into the weeds on the details as to what these laws are and how they apply procedurally in litigation. However, a threshold point in any potential anti-SLAPP situation is to determine whether you, as a defendant, can take advantage of these favorable provisions. The general rule, and I state this broadly, is that the lawsuit you are facing must involve the plaintiff’s claims against you that arise from facts or actions stemming from your constitutional right of “free speech” or “petition”. I will address these two elements in my next blog post.
My other key take-away points here are:
- The above two free-speech / petition categories as to when you might be able to get the benefit of anti-SLAPP are much broader than one might initially think. Existing California case law is replete with numerous issues that fall within these favorable anti-SLAPP free speech and petition requirements; and
- The California courts have effectively seen-through efforts by plaintiffs who, with artful drafting of a plaintiff’s Complaint, attempt to evade the reach of anti-SLAPP provisions by including mixed, unprotected non-SLAPP assertions in their Complaint to try and derail an anti-SLAPP challenge. See, for example, Baral v. Schnitt, 1 Cal. 5th 376 (2016). I assume this drafting scrutiny will be an important focus the Georgia Supreme Court will follow as more of these anti-SLAPP cases make their way through the Georgia courts.
Georgia is the first state in the nation to enact sweeping UDTA trust law changes, centering primarily on “directed trusts”, with these changes effective July 1, 2018 (I refer again to “UDTA” at the end of this post). These new laws are under O.C.G.A. Sections 53-12-500 thru 506. I will be providing brief posts in the near future about certain aspects of these changes. The “directed trust” is the current, progressive approach around the country for optimal trust planning.
The essence of what “directed trust” means is that the trustee of the trust, or even a named non-trustee advisor (called a “trust director” under the new Georgia law), can direct others — who each then become “directed trustees” — to handle certain aspects of the operation of the trust. For example, the trustee can direct an investment trustee to handle the investment management of the trust assets. Or, as another example, the trustee can direct an administrative trustee to handle the administration of the trust.
In other words, the trustee alone does not have to carry the burden and liability for all trust functions. This team approach using other directed trustees enables the trustee to carve up the trust responsibilities, sometimes referred to as à la carte trust administration.
Below are a handful of my initial, brief comments about directed trusts for this first blog post:
(1) I really like Georgia’s statutory endorsement of directed trusts. Especially facing inescapable, impending aging, we and our families need a team approach for the care, protection, and oversight of our assets and affairs. I am not a fan of empowering only one individual to handle all of these matters, even if that one-person is a family member. There needs to be team input, and corresponding checks and balances where the team members each have a more independent view of the team’s efforts. And, certainly in some cases, a trusted family member can be the trustee with the power to put in place these other directed trustees;
(2) My general take on these new Georgia directed trust laws is that each team member (that is, each directed trustee) is subject to a fiduciary standard and liable for breach of trust if committed in bad faith or with reckless indifference to the interests of the trust beneficiaries [see, e.g., Georgia O.C.G.A. Section 53-12-303, captioned “Relief of liability”]. In other words, each directed trustee has to act with a fiduciary duty to the trust beneficiaries. This enhances the protective benefit of the team approach;
(3) Elder financial abuse is skyrocketing. For this reason, I strongly recommend families presently develop a relationship with a trusted, competent investment advisor who can help oversee the family’s investment assets. And, as needed, that trusted investment advisor can be, or later become, the family’s directed investment trustee. This advisory oversight, coupled with the above fiduciary duty standard and the now-stricter FINRA rules that address the financial exploitation of seniors, helps provide another team-member set of eyes and ears alert to the threat of financial abuse and fraud, etc.;
(4) These new Georgia directed trust laws are modeled after UDTA (the “Uniform Directed Trust Act”). These new laws are very dense, and appear well-drafted and comprehensive. But, easy, quick, no-thought, simple reliance on uniform laws can blind the lawyer drafting the trust. Even with these progressive laws, there needs to be artful trust document drafting so as to take advantage of these directed trust provisions, but without leaving unintended gaps or ambiguities in the trust document that cause problems down the road. Of course, artful drafting has always been the case with virtually any trust document.
Back in 2016, I wrote a blog post, captioned “Deju Vu. The 1974 NIXON Subpoena”; Click here for my earlier post. This post today is merely to restate one of the most interesting, unanswered constitutional law questions that has remained in the forefront of my mind all these years after my earlier days at Emory Law School.
This is not a political blog post, but it does center on how a President can, or might, respond to subpoenas. Here is this question’s relationship to the 1974 Nixon subpoena.
In short, in 1974 special prosecutor Leon Jaworski, while conducting the Nixon Watergate investigation, obtained a subpoena ordering President Nixon to release certain tapes and papers as to meetings between Nixon and others who had been indicted by a grand jury. Nixon refused. The US Supreme Court, in a unanimous opinion, concluded Nixon could not rely on executive privilege as immunity from complying with the subpoena. The Supreme Court ordered Nixon to turn over the tapes in response to the subpoena. Nixon ultimately agreed to comply with the subpoena.
Here is the constitutional question we discussed (and that hooked me all these years) in my constitutional law school class in response to the Nixon Supreme Court opinion. That is, how would Jaworski’s subpoena have been enforced if Nixon had snubbed the Supreme Court and taken the position he did not have to comply with the subpoena?
Because Nixon’s own executive branch was (and is) the only enforcement branch of government, what would have happened if Nixon did not allow his executive branch to enforce the subpoena? Remember, the judicial and legislative branches have no enforcement capability. Also, you and I would likely be jailed quickly by the executive branch for our failure to comply with a court order. [Nixon ended up voluntarily complying with the subpoena, without anyone having to deal with its enforcement.]
So, would the military have stepped in to enforce the Nixon subpoena? Would we have seen military tanks in front of the White House? Would there be an attempted coup? Would there be vigilante enforcement, etc.? We simply have no answer.
The point of this blog post is to remind each of us of, and elevate, the sanctity and design of our US three-branch system of government. In my view, especially as a lawyer, this three-branch system is the only reason we have been able to maintain our breadth of freedoms and rights against the historical backdrop of disputes, crises, disagreements, differing political and social views, and so forth.
The crucial question, at present, of another potential subpoena stand-off should not focus only on the substance or information of what the subpoena is seeking, but rather on how does the subpoena and its compliance fit with the need of continuing the essential and crucial balance of our three-system government? My imponderable constitutional question still remains unanswered and untested. Let’s keep it that way.
This blog post is in response to a recent April 2019 California case dealing with disgruntled siblings and an “in terrorem” (or no-contest) clause in their late mother’s revocable trust document. I use the California case to make the following broader comments for this blog post and tie my comments to a Georgia point.
An in terrorem clause (no-contest clause) in a Will or trust document is to prevent beneficiaries from raising issues as to the Will or trust in order, in most cases, to try and increase their share. The provisions under Georgia law for no-contest clauses are under O.C.G.A. Section 53-4-68 (for Wills) and Section 53-12-22 (for trusts).
An example of a no-contest clause in a Will is:
“If any beneficiary, alone or along with any other person or persons, directly or indirectly, contests or initiates proceedings to contest this Will in any court with a challenge to its validity of all or any part of my Will or in any manner, attacks or seeks to impair or invalidate any of the provisions of my Will or prevent any provision of my Will from being carried out in accordance with its terms, that contesting beneficiary shall be deemed to have predeceased me and as a result shall forfeit his or her interest under this Will in its entirety with his or her forfeited share passing to my other children, per stripes, as though the contesting beneficiary and his or her descendants all predeceased me.”
This blog post is not for the purpose of an extensive discussion about the design and use of a no-contest clause. But, rather, it helps illustrate that no-contest clauses are not just simply boilerplate provisions that one can, or should, without careful thought merely cut-and-paste into a Will or trust.
Below are a couple broader comments as to no-contest clauses:
I start with reference to a recent 2019 California court opinion dealing with a no-contest clause. This case has an extremely interesting and surprising twist that one of the litigious sisters likely never expected, to her detriment. This case is Key v. Tyler, 2019 Cal. App. LEXIS 358 (April 19, 2019). Click here for a copy. The core facts are that three adult sisters are beneficiaries of their deceased parents’ 1999 family trust. The family trust essentially provides for an equal split among the three sisters after their parents’ deaths. As of January 2006, the family trust was worth over $72 million. Lawyer-sister Tyler was the trustee.
A 2007 amendment to the 1999 family trust surfaced after the mother’s 2011 death (the mother was the second parent to die). After their mother’s death, sister Key asserted that her lawyer-sister Tyler had unduly influenced their mother in 2007 to amend the 1999 family trust. The 2007 trust amendment was apparently orchestrated by Tyler and resulted in Tyler increasing her own trust share substantially in excess of her other two sisters (including Key). The 1999 family trust and 2007 amendment each included a no-contest clause.
Sister Key, after the mother’s death, filed a California court action and asserted the 2007 trust amendment was the result of undue influence over their mother by lawyer-sister Tyler . The California court agreed with sister Key, with the result that the 2007 trust amendment was essentially disregarded. Although this California opinion is rich with an abundance of procedural details, factors, concepts, and other elements in this sister- v.-sister litigation, I make only the following three comments stemming from this California case (my knowledge of the facts in this case are based solely on information in the court opinion):
One. This point centers on the 1999 family trust and the 2007 trust amendment, each having a no-contest clause. One might reasonably ask: With the trust document having a no-contest clause, how was sister Key (the non-lawyer sister) able to attack the 2007 trust amendment, without triggering the clause against herself (Key)?
The reason is that California law, as with some other states (but not Georgia), has an exception to the challenge to a Will or trust with a no-contest clause, if the person making the challenge can show probable cause at the time of filing the challenge, such as probable cause of undue influence, or mental incapacity, etc.
In other words, without probable cause a person cannot simply file a challenge to a no-contest clause Will or trust and hope during the discovery phase of the litigation to luck-up or stumble across evidence of undue influence, or mental incapacity, etc. Probable cause up front reduces fishing-game litigation. Absent probable cause, the person making the challenge to the Will or trust also risks losing, with the result of being penalized by the no-contest clause.
Two. This next move in this litigation by sister Key is what greatly sparked my interest in this California case. Here it is: After sister Key successfully challenged and obtained the set-aside of their mother’s 2007 trust amendment, Key then filed a petition to enforce — against her lawyer-sister Tyler — the no-contest clause as to the 1999 family trust. This is the backfire.
Here the reader might say “Wait a minute, it was sister Key who challenged the 2007 trust amendment. Lawyer-sister Tyler never asserted any challenge. So, why now is lawyer-sister Tyler facing loss of her inheritance based on her (Tyler’s) violation of the no-contest clause? “
There are two primary reasons. First, the California court concluded sister Key had sufficient probable cause of undue influence to file her challenge to the 2007 amendment, even with the no-contest clause. The probable cause exception under California law provided an exception for Key to the trust amendment’s no-contest clause. Second, and this is the part of the California court opinion that really grabs my interest. The court, in concluding sister Key can seek to enforce the no-contest clause against Tyler, states:
“By [lawyer-sister] Tyler obtaining the 2007 Amendment through undue influence and then defending that amendment in court, Tyler sought to ‘impair’ and ‘invalidate’ the provisions of the original Trust that the 2007 Amendment purported to replace. The No-Contest Clause therefore disinherits Tyler if it is enforceable against her.”
2019 Cal. App. LEXIS, *29.
I assume lawyer-sister Tyler was completely blindsided by now finding herself the subject of a possible no-contest clause violation, and never for a moment considered that her court fight as trustee to defend and uphold the 2007 trust amendment would (or could) be the basis of Tyler herself violating the no-contest clause. Tyler now stands to lose her share of the trust if the court ultimately concludes Tyler violated the no-contest clause [the court has not yet arrived at a conclusion].
Three. This final point ties my Georgia discussion to the above California case. Georgia does not have a probable cause exception that allows a beneficiary with probable cause to challenge a no-contest clause Will or trust. My view is that Georgia (and all other states) needs a probable cause exception. This is up to the legislature.
Here also is my concern, merely as an example, of there being no probable cause exception in Georgia. Assume a family friend, business associate, or even a lawyer, becomes a close friend of an elderly widow or widower. And that person persuades the elderly person to change his or her Will to include him or her as a substantial beneficiary (or gets the elderly person to add his or her church or other charitable institution as a substantial beneficiary). Assume also that person persuades the elderly person to include a strong, no-contest clause in their Will or trust.
This could be a tragedy and, in my view, would prevent another beneficiary or family member from challenging a Will or trust that now benefits the family friend, business associate, or lawyer, even if the challenging beneficiary has probable cause. The person influencing the elderly person, therefore, shields himself or herself by influencing the person to include the no-contest clause.
My final general point is to make sure you know what documents your elderly parents have in place, and whether they are making changes, influenced by others, etc. Don’t end up with no options to challenge their situation where someone influences your parents to include him or her in the Will or trust, and also influences your parents to include a strong no-contest clause. This person may likely end up with your inheritance, unscathed.
One last comment for readers who wish to read the attached California court opinion. That is, the court opinion provides a great deal of discussion about this California sister case being a SLAPP case [“Strategic Litigation Against Public Participation”]. SLAPP is essentially a procedural speed-up option available for certain litigation cases, that I also find is an extremely interesting, evolving court development. I will write a blog post soon about what SLAPP is and why I find it a compelling and positive development in litigation. [California has a much broader range of SLAPP options compared to Georgia.]
The extent to which we all have to jump through more hoops in life has expanded substantially over the past 15 years or so. You can easily test this idea by trying to use a financial power of attorney document at a financial institution, or better yet try to deal with someone’s IRA account using a power of attorney. Or, what if your child has to be hospitalized while out of town without you? Try to deal expediently with the HIPAA medical confidentiality rules, etc.
This post includes a sample “John Doe” authorization document (referring to Georgia law) for minor children who might travel this summer (or stay with relatives or friends) without their parents immediately at hand. Click here for the sample pdf document. The hope, of course, is that no situations develop that require this document. But, taking a few minutes now to put the document in place could potentially help you and keep your away-from-home children from being caught in a snare (that you could have helped prevent).
The legal ethics rules require that I inform you that my blog is for marketing purposes and readers cannot rely on this blog post, nor on the pdf sample document, as legal advice from me or KaneTreadwell Law. I recommend strongly you consult a lawyer for assistance with this pdf document if you wish to put it in place for your particular situation.
Here also is one of my previous blog posts on planning for our age-18 and over children, especially those off at college. Click here.
Have a great summer.