Urgent Post re Beneficiary Designation for Inherited IRAs

This is urgent as it likely will require you immediately to revise your IRA beneficiary designation forms to name as part of the beneficiary designation form itself  a custodian (and successor custodian) for any account that may end up with a minor-age beneficiary. Such as an inherited IRA from grandmother, etc. This discussion also applies to adding a custodian designation to beneficiary forms for life insurance.

This is another preventive planning feature that can save you (and your family) the headache of wasted time and legal fees down the road.

Why?

Georgia law, by express statute under The Georgia Transfers to Minors Act, allows you, while you are alive, to name a custodian for a future property interest for a minor beneficiary. Such as your IRA account that later might end up as an inherited IRA in the hands of your minor child or grandchild. This statute is under Georgia O.C.G.A. Section 44-5-113.

If you don’t name the custodian while you are alive, then at your death two hurdles surface:  One.  A guardian has to be appointed for the minor-child; Two. The guardian has to petition the court for the court’s approval of a custodian under The Transfers to Minors Act provisions.  At the end of this post is Georgia O.C.G.A. Section 44-5-117(c) for this burdensome procedure.

How to avoid these two hurdles?

My suggestion here is not legal or tax advice you can rely on as advice from me for any particular situation. It is only my general response for how to add the custodian reference while you are alive to the beneficiary designation form.

  1. Many financial institution IRA beneficiary designation forms do not include an option or space to add the names of custodians. You have to adapt the form as follows:

  2. First, hand-mark on the form itself an asterisk next to the minor-beneficiary’s name.

  3. Then, in the margin of the beneficiary form add a legend for the asterisk: “See the attached Exhibit A , dated May __, 2017, that I incorporate herein by reference.”

  4. Then, prepare a separate Exhibit A that includes your naming of the custodian (and successor custodians if desired) and attach it as an exhibit to the beneficiary designation form. Sign and date the Exhibit A.

Finally, below is the burdensome Georgia statute I referred to above:

Georgia O.C.G.A. Section 44-5-117(c) [bolding added;  note in particular the “if a guardian .  .  .” reference]:

(c) If no custodian has been nominated under Code Section 44-5-113, or all persons so nominated as custodian die before the transfer or are unable, decline, or are ineligible to serve, a transfer under this Code section may be made to an adult member of the minor’s family or to a trust company as custodian for the benefit of the minor if a guardian appointed for such minor considers the transfer to be in the best interest of the minor and, on petition brought by the minor’s guardian, the transfer is authorized by the court as in the best interest of the minor.

You are Not Your Brother’s Keeper. Tax Liens and Joint Ownership of Real Property.

I cringe (figuratively speaking) when I hear of individuals who include friends and ancillary family members as joint owners of real property. Such as joint tenants in common for owning grandmother’s old house, etc.

This is joint ownership of real property with the co-owners each named on the real estate deed.  Such as “John Smith and Jane Doe, as tenants in common.” Or, “John Smith and Jane Doe, jointly with right of survivorship.”

[There are exceptions to my concern in certain cases (i) for married couples as joint owners and (ii) in states with joint “tenancy by the entirety” ownership (Georgia does not recognize tenancy by the entirety).]

Because real estate ownership is governed by publicly-recorded deed and lien records, jointly-owned property is a lightning rod for the other co-owners’ debts, judgments, unpaid income taxes, estate tax liens, etc.

Let’s assume Bill owns Atlanta undeveloped land with his distant nephew Pete. Pete owns 10% with Bill as the other 90% joint owner (joint tenants in common, to be exact). This is undeveloped land that belonged to Bill’s grandparents (Pete’s great-grandparents). Bill and Pete rarely visit the property.  It is merely a long-term, passive asset.

Bill typically remains unfamiliar with nephew Pete’s ongoing financial and tax affairs and has no idea Pete has not been paying his (Pete’s) income tax. Unknown to Bill is that the Georgia Department of Revenue has been racking up recorded unpaid tax liens against Pete (called a recorded Fi-Fa), with Pete’s unpaid tax debt continuing to increase with interest and penalties.

Bill’s 90% share is now on the hook. Although technically Bill is not liable for Pete’s tax liens. Nor is the value of Bill’s 90% portion of the land technically available to satisfy Pete’s liens. The reality for Bill is that the entire land is burdened by Pete’s tax liens.

On the other hand, Pete essentially has no concerns about his unpaid taxes or these liens. Pete, 27 years old, works part-time, has no money, etc.

Bill’s unfortunate reality is that no buyer will touch this land until Bill clears these tax liens. The Georgia Department of Revenue also has been  consistent with extending the duration of its recorded tax liens (called an “entry of nulla bona”).

Bill’s land over the years has increased in value. This results in Pete’s 10% share also increasing in value to the extent Georgia will likely demand its full claim for the unpaid taxes, penalties and interest in order to release the liens. These surmounting Georgia penalties and interest have transformed what started as nominal unpaid tax amounts into substantial issues. Bill has a costly problem.

The moral of this blog post.

Don’t — without thoughtful deliberation — become your brother’s keeper. Talk to your lawyer first about co-ownership of property. Possibly use an LLC. Or, a recorded written joint property agreement that allows a co-owner to charge the other owner’s portion of the property for these kinds of liens. Good legal advice is also an investment in tranquility.

50/50 Jury Risk. Preventing Litigation is Crucial.

I just finished a complex fraudulent-transfer litigation case that focused a great deal of contentious light on some earlier estate tax planning. The tax planning involved an estate-freeze/ sale of an LLC interest to an (income-tax  defective) Nevada trust.  I purposely make no comment here about this particular case, other than it prompts me again to remind readers of the crucial importance of preventive planning to help avoid litigation.

The competitive challenge of litigation and controversy work fuels my enjoyment of lawyering. But, for all my clients I harp constantly on preventive planning to avoid getting into litigation.  Litigation is nothing short of time-consuming war, with the odds of winning sometimes a crap shoot if the matter goes to a jury.

Individuals, who scoff at this preventive advice, with comments such as “I don’t care, let them sue me. They don’t have a case”.  Or, “We will just file a lawsuit and see what happens”, likely set themselves up for costly failure.

A wonderful late friend of mine, who was a federal district court magistrate judge, told me many years ago:  “During the 27 years I was on the bench, I never saw a case someone couldn’t lose.”

Below is my general observation about juries for this blog post.

At the end of a trial, the jury deliberates and makes conclusions about what the jury believes are the accurate, credible facts the jurors observed during the trial.  Also at the end of the trial the judge reads the applicable law to the jury, on the notion the jury during its deliberation will apply the jury’s perception of the facts to the law.  This is often called “the law of the case”.

The jury then renders its verdict essentially by the jury deciding during the jury closed-door deliberations how it will combine the facts with the law of the case.

The judge’s reading of the law to the jurors is referred to as “jury instructions”.  Prior to the judge reading these instructions to the jury, the opposing lawyers try and convince the judge to use each lawyer’s own respective written blurb or summary for each point of the relevant law.  This is called a “jury charge conference” or “jury instruction conference”.   The conference takes place among the judge and opposing lawyers without the jury being present.

Now, here is an important jury point to ponder in the context of this blog post.

If you believe you have the weaker merits in a case (for example, less than 50%), you generally will try and keep your litigation case alive with a persistent move toward getting your case in front of the jury.

This weaker-merit posture involves you primarily crafting your lawsuit allegations and discovery, etc., in a way where the issues cannot be concluded with a pre-trial motion for summary judgment or motion to dismiss, etc.

Pre-trial motions are used extensively by litigation parties to try and convince the judge there are no materially disputed facts that warrant having the case continue on to a jury.  Essentially, the pre-trial effort is an attempt to end the case before the jury factor arises.

This pre-trial motion approach, in general terms, means the judge may possibly decide and conclude the case without the case having to go before a jury.  This also means, if the circumstances support a pre-trial conclusion, the judge addresses (not the jury) what and how the facts apply to the law.

Again, the weaker party tries to stall and derail this pre-trial effort.

On the other hand, if you believe you have the stronger merits in a case (more than 50%), you generally will try your best to get the case concluded with the pre-trial approach without the case going to a jury.   By using the above pre-trial motions, such as motions for summary judgment, motions to dismiss, etc., or a combination of pre-trial motions.

Now, why do I refer to 50/50 juries?

My view is that most jury trials even the parties’ odds to 50/50.   A jury, for example, may simply not like one of the parties.  Or, the law that applies to the case (the jury instructions) might involve such a complex array of laws that the jury simply makes ad hoc conclusions in reaching their verdict without the ability to apply the law accurately.

So, if you believe you have 90% of the merits in a case, your odds before a jury drop from 90% to 50%.  If you believe you have a 20% case, your odds essentially increase to 50%.

Preventive planning.  Crucial.

Inside a Lawyer’s Head: An Anniversary Gift for my Wife and the Sales Receipt

“We are happy to offer an exchange or merchandise credit within 30 days of your purchase for items in their original condition and packaging with an original receipt or gift receipt. We cannot accept damaged, altered or ‘Final Sale’ items for return or exchange.”

A couple weeks ago for our wedding anniversary, against my wife and me typically getting one another token gifts, I purchased a larger-ticket item from a high-end boutique store. At the time of my purchase I told the store clerk there was a good possibility my wife will ask me to return the item, particularly if it does not spark a strong preference for her. To make the story short, three days later I returned the item. Not exactly my wife’s style. We men are not the greatest personal shoppers.

The bottom of the sales receipt includes the blurb at the top of this blog. And, BTW, this was not a “Final Sale” item. My impression at the time of my purchase was the sales receipt includes no express denial of a refund and gave me arguably room to press for a refund, if necessary.

Why this blog post? Two points.

When I went back to the store for the return, the store manager (not the sales person I dealt with earlier) referred me to the bottom of the sales receipt. She nicely said “No refunds. Store credits only.”

Well, I in a mild-manner politely told the manager I am a lawyer and that the sales receipt provision, in my opinion, is insufficient to deny a refund and that it would never stand if challenged. She, again very nicely, gave me a refund.

Here is my first point for this blog post. I remind readers that the printed policy at the bottom of a sales receipt, especially when signed by the customer, is legally binding. I already knew this. And, I already knew that if a sales person gives you verbal assurances contrary to the sales receipt provision, such as “Sure you can return the item if your wife does not like it”, the sales receipt will trump these verbal promises. There is a Georgia court opinion on point, Google: McCrimmon v. Tandy Corp., 414 S.E.2d 15, 202 Ga.App. 233 (Ga. App., 1991).

The second point is that I had already observed when I purchased this gift that the sales receipt arguably has some defects. One, it states the store will “offer” within 30 days an exchange or merchandise credit for returns. Under contract law, an offer is an offer. It requires an acceptance. I have, therefore, the option of rejecting this “offer” option.

And, more interesting (at least to me), this sales receipt reminds me of my favorite law school legal doctrine, often stated in Latin: Expressio unius est exclusio alterius, which reads generally “The express mention of one thing implies the exclusion of another.” It arguably applies as follows.

The sales receipt expressly and clearly states there is no return for damaged, altered or ‘Final Sale’ items.   Under this expressio unius argument there is an implication that all other items — if not damaged, altered, or marked “Final Sale” — are returnable with no prohibition otherwise on the sales receipt. The term “Final Sale” also implies other sales not marked Final Sale can be returned.

Regardless of the possible legal arguments, the take-away point is to plan your anniversary gifts carefully. No one likes returns. I also commend the store manager who dealt with me in a patient, courteous manner. Not everyone likes lawyers.

McDonald’s Double-Quarter Pounder with Cheese Triggers Georgia Traffic Ticket

Busted.   Click here for details.  But, the charges were dropped last Friday as the Cobb County Solicitor’s (Georgia) office apparently concluded it did not have evidence sufficient  to prove this case beyond a reasonable doubt. Click here for today’s commentary about the dismissal.

Mediation in Litigation. The Good. The Bad.

I am not generally a fan of using mediation to resolve disputes. But, if you face mediation (such as in court-ordered mediation), the focus needs to be on whether you believe you are holding the stronger position or the weaker position in the dispute. In short, if you hold the weaker position, you will probably be better off with the result you get in mediation. If you hold the stronger position, you likely will pay a price and lose ground with the result.   This strong / weak distinction ought to be a litmus test as to whether you use mediation, and also give you pause to consider who you choose as the mediator. [Of course, I also realize that in many cases each party believes his or her side reflects the stronger, more meritorious position.]

As background, mediation uses a third-party neutral person who, as the center point, helps the opposing parties possibly find a way to resolve and settle a dispute. The mediator is most often an experienced lawyer. Typically, the mediation is scheduled for an entire day in order for there to be a long, repetitive, back-and-forth effort by the parties to arrive at a settlement.

The Up-Side for the Weaker Party —   If your client holds the weaker position in the dispute with less than 50-percent odds, mediation can enhance your client’s outcome. My experience has shown me that the bulk of mediators generally will move the parties in the direction of simply cutting the case in half. That is, these mediators will essentially split the value of the case in half equally, or almost equally, between or among the parties without the mediator voicing his or her opinion of the merits of the two sides. This is a Solomon cut-the-baby-in-half approach. This means the side with the stronger position is relentlessly pushed to a mid-point, substantively equalizing the odds to 50-percent for each side.

So, What Does the Stronger Party Do? — The above 50-50 equalizing of the mediation result generally suggests the stronger side should avoid mediation, if possible. But, if not possible, the stronger side needs to insist on selecting a mediator who, during the course of the day’s mediation, will give the parties his or her reaction, judgment or take on how the mediator views the merits of the litigation or dispute. As to the stronger party, this mediator feedback can help downgrade the weaker side’s overvalued assessment of their case. This downgrading effect also can be a productive, beneficial aspect of the mediation even if the case is not resolved in the mediation.  In other words, if you are the stronger party, focus on finding a merit-based mediator. Also, as the stronger party, realize you most likely will not settle the case in the mediation if the result is merely a Solomon cut-the-baby split.

Update your Definition of “Spouse” in Legal Documents

The jumbled status of states that do and do not recognize same-sex married couples mandates that you clarify in legal documents (particularly for trusts and estates) your preferred definition of “spouse”.   The following is a broad definition that includes same-sex spouses:

19.4    In applying any provision of this trust agreement that refers to a person’s “spouse”, that spouse shall include a married person as to either (i) opposite-sex married couples or (ii) same-sex married couples, whose marriage [as to clause (i) or (ii)] is recognized either, or both, in such married couple’s state of celebration or state of residence or domicile.

Possibly Avoiding a $6,000 North Carolina Probate (Estate) Fee

I am a big fan of stand-by living trusts (revocable trusts called a Declaration of Trust) for a person’s core estate planning document.  It is a trust often unfunded presently, but in place and ready for funding and use if the person (the settlor) thereafter becomes incapacitated.  This is a much better (and in the long run results in lower legal fees) than otherwise trying to manage property during a person’s incapacity under a (i) financial power of attorney or (ii) court-managed guardianship.

Here is a North Carolina situation where you — if you live in North Carolina — benefit from funding the trust now rather than waiting later at your incapacity or death.

Funding the living trust now prior to death avoids exposure to the following North Carolina statutory probate fee.  North Carolina law under G.S. §7A-307(a) imposes a probate fee on non-real estate at a person’s death, if the non-real estate passes under the terms of the owner’s Last Will and Testament.  This statutory fee (payable to the court) is 40 cents per $100 value of the non-real estate property, not to exceed $6,000.  This computes to the maximum $6,000 fee on $1,500,000 of non-real estate passing under the terms of a person’s Will.

The above goal is to have your living trust hold and govern your property for your beneficiaries at your death, rather than your Last Will and Testament.   This avoids the above probate fee.

Qualified retirement accounts such as IRAs, 401(k), if governed by a beneficiary designation to a beneficiary other than the account owner’s estate, do not pass under a person’s Will and are not subject to this $6,000 probate fee.

In 15 Seconds, What is a Trust?

A trust is not a separate entity.  Rather, it is a relationship between the trustee and the beneficiaries relative to the property in the trust.  The trustee holds legal title to the trust property for the beneficial interests of the trust beneficiaries.  For most trusts based on a written trust document, this relationship is spelled-out within the trust provisions, affected also by the applicable state law on trusts.

When a trust is a party in litigation, it is the trustee as legal owner of the trust property who is the party, not the trust as an entity.

What is considered the location (or legal situs) of a trust, generally speaking, is the location where the trustee is domiciled, or in some cases where the trust has the greatest level of contacts (e.g., where the trust property is located, where the beneficiaries live, where the creator (called the settlor) of the trust lives, etc.),

This situs is important in determining the jurisdiction and venue (where the court proceeding occurs) when the trust (vis-à-vis the trustee) is a party in a lawsuit.

To help illustrate that a trust is not an entity, the following signature line for a trust is in the trustee’s name, not the trust’s name.  It is, therefore, not an entity signature:

______________________________
John Doe, as Trustee for the
Jane Doe Irrevocable Trust u/a/d
August 3, 2012

By contrast, and as an example, an entity signature is used for a corporation:

Smith Investments, Inc.

By:  ______________________________
Name:   William Doe
Its:  Vice-President

Avoiding Costly and Burdensome Paper Cuts

I harp frequently on not getting into a position where you end up having to deal with time-consuming and potentially expensive hurdles in life – specifically, legal problems stemming from poorly-prepared or mediocre legal documents. These problems can create a costly, litigious death-by-a-thousand-paper-cuts.

This blog deals with a brief (but potentially very important) illustration of how a legal document as simple as a health care power of attorney requires close examination and review (and in this case revisions) so as to prevent these potential problems.

More particularly, this illustration centers on my revisions to the Georgia health care directive (health care power of attorney). The statutory form is under Section 31-32-4 of the Georgia statutes (statutory means this Georgia health care directive was crafted word-for-word by the Georgia legislature and the format of the directive is available under Georgia law for use by Georgia individuals). Most lawyers (including me) use the Georgia legislative version for our clients.

However, I revised the statutory health care directive, as allowable under Section 31-32-5(b) of the Georgia law, so as to avoid what could be a couple of unexpected and potentially burdensome issues:

One, as shown by my redline copy of these revisions (click here), the Georgia statutory version is not clear as to what triggers the effective start of the document. 

The statutory language states the health care agent can make health decisions “when I am unable to communicate any health care decisions” or when “I choose to have my health care agent communicate my health care decision.”    

The above two conditions are not clear in terms of whether some further evidence or action reflecting a triggering of either condition is necessary to authorize my agent to act on my behalf.

For example, John’s wife Jane shows up at John’s cardiologist’s office to discuss a medical problem on John’s behalf.   John is too sick to attend the office visit. The cardiologist reads John’s health care directive and asks Jane what does she have to reflect either that John is unable to communicate on his own behalf or what assurance or document does Jane have to show that John is now choosing to have Jane act on his behalf?  Will the cardiologist require a separate written authorization from John?  What if John is so sick that he can no longer communicate any aspect of his care? Will the cardiologist require John’s internist to examine John and provide a statement for Jane to evidence John is now incapable of communication? Will Jane have to reschedule the meeting?  Also, underlining these hurdles is the additional burden of dealing with the federal HIPAA medical records restrictions. 

I simply do not want any hurdles for my agent. Nor do I wish to spend time and money dealing with a disagreement over the above two conditions. Therefore, for greater clarity my revisions set forth that the health care directive becomes effective at the time I sign it, thus eliminating the need to consider either of the two conditions.

Second, the Georgia statutory version expressly prohibits my health care agent from having authority to deal with my “treatment or involuntary hospitalization for mental or emotional illness, developmental disability, or addictive disease”.   

By contrast, I prefer that my health care agent deal with the above circumstances. Accordingly, I revised the directive to eliminate this prohibition. If this prohibition otherwise remains in place, my family’s option will likely be to obtain a court-managed guardianship for purposes of dealing with these particular situations. This court involvement can be time-consuming, costly, and extremely frustrating.