The Georgia Supreme Court recently handed down the case of Smith v. Ashford (full text below the break), in which it dealt with a testator's use of a "power of appointment."
What is a power of appointment?
In estate-planning parlance, a power of appointment is used when a benefit is given, together with a right (a "power," as it were) to decide who gets that benefit when the initial beneficiary dies. The possessor of that right has a "power of appointment."
In a common example, parents may leave their wealth in trust to a child, together with an unlimited power of appointment. The child draws benefits pursuant the trust during his lifetime and has the power to decide, in his own will, who will inherit his share of the trust when he dies.
Drafters of trusts governing large estates like to use powers of appointment when they trust the beneficiary (often their child) to decide who most deserves to receive the benefit of the trust years or decades into the future.
In Smith v. Ashford the Supreme Court interpreted a will in which the holder of a power of appointment sought to give the power itself to his wife. Without holding on the question of whether you can inherit a power of appointment itself (you can), the Court said that it didn't matter - the original power of appointment stated that it had to be exercised before its holder died. Since it was not so exercised, the power lapsed.
The superior court judge of Athens-Clarke County apparently totally botched a trust litigation matter, according to the Georgia Court of Appeals.
The lower court had determined that a trust's maker (the "settlor") had improperly amended the trust, when she attempted to name her son its new trustee only two months before she died. (And, in so doing, to "un-name" her other two children).
Among other things, the "amendment" to the trust was written out by a non-lawyer; improperly used the word "executor" instead of "new trustee;" was captioned as a "general durable power of attorney;" and stated that the original trust was, in fact, revoked. Nevertheless, the Court of Appeals reversed the trial court's decision, declaring that the amendment was correct.
What was going on here? It's possible that the trial court saw that one of a group of children had taken the settlor, his mother, into his confidence only weeks before she died and had exerted undue influence over her, including having her write the extremely poorly worded trust amendment, allegedly naming him as the new trustee.
The problem may have been that the trial court didn't find that undue influence exists. (This issue is, after all, notoriously hard to prove). Instead, it relied only on the poorly written "general power of attorney," finding that the alleged trust amendments in it simply weren't done properly.
That led to the reversal. If an amendment isn't the product of fraud or duress, the courts will look not to whether it's worded perfectly but to the intent of the drafter. Clearly, the Court of Appeals said, the intent was that the trustee of the trust be changed.
A full text of the opinion is below the "read more" break.
Under Georgia law, a gift can be made for a specific purpose without the necessity of a trust. OCGA § 44-5-87. However, if it appears that the expressed purpose of the gift cannot be accomplished, then the law imposes a trust over it, in favor of the grantor. Id.
A case announced yesterday by the Court of Appeals addresses this question about the above law: How do we know when it's clear a gift's purpose can't be accomplished? In Choi v. Immanuel Korean United Methodist Church, the Court of Appeals considered whether a trust should not be imposed over a large donation to a church's building fund, when no building had yet been constructed. 2014 Ga. App. LEXIS 218.
John Goodman, the Florida millionaire, has notoriously adopted his girlfriend, who is only six years his junior.
Trial and heirs blog has a very interesting analysis of the matter here. As the authors explain it, a primary reason for the adoption is that Goodman's irrevocable trust for his children needed tending to.
It seems the trustee of the trust, in Goodman's view, was not managing it well on behalf of his teenage children. And since the trust was irrevocable, Goodman himself could not do anything to change the trustee.
Enter his girlfriend. Goodman's plan appears to have been to make her his legal "child," thus giving her the right to more closely monitor the behavior of the trustee from the standpoint of a beneficiary of the trust.
Tanner Pittman, LLC is a LaGrange, Georgia, and metro Atlanta law firm that advises clients on estate planning matters, including irrevocable trusts
Georgia's Trust Code was recently revised with changes that I have blogged about in part here.
The Georgia State Bar's Fiduciary Law Section recently published a synopsis of the trust code changes, along with the reasoning behind many of them here. I have found it a useful resource for practitioners and clients alike.
Tanner Pittman, LLC is a West Georgia and Atlanta-area law firm that specializes in trust issues, trust drafting and litigation.
In the State of Georgia, the statutory doctrine of "year's support" can utterly defeat some estate plans. The problem can be voided by careful planning and the use of a revocable, inter-vivos trust (also known as a "living trust.")
What is year's support?
In Georgia, year's support is the right of a surviving spouse or minor child of a decedent to take property from the estate. How much property? That question is not easily answered and is the source of an enormous amount of estate litigation . The technical answer is "an amount sufficient to maintain the standard of living" of the surviving spouse or minor child for one year. Ga. Code Ann. § 53-3-7 (West)
It is for the courts to determine how much money or property is needed to accomplish this. Such determinations are costly and time-consuming exercises in litigation and trial work. They typically involve months of preparation and at least one appeal. Furthermore, experience shows that some (typically non-lawyer) probate court judges in Georgia see year's support as a convenient way of administering an estate and will award all estate property to a petitioning survivor. (Despite settled precedent on the question. See Taylor v. Taylor, 288 Ga. App. 334, 337 (2007)).
A seemingly inescapable dilemma.
In any event, there is no way to deprive a spouse or surviving minor child of year's support in a will, by agreement, or otherwise. This is true even if (for example) the spouses have been married for only one year and the will clearly states that only the children from the testator's previous marriage are to receive his or her estate.
Solution: there is no estate.
To avoid these problems, one must simply die with no property. Though a seemingly drastic solution, it can be accomplished without also requiring that one's last check bounce. Attorneys use an agreement called a revocable, inter-vivos trust or "living trust" in order to make sure one can enjoy one's property during one's lifetime but have complete say over how it is distributed after one's death.
A "living trust" is defined in more depth at the link below. But the important aspect of the trust for our purposes is that <b>it</b> and not the settlor (the person who made the trust) owns the property. When the settlor dies, the property in his or her estate cannot be taken as year's support because there is no property to take: the trust technically owns it.
In Georgia, where wills are still the predominant method of estate planning, there is nevertheless a fine argument to be made for drafting a living trust in order to avoid the necessity of paying year's support. Even if year's support should be paid and the testator wants to provide for a spouse and minor children, a living trust can allow the testator to establish the amount he or she wants to grant the surviving family and not let it become a matter for costly, emotionally taxing dispute in probate court.
Tanner Pittman, LLC is an estate planning and probate law firm that regularly advises clients on living trusts, year's support, and a range of other complex estate planning questions. Feel free to contact us today about your own such issues.
Georgia's trust law has become more onerous for trustees. Whereas in the past, you could leave property in your will to a trustee whom you (get ready) trusted to manage it well without much supervision, the default rule now is that trustees must make at least annual reports to the trust's beneficiaries of their doings. Furthermore, there is a new requirement that beneficiaries be informed of their rights in trust within 60 days of its becoming irrevocable (as when the maker of a will dies).
Of course, under the old, pre-2010 law, any testator could make a will with the above requirements, but few did. By altering the default rule, the Georgia legislature now requires that we opt out of the new reporting requirements. What are some reasons we might? For one reason, as stated, many testators (i.e., makers of wills) simply trust their trustees to report when and if necessary. Another reason to opt out: many trustees are non-professionals, family members of the testator, who serve only grudgingly and don't want extra paperwork every year at tax time.
So for those who would opt out of the new requirements, I have crafted the following two will provisions. Each attempts to eliminate a more onerous reporting requirement of the new law without doing away with the common law rule that fiduciaries must still use due care and report if and when necessary (or, as under the post-2010 regime, upon request.)
My provisions are below. I invite comment.
F. WAIVER OF TRUSTEE'S NOTICES. No Trustee serving pursuant to any provision of this Will shall be required to give the notice set forth in Georgia Laws 2010, Act 506, § 1 and codified in O.C.G.A. § 53-12-242(a) (as such statute may be amended and revised up to the date of signing of this Will) to the beneficiar(ies), qualified or otherwise, of any Trust created hereunder unless, under exceptional circumstances, prudence and reasonable fiduciary duty would so require, as when (by way of non-exclusive example) the failure to give notice would substantially impair a legal right of a beneficiary and the Trustee has actual notice of such impairment. Notwithstanding anything in this paragraph, any Trustee may give any notice to any beneficiary that seems reasonable and prudent in his or her discretion.
G. WAIVER OF TRUSTEE'S ANNUAL REPORTS. No Trustee serving pursuant to any provision of this Will shall be required to give the annual reports set forth in Georgia Laws 2010, Act 506, § 1 and codified in O.C.G.A. § 53-12-243(b)(1) and (b)(2) (as such statute may be amended and revised up to the date of signing of this Will) to the beneficiar(ies), qualified or otherwise, of any Trust created hereunder unless, under exceptional circumstances, prudence and reasonable fiduciary duty would so require, as when (by way of non-exclusive example) the failure to give such report would substantially impair a legal right of a beneficiary and the Trustee has actual notice of such impairment. Notwithstanding anything in this paragraph, any Trustee may give any report to any beneficiary that seems reasonable and prudent in his or her discretion. Nothing in this paragraph shall be construed as a waiver of the reporting requirement upon reasonable request codified in O.C.G.A. § 53-12-243(a).
As reported by the Wall Street Journal and others, Wellington R. Burt, a Michigan lumber baron once left his heirs an estate valued at between $40 and $90 million in 1919 dollars.
The trouble is, the heirs he left it to only just now received it.
The baron left the bulk of his property in trust for the better part of 90 years, which was the maximum amount of time permitted according to the Rule Against Perpetuities, an ancient rule in Anglo-American jurisprudence that states that any property interest in trust must vest, if at all, within 21 years from a life in being at the time of the creation of the interest.
The lumber baron's will played the Rule out to its longest possible time, which looks like an odd way to deal with an estate. He willed it after all to complete strangers who had no other reason to even know who he was.
Okay, so what?
Many an estate planner has clients who have created trusts stretching out to the maximum amount of time permitted by the rule.
The case of Wellington Burt demonstrates that doing so can often create an absurdity. Absent compelling reasons to do so (such as tax considerations), and all things being equal, estates are better left in beneficiaries' hands sooner rather than later. The "dead hand" controlling for four or five generations makes little sense to a testator, to his beneficiaries, or to the casual observer.
Additionally, as the editors of the Estate Professors' Blog point out, the "dead hand" appears to have little sense for investments. Citizens Bank Wealth Management, the institutional trustee who managed the trust is only distributing $110 million in present-day dollars. Even given a modest historical rate of return, Burk's estate should have been worth as much as 1,000 times that amount, or some $138 billion by this point.
Tanner Pittman, LLC is a West Georgia law firm that specializes in estate services, civil litigation, and legal transactions.
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