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Foreign Bank Accounts

Very important for those with foreign bank accounts to do all of the reporting.  Very severe penalties if you fail to do so.  Remember that green card holders and citizens are subject to worldwide taxation.

What is a Self-Settled Spendthrift Trust?

Georgia doesn’t recognize self-settled spendthrift trusts (1), and it is uncertain as to how domestic and foreign asset protection trusts will be treated in Georgia.  A spendthrift clause is one in which the trust documents prohibit the trustee from distributing to a creditor of a beneficiary.  A self settled trust is a trust whereby a settler transfers property to a trustee with the settler as one of the beneficiaries (or the sole beneficiary).  The issue then becomes the treatment of a self-settled spendthrift trust.  Only a handful of states (but increasing) currently recognize self-settled spendthrift trusts, and it is unclear as to how self-settled spendthrift trusts will be treated in states like Georgia where they are prohibited. (2) In addition, some argue that the domestic asset protection trusts are not as useful as first thought because 1) the full faith and credit clause requires each states to enforce the judgments of other states (and there also may be some arguments as well regarding “minimum contacts” if the trustee has actively solicited business in the state where a lawsuit originated to subject that trustee to the court’s jurisdiction), 2) federal law pre-empts state law under the Supremacy Clause and it is unclear exactly how this will play out in bankruptcy, 3) a creditor could claim that the asset protection trust law impairs their rights under the Contracts Clause of the Constitution.

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(1) Speed v. Speed, 263 Ga. 166, 430 S.E.2d 348 (1993).

(2) O.C.G.A. §53-12-28 (“a spendthrift provision prohibiting involuntary transfers is not valid if the beneficiary is the settlor.”). 

Advantages of Trusts

The advantages of trusts are 1) their flexibility, 2) ability to control assets, 3) avoidance of probate court, 4) various asset protection options (for certain non-self settled irrevocable trusts), and 5) privacy (the trust document usually does not need to be recorded or filed in court).  The main disadvantages are 1) cost, 2) the trust does not control property that is not transferred into it, and 3) the lack of court supervision can sometimes be a disadvantage if the successor trustee is not trustworthy.

Please Fund Your Trusts!

It is important to note that trusts only have power over property that is put into them.  Anything put into the trust will then be controlled by the trustee.  In a revocable trust, the grantor typically will be the trustee while he/she has capacity and while he/she is alive.  The trust should set forth provisions that discuss what will happen during period of incapacity, which should be to have a successor trustee step in.  The trust document specifies how a determination of incapacity is made, such as by the opinion of two doctors.  The trust will not have any power over property outside of the trust, and therefore it is a good practice to prepare deeds and other documents to transfer property into the trust when the trust is prepared. 

Financial Power of Attorney

Financial Power of Attorney

The Georgia statute calls this form a Financial Power of Attorney, which differentiates it from the old Health Care Power of Attorney.  As its name suggests, it is a document that allows another person to make financial decisions.  The statutory form has many choices on it as to which powers to grant, and whether to make it durable or non-durable.  It may be advisable to modify this statutory form slightly particularly for elderly clients so that the most common elements do not require separate signatures, as that may be too burdens on for people with disabilities that impair their ability to sign. (1)  However, if such changes are made it is essential to thoroughly review the document with the client.

In a power of attorney the principal authorizes an agent to act on the principal’s behalf.  Powers of attorney may be general, granting broad powers over financial decisions, or may be more limited to specific transactions.  Powers of attorney are particularly helpful documents as they allow for another to make financial decisions for the principal, which can save the time, cost and expense of getting a conservatorship.  This is particularly true of people with large estates, as it may be difficult to get bonded, which is a necessary part of a conservatorship.  However, this lack of oversight is not without risk.  A power of attorney is a powerful document, allowing another to completely take control of the finances of a principal.  Although there are statutory and common law protections with breach of fiduciary duty and embezzlement claims, it may be impossible to recover the assets and money from a dishonorable agent who has wasted everything away.  If there truly is no one that a client can trust, other options than executing a financial power of attorney should be explored.  Possible solutions include professionally managed trusts or simply allowing for a conservatorship to later be sought, in order to ensure court oversight.  Another problem with powers of attorney is that they require the higher contractual standard of capacity, unlike the testamentary capacity of a will. (2)  Furthermore, a person with dementia, paranoia, etc. may revoke their power of attorney, making a conservatorship necessary anyway.

Under O.C.G.A. § 10-6-36 a power of attorney is considered “durable” unless it specifically states otherwise.  A “durable” power of attorney is one that continues to be effective even during a period of incapacity of the principal.  However, the power of attorney is still cancelled upon the death of the principal.  Under O.C.G.A. § 10-6-6 Georgia does allow powers of attorney to be “springing,” becoming effective upon incapacity.  A common misconception amongst clients is that since a springing power of attorney is only effective upon incapacity, that a less responsible or trustworthy person can be elected.  However, since there is no judicial oversight and typically no bond, the opposite is actually true, since an incapacitated person cannot properly defend themselves.

            Pursuant to O.C.G.A. § 10-6-142 a "notarized signature [is] required for [a] power of attorney [that] authoriz[es] real and personal property transactions." (3)

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(1) O.C.G.A. § 10-6-140 (“The Georgia Statutory Form for Financial Power of Attorney set out in Code Section 10-6-142 may be used to create a financial power of attorney, but is not the exclusive method for creating such an agency.”)
(2) SunTrust Bank, Middle Georgia N.A. v. Harper, 250 Ga.App. 300, 306, 551 S.E.2d 419, 425-26 (2001).
(3)  Sambor v. Kelley, 271 Ga. 133, 134, 518 S.E.2d 120, 121 FN6 (1999).

Advance Directive

The “Georgia Advance Directive for Health Care Act” is codified at O.C.G.A. § 31-32-1 et al.  O.C.G.A. § 31-32-2 defines an “Advance directive for health care” as “a written document voluntarily executed by a declarant in accordance with the requirements of Code Section 31-32-5.”  Prior to this advance directive law, Georgia had durable powers of attorney for health care and living wills.[1]  Those prior documents executed before June 30, 2007 are still valid, but it may be advisable to still update them as the current documents are more internally consistent and detailed.[2]

“Any person of sound mind who is emancipated or 18 years of age or older may execute” an advance directive.  The document must be “in writing, signed by the declarant or by some other person in the declarant's presence and at the declarant's express direction, and witnessed . . .”[3]  Declarants are free to use other documents which substantially comply with the code and can also use the documents of another state which was validly executed in accordance with the law of that other state.[4]  This “advance directive for health care shall be attested and subscribed in the presence of the declarant by two witnesses who are of sound mind and at least 18 years of age, but such witnesses do not have to be together or present when the declarant signs the advance directive for health care.”[5]  The witnesses cannot be a person “selected to serve as the declarant's health care agent” or who “[w]ill knowingly inherit anything from the declarant or otherwise knowingly gain a financial benefit from the declarant's death” or who “[i]s directly involved in the declarant's health care.”[6]  In addition, “[n]ot more than one of the witnesses may be an employee, agent, or medical staff member of the health care facility in which the declarant is receiving health care.”[7]  As a practice note, many hospitals and other facilities have policies against their employees serving as witnesses or notaries, and therefore it is advisable to bring your own witnesses, as it may not always be possible to find a helpful bystander who will serve as a witness.  It should also be noted that “[a] physician or health care provider who is directly involved in the declarant's health care may not serve as the declarant's health care agent.”[8]  Unlike with last will and testaments, where copies can be more problematic, “A copy of an advance directive for health care executed in accordance with this Code section shall be valid and have the same meaning and effect as the original document.”[9]  Any amendments must be executed with the same requirements as above.

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[1] O.C.G.A. § 31-32-2 (“‘Durable power of attorney for health care’ means a written document voluntarily executed by an individual creating a health care agency in accordance with Chapter 36 of this title, as such chapter existed on and before June 30, 2007.” “‘Living will” means a written document voluntarily executed by an individual directing the withholding or withdrawal of life- sustaining procedures when an individual is in a terminal condition, coma, or persistent vegetative state in accordance with this chapter, as such chapter existed on and before June 30, 2007.”)

[2] O.C.G.A. § 31-32-3. (“Living wills, claims, rights, or remedies executed or accrued prior to July 1, 2007 The provisions of this chapter shall not apply to, affect, or invalidate a living will or durable power of attorney for health care executed prior to July 1, 2007, to which the provisions of former Chapter 32 or Chapter 36 of this title shall continue to apply, nor shall it affect any claim, right, or remedy that accrued prior to July 1, 2007.”)

[3] O.C.G.A. § 31-32-5.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

The Importance of Planning When You Have Capacity

In Georgia, incapacity planning takes several forms.  With planning documents, such as Advance Directives and Financial Powers of Attorney, one can designate who can make important life decisions, without the intervention of a court.  The downside to these documents, however, is that they must be executed when a person has sufficient capacity.  Unlike last will and testaments, Advance Directives and Financial Powers of attorney require more than just testamentary capacity to execute, and instead require the higher standard for contracts.  Another problem is that people with dementia may, in their illness, revoke the documents out of suspicion, thereby necessitating the use of a guardian and conservator.  However, even in that situation the documents do help a court determine who the proper person should be to serve as guardian and conservator.  Of course, particularly with Financial Powers of Attorney, it is essential that the agents named be very trustworthy.

            Trusts are probate avoidance devices.  Any property that is put into them becomes a non-probate asset, and thus not subject to probate proceedings.  Trusts may also have provisions to deal with incapacity.  However trusts have no control over assets that are not placed into them, either by deed, bill of sale, transfer of title or testamentary disposition.

iPad for Legal Research

I have been using my iPad for legal research for awhile now.  I love the fact that it is much like reading a book, and just seems easier to browse larger cases and treatises than on my Macbook Pro (although I am liking some of the full screen reading options in the newer Mac apps).  BNA Tax Management Portfolios work great, no issues at all.  With Printopia setup on my Macbook Pro, I can even print if I need to.  I do not subscribe to WestlawNext, and instead subscribe to regular Westlaw.  After shutting off popups of cases in settings on Westlaw, and remembering to use two fingers to scroll on my iPad, this seemed to work great in Mobile Safari.  However, recently I have had difficulty in getting the cases to display properly, and have switched to using icab mobile (with icab set to display in regular safari mode).  This seems to work great.

As for apps, I really like the Blacks Law Dictionary, since it lets me search by topic under the key number system on Westlaw (I may be the only person still using key numbers....I don't know).  I also have the tax code and regs on there, and Fastcase as a backup for looking up case law.  There are some great financial calculators as well.

Asset Protection: Traps to Avoid!

The following is an outline of the various legal issues that can arise when creating an asset protection plan. Moreover, this list contains some of the various laws that can be violated through careless planning, with severe consequences.

1. Bankruptcy

Bankruptcy is a difficult area for asset protection planning, considering the wide reach of bankruptcy trustees, as well as look-back period for fraudulent transfers. Under 18 U.S.C.A. § 152 anyone who knowingly conceals property from a trustee, makes a false oath, false claim, provides false evidence or alters, destroys or mutilates evidence, can be fined and/or imprisoned for up to five years.

2. Tax

Under 26 U.S.C.A. § 7206 anyone who willfully makes statements on any return, conceals property with intent to defraud, or who counsels someone to makes such false statements or commit such fraud, is guilty of a felony and can be fined $100,000 and or imprisoned for up to three years. 26 U.S.C.A. § 7212 provides fines and imprisonment to those who attempt to obstruct or interfere with the administration of tax laws.

3. RTC and FDIC

Under 18 U.S.C.A. § 1032 one can be fined and/or imprisoned for concealing assets or impeding “the Federal Deposit Insurance Corporation, acting as conservator or receiver or in the Corporation's corporate capacity with respect to any asset acquired or liability assumed by the Corporation under section 11, 12, or 13 of the Federal Deposit Insurance Act, the Resolution Trust Corporation, any conservator appointed by the Comptroller of the Currency or the Director of the Office of Thrift Supervision, or the National Credit Union Administration Board, acting as conservator or liquidating agent.”

4. Money Laundering

Attempting to hide the source of money or failing to properly report money transactions can result in fines and imprisonment. Under 18 U.S.C.A. § 1957, a person who engages in a monetary transaction in criminally derived property greater than $10,000.00 can be fined and/or imprisoned.

5. Defraud the United States

18 U.S.C.A. § 371: “Conspiracy to commit offense or to defraud United States: If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both. If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor.”

6. Mail and Wire Fraud

18 U.S.C.A. § 1341: This section punishes those who commit fraud using mail and wire transactions.

7. RICO

18 U.S.C.A. § 1962 “Racketeer Influenced and Corrupt Organizations.” The RICO laws enumerate severe civil and criminal penalties for using entities to further crimes, fraud, etc.

8. Misprision of felony

18 U.S.C.A. § 4 : “Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both.”

9. Uniform Fraudulent Transfers Act

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay, or defraud any creditor of the debtor; or (2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (B) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.

10. Conclusion

Therefore, there are numerous laws prohibiting the fraudulent transfer of assets, including ones prohibiting using the mail or wires or hiding the transactions in entities. Remember as well that the courts have broad powers to allow discovery and force disclosure of assets. Any asset protection plan adopted must take into account these laws and must be able to survive the light of day, as hide the ball strategies may fail with determined creditors, and anger courts.