HB 221 overwhelmingly passed both houses under the Golden Dome this 2017-2018 session. The bill was heavily promoted by the State Bar of Georgia via its Fiduciary Section, which also worked as a wordsmith of sorts on the bill. This legislation seeks to modernize Georgia’s power of attorney statute by outlining the duty, liability and authority for agents, co-agents and successor agents. The bill also provides for the applicability, meaning, effect and termination of a power of attorney. To be titled as OCGA §10-6B-1:81 upon signing by the Governor, the new legislation also contains a statutory form. The new law will also amend OCGA §10-6-7 and OCGA §16-8-10 concerning affirmative defenses to criminal charges related to misuse of power over another’s property. If the Governor signs it, the law will become effective by its terms on July 1, 2017. You can review the legislation for yourself here.
5. Lack of Planning: What To Do?
The most important first step is planning, but not necessarily estate planning. By the time one of these situations has begun, it’s too late for thorough estate planning. Indeed, many of these situations occur despite good estate planning. Instead, your client needs to prepare for battle. That does not mean racing to the courthouse to sue everyone in sight. It does mean thinking through your options and taking initial steps to prepare for a potential fight.
The second step is to remember that the loved one’s will is not the only issue. In fact, for most people, the will is much less important than other documents. A last will and testament controls only assets belonging to the deceased’s estate. Most people, however, do not have significant assets in their estate. Instead, most people’s sizable assets pass outside the estate, probate and are not controlled by the will.
For example, most retirement accounts, investment accounts, and life insurance policies use payable-on-death beneficiary forms which designate who gets the particular asset at issue. The will does not override these forms.
So, as an estate dispute is simmering, it is vitally important to make sure that these non-probate assets are considered. Otherwise, there is a great risk of winning the battle over the will, but losing the war over the real assets.
3. Blended Families
Despite good intentions, this can lead to problems. For example, the husband may predecease the wife who eventually loses touch or becomes estranged from her stepchildren. If the husband’s will left assets to her with the expectation that her will would pass the assets along according to their long-term wishes, all certainty is lost. She can then make a new estate plan based on her own wishes. Depending on her relationship with her stepchildren, she might decide to leave everything to her own kids.
2. Late-in-Life Spouse
For lack of a better term, “gold diggers” exist—there are individuals who seek close personal relationships with elderly persons for their own financial gain. This was the case with J. Howard Marshall and Anna Nicole Smith and John Seward Johnson (of Johnson & Johnson) and his third wife (though, despite what these high-profile cases may indicate, gold diggers aren’t limited to one sex).
Sometimes, a late-in-life spouse has no ill intentions and simply can’t get along with the preexisting children, be it over matters of inheritance or just not being welcomed (or making an effort to fit) into the existing family paradigm.
Such scenarios often result in estate disputes between the late-in-life spouse and adult children or other persons who once stood to inherit. The spouse claims true love, the children claim undue influence, and the disputes almost always are fueled by personal animus and resentment between the parties.
4. The Trusted Caregiver or Confidant
When there are no family members to take care of an elderly client, he is often forced to rely on caregivers and other professionals for care. Unfortunately, these paid professionals can, likewise, be opportunists, preying on the weakened faculties and necessary dependency of their charges. In such a case, a client’s children and grandchildren may be disinherited (or have their inheritances significantly reduced) in favor of the nurse, attorney or other caregiver.
By way of example, a number of parties are currently litigating the estate of Ernie Banks, the famous Chicago Cub and baseball hall of famer, who made substantial estate planning changes late in his life in favor of a personal nurse and to the detriment of adult family members.
1. Local/Distant Siblings
Disputes often arise when a “local” sibling provides care and support for a parent at the end of life, while the other sibling is “distant,” either physically, psychologically or otherwise. In this scenario, the local sibling typically “helps” with (i.e., controls) most aspects of the elderly parent’s life—including bank accounts, doctor appointments and care providers. Thus, the local sibling often feels entitled to more from the parent, regardless of the parent’s wishes.
Over time, the local sibling may use proximity to the parent to begin a “money grab.” For example, the local sibling is added as a signatory to the parent’s checking account, ostensibly for convenience. Sometimes the local sibling exercises such control over the parent that he or she orchestrates an entire new estate plan or arranges to be added as a joint tenant on the parent’s house. Very often it is not until the parent’s death that a distant sibling learns about what has happened. The distant sibling suspects undue influence on the part of the local sibling, and a dispute arises, often creating contentious litigation.
In the weeks following the death of Chicago Cubs shortstop Ernie Banks, it was apparent that the Banks family faced unwanted surprises and challenges. Bleacher Report columnist Tim Daniels writes that Banks’ estate was revealed to hold only $16,000 in assets, much less than expected. Additionally, Banks, in his declining health, signed a new will three months before his death, directing his estate to his caretaker instead of his family. The mourning family and other individuals involved are trying to understand how the situation came to be and where the money went.
Recently, news broke that the costs of Ernie Banks’ funeral have gone unpaid, and the provider of the service has filed a claim, effectively adding to the legal strife. Upon hearing this news, the Chicago Cubs committed to cover the $35,000 claim, as an effort to alleviate some of the burden on the Banks family.
Forbes has just published a new article written by our colleague and nationally reknowned asset protection guru, Jay Adkisson wherein Jay analyzes the Georgia Court of Appeals new decision Mahalo Investments III, LLC v. First Citizens Bank and Trust Co. (Feb 19, 2015). Mahalo had two members: Epstein and Kelly. The two members lost a $3 million judgment to the creditor, First Citizens Bank (“FCB”). FCB then followed the well-known Georgia statute to obtain a charging order, OCGA 14-11-504(c). That’s where Mahalo takes off into a new, but not unforeseen (at least as to Jay) direction .
Mahalo reaffirms the robustness of the Georgia LLC Act in that it point-blank states that creditors do not get to take over management of a LLC merely by virtue of obtaining a charging order. Creditors are limited to the status of an assignee insofar as the members’ interests in distributions to be paid by the LLC. As for the LLC, it’s “business as usual.” For the debtor member(s), the creditor stands in their shoes for any distributions made by the LLC, and the latter is to make such distributions to the creditor, not the debtor-member. Otherwise, the LLC is faced with making two distributions, one mistakenly to the debtor-member and the other will be compelled to the creditor holding the charging order. Then, the LLC is left to recoup the wrongfully paid distribution from the debtor-member. Of course, the aggrieved creditor could go after either. But, the easiest target is the LLC who basically would be in contempt of court for failing to obey the court-issued charging order.
Mahalo breakes the silence that previously existed in the area of whether a creditor must file separate lawsuits to obtain charging orders on other LLCs of which the debtor is a member. You see, Epstein and Kelly held member interests in other LLCs who weren’t named parties defendant in the Cobb County State Court suit instituted by FCB; FCB sued only Epstein, Kelly, and Mahalo Investments III, LLC. The Court of Appeals upheld the State Court’s issuance of charging orders against the other LLCs despite FCB having not named them in the original suit, nor having brought “collateral” actions against the other entities. The Court of Appeals interpreted OCGA 14-11-504(c) to mean only that the creditor must bring a “proceeding” in the sense of an Application for Charging Order in the State Court. Here, FCB had brought a “proceeding” in the form of its Application for Charging Order in State Court. Ergo, the Court of Appeals held that FCB had complied with 504(c)’s requirement merely by filing its Application for a charging order. The charging order applies to the debtor-member, not the LLC. So, the creditor obtains an assignee interest in any interest held by the debtor-member in any LLC of which the debtor may hold a member interest, regardless of whether the creditor has named that LLC in the action. Once again: the creditor need NOT institute separate proceedings for the charging order to reach each company/entity interest held by the debtor-member.
Debtor-appellants also argued that the Georgia State Court was not “a court of competent jurisdiction” because the Georgia State Court did not have personal jurisdiction over the LLCs whose interests were charged. Citing Bank of America BAC -1.71%, N.A. v. Freed, 983 N.E.2d 509, 520–521 (Ill.App.Ct.2012), the Georgia Court of Appeals reasoned that the only jurisdiction required was that over the debtor-member. Extending its logic from the preceding argument, Mahalo holds that so long as the State Court held proper jurisdiction over the debtor-member, the charging order reaches any other LLC member-interest the debtor holds, regardless of whether that entity is a Georgia LLC or even transacts business in Georgia. Reiterating the good news that the charging order gives a creditor NO management rights in the LLC, the Court of Appeals held “that under Georgia’s limited liability company act, it is only necessary for a court to have jurisdiction over the judgment debtor to have the authority to enter charging orders against the judgment debtor’s interest.”
If you think I’m being repetitive now, it’s for good reason. As Jay has been preaching for years now, the asset protection industry has marketed the concept of LLCs formed in other jurisdictions with more favorable debtor statutes concerning creditor remedies as having an advantage over other states. Mahalo now clearly establishes precedent that creditors will be deterred only by the extent of the court’s personal jurisdiction over defendant debtor-members and the domiciliary jurisdiction’s charging order statutes, and NOT those of the entity’s domicile jurisdiction. Stated another way, those Wyoming, Nevada, Alaska, Arizona, Delaware and other jurisdictions lawyers have marketed as having better charging orders than Georgia are of no value so long as the creditor may sue the debtor-member here in Georgia. Undoubtedly, creditors will use this precedent across the nation to circumvent those other states’ statutes previously thought to be more advantageous to debtors.
Jay Adkisson has written a well-thought out analysis in these areas. It’s worth a read and you can find it here. The full case may be read at: Mahalo Investments III, LLC v. First Citizens Bank andTrust Co., Inc., 2015 WL 687922, ___ S.E.2d _____ (Ga.App., Feb. 19, 2015). Full opinion at http://goo.gl/sFbjRf
Just to leave you with a positive feeling: Georgia’s freedom of contract principle remains alive and well in its LLC Act. The well-drafted LLC Operating Agreement will save more skin and provide better bang for the buck in the long run than an attempt at and “end-around” play using another jurisdiction’s LLC statutes to try to avoid creditors. Probably at least as many problems arise between members than between creditors and LLC members. The well-crafted LLC Operating Agreement may provide a better playbook to avoid bad business decisions being made in the first place and thus avoid the creditor problem before it leads to the company and its members being sued in state court. If drafted and executed properly, it may well prevent the members from remaining in the lawsuit and losing a judgment to the creditor in the first place.
Need to have your Operating Agreement reviewed or updated? Thinking of forming a new LLC? The formation documents with the Secretary of State’s Office is only the beginning. Remember: the pain of low quality is remembered long after the pleasure of low price has been forgotten. Give us a call at 404-602-0040, you’ll love doing business with WR Nichols Law!
A New York Times article from October 9, 2014 reports high satisfaction level from low-income people in three Southern states who use Medicaid. Respondents preferred Medicaid over private insurance. The study of residents of Arkansas, Kentucky, and Texas, found those surveyed preferred Medicaid compared with private coverage as the former offered better “quality of health care” and made them better able to “afford the health care” they needed. This is the same result reached by repeated surveys showing the program, much maligned as a political target as being substandard, is quite popular among the people who use it. A 2011 survey from the Kaiser Family Foundation found that 86 percent of people who had received Medicaid benefits described the experience as somewhat or very positive. A slightly more recent Kaiser survey showed that 69 percent of Americans earning less than $40,000 a year rated the program important to them or their families. Medicaid’s political opponents would have you believe that its restricted list of doctors and additional red tape make it worse than being uninsured. But, other pollsters and surveys find Medicaid ranks higher on consumer satisfaction levels than private insurance.
Kaiser’s top pollster says the Medicaid is “surprisingly popular” and has seen the program get high marks from the public for more than 10 years. The public at large rates Medicaid highly as well, saying that Medicaid is important to them and their families. Now covering some 67 million Americans, Medicaid is not the country’s largest health insurance program. Moreover, a Majority of Americans support Medicaid expansion as part of the Affordable Care Act. In fact, it’s only when compared to Medicare that Medicaid looks unimpressive, stated Robert Blendon, a public health professor at Harvard University who studies public opinion on health care issues and was a co-author on the subject recent study.
The Harvard researchers said those surveyed gave private coverage the edge when it came to seeing “doctors you want, without having to wait too long” and “to have doctors treat you with care and respect.” But Medicaid surpassed private insurance on whether the available programs enabled respondents to “be able to afford the health care you need,” and on the overall question of “quality of health care.”
Parents and children each have duties imposed on the other by society, custom and tradition. After the teen years, the family mobile dynamic often becomes broken, breaking the parent/child bond, and leading to estrangement. When carried to the extreme, vengeful or unhappy parents may seek retribution by exercising the only remaining power they have left—disinheritance.
Disinheritance may be a parental attempt to save a wayward child from alcohol or substance abuse issues. Other issues include parental concerns over a child’s spouse, concerns that a child never properly applied him/herself, abuse issues that cut both ways, or which ultimately lead to the denial of access to grandchildren.
I posit that the choice of disinheriting a child is akin to the death penalty—one reserved for only the gravest of circumstances and wrong-doing and then only implemented after a series of appeals. Otherwise, if there are siblings, they will have to deal with the repercussions the disinherited child will inevitably raise. These actions will be taken towards and involve the survivors who did inherit. Those children’s relationships with the disinherited will forever be strained until some compromise is reached or one of them dies. Moreover, the hurt inflicted by the disinheritance becomes “permanent” in the psychological sense, and there are always more than one side to any story. And, is that really the legacy any parent wishes to leave—that of being such an old, unforgiving, crotchety cuss that the parting shot with one foot in the grave was the ultimate “gotcha?”
The result of the ultimate “Gotcha!” or disinheritance, is that the surviving children who were received an inheritance is that they may have to buy peace by carving out an appropriate, equitable share to the disinherited child. In that case, the parent has effectively projected his/her own problems onto another child or grandchild, instead of having the courage and character to appropriately and properly address those issues with the estranged child themselves, during their lifetime.
And, of course, the disinherited child may bring a will or trust court action to invalidate the parent’s estate plan, with the hope of receiving an intestate share equal to the other children’s shares. Not only will the lawsuit be stressful and upsetting to the other family members, it will be particularly hard on any child who is in charge of administering the estate. Any court action will also diminish how much is left to distribute.
Reconciliation is possible, but difficult and not a frequent outcome. A better alternative is for the parent to finish life being as good a parent as he/she can be, and at least try to be better than the child, adult child or not, and leave some incentive there to stop the cycle from passing on to the next generation. Several alternatives should be considered:
· Consider reducing the inheritance until such time as when (if ever) the parent and child are reconciled;
· Put incentives in place in a trust that would reward the desired behavior and work towards normalizing the full inheritance;
· Leaving some or all of the child’s inheritance to that child’s own children (who may themselves be the objects of neglect or abuse).
Leaving a reduced inheritance demonstrates that the child was once a part of the parent’s life. It also provides an incentive to the child not to contest the will or trust. The use of incentives in a trust protects the principal, yet simultaneously incentivizes the person to turn away from destructive behaviors. The last alternative recognizes that the grandchildren are not to blame for their parent’s choices and behavior. It prevents inadvertent punishment of the grandchildren by allowing them to be recognized in the estate while bypassing the individual who was intended to be punished. While it is an alternative to outright disinheritance, I view it as the last gasp of an otherwise dysfunctional parent who themselves would rather take bitterness to the grave than to appropriately address their own role in the dysfunctional relationship and make appropriate provision to heal the dysfunction, such as funding psychological assistance or a rehabilitation program.
We will be happy to explore each option with you in confidence in our offices. Just reach out and contact us to arrange a mutually convenient time to meet.