Conservatorship

March 20, 2012

In my previous blog I wrote about the problems that can occur for children and spouses of parents who die without a valid Will.  Another issue that parents must address to protect their families in the event of such a tragedy is proper planning for their children who may be beneficiaries of life insurance policies, IRAs, 401(k)s, Certificates of Deposit, and other similar financial accounts.

Life insurance policies and many of the other types of accounts allow the policy or account owner(s) to designate primary and secondary beneficiaries to receive the funds in the event that the owner dies.  Any funds traveling from such a policy or account do not pass through the owner’s estate – and thus are not normally subject to attachment by creditors of the owner – but rather they are delivered directly to the beneficiary(s).

The intuitive decision for many individuals with young children is to designate their spouse as the primary beneficiary, and to name their child or children as secondary beneficiaries; however, this is an ill-advised strategy.  For the reasons illustrated below, a nightmare scenario can occur if minor children become entitled to receive funds as beneficiaries of a life insurance policy or other account.

Georgia statute O.C.G.A. § 29-3-1, et. seq. requires that if a minor child inherits or otherwise receives any property – including cash money – in excess of $15,000.00 in value, the property must be delivered to an independent legal conservator who acts subject to the authority of the Probate Court.  This is true even when one or both parents of the minor beneficiary are still alive, as could be the case for a child inheriting property from a grandparent or other friend or relative.

During the term of any such conservatorship, the Court will be the final authority on how conservatorship funds are managed.  The procedures and hearings involved in appointing a conservator are time consuming and expensive, and they can substantially deplete the value of the property at issue.  In addition, a court-appointed conservator charges fees and is often required to buy an insurance policy to guard against fraud – all costs that are charged to the money being held for the minor.

Perhaps the biggest problem of all is that by operation of law, when the child reaches eighteen (18) years of age the funds in a conservatorship will be delivered to the outright control of the child.  Anyone who has ever spent any time with the average eighteen (18) year old knows that this is a “magic act” in the making, as a teenager has the supernatural ability to make money disappear in the blink of an eye.

To avoid these problems and bypass the risk that a conservatorship could be established for your child, you should establish a living trust that is separate from your Will to function as a beneficiary of life insurance policies, retirement accounts, and other financial accounts for the benefit of your child.   A living trust empowers you to nominate a trustee to receive and control any funds intended for your child’s benefit, and to hold and protect those funds while your child is too young to do so for him or herself.

Depending upon the terms and provisions that you incorporate into your trust, the trustee can have the discretion to spend the trust funds for the child’s education, health, and welfare, and under Georgia law the trustee will always have a fiduciary obligation to act in the best interest of the child.

By establishing a trust, you can also select the age at which the child can acquire outright control of the trust funds.  It does not have to be eighteen (18) years of age, but rather you are permitted to require that the funds remain in the trustee’s control until the child reaches an older age as selected by you.  The oldest age of distribution that I have personally been directed to draft into a trust was sixty-two (62) – which seemed a bit extreme – but it illustrates the point.

It is crucial that the trust for insurance policies, retirement accounts, and other financial account funds be separate from your testamentary trust and estate.  You never want to make your estate the beneficiary of funds that would otherwise travel outside of your estate, e.g., life insurance, because that creates the risk that those funds would become subject to attachment by creditors of your estate.  By establishing a separate trust and making its trustee the beneficiary of such policies and accounts you can protect the funds from creditors, avoid the mandatory conservatorship issues addressed above, and establish a plan of distribution that works for the best interest of your child.

Although death may be a depressing topic for many, the issues addressed in this blog are important for those parents with young children, and unfortunately, it has been my experience over the years that people have been misinformed about this area of the law.

David L. Walker, Jr., is a partner in the law firm of Flint, Connolly & Walker, LLP in Canton, Georgia, where he represents businesses and individuals in various legal matters.

A fairness quiz for the President

February 13, 2012

From the Wall Street Journal, February 7, 2012, by Stephen Moore

Is it fair that some of Mr. Obama’s largest campaign contributors received federal loan guarantees?

President Obama has frequently justified his policies—and judged their outcomes—in terms of equity, justice and fairness. That raises an obvious question: How does our existing system—and his own policy record—stack up according to those criteria?

Is it fair that the richest 1% of Americans pay nearly 40% of all federal income taxes, and the richest 10% pay two-thirds of the tax?

Is it fair that the richest 10% of Americans shoulder a higher share of their country’s income-tax burden than do the richest 10% in every other industrialized nation, including socialist Sweden?

Is it fair that American corporations pay the highest statutory corporate tax rate of all other industrialized nations but Japan, which cuts its rate on April 1?

Is it fair that President Obama sends his two daughters to elite private schools that are safer, better-run, and produce higher test scores than public schools in Washington, D.C.—but millions of other families across America are denied that free choice and forced to send their kids to rotten schools?

Is it fair that Americans who build a family business, hire workers, reinvest and save their money—paying a lifetime of federal, state and local taxes often climbing into the millions of dollars—must then pay an additional estate tax of 35% (and as much as 55% when the law changes next year) when they die, rather than passing that money onto their loved ones?

Is it fair that Treasury Secretary Tim Geithner, former Democratic Senate Majority Leader Tom Daschle, former Ways and Means Chairman Charlie Rangel and other leading Democrats who preach tax fairness underpaid their own taxes?

Is it fair that after the first three years of Obamanomics, the poor are poorer, the poverty rate is rising, the middle class is losing income, and some 5.5 million fewer Americans have jobs today than in 2007?

Is it fair that roughly 88% of political contributions from supposedly impartial network television reporters, producers and other employees in 2008 went to Democrats?

Is it fair that the three counties with America’s highest median family income just happen to be located in the Washington, D.C., metro area?

Is it fair that wind, solar and ethanol producers get billions of dollars of subsidies each year and pay virtually no taxes, while the oil and gas industry—which provides at least 10 times as much energy—pays tens of billions of dollars of taxes while the president complains that it is “subsidized”?

Is it fair that those who work full-time jobs (and sometimes more) to make ends meet have to pay taxes to support up to 99 weeks of unemployment benefits for those who don’t work?

Is it fair that those who took out responsible mortgages and pay them each month have to see their tax dollars used to subsidize those who acted recklessly, greedily and sometimes deceitfully in taking out mortgages they now can’t afford to repay?

Is it fair that thousands of workers won’t have jobs because the president sided with environmentalists and blocked the shovel-ready Keystone XL oil pipeline?

Is it fair that some of Mr. Obama’s largest campaign contributors received federal loan guarantees on their investments in renewable energy projects that went bust?

Is it fair that federal employees receive benefits that are nearly 50% higher than those of private-sector workers whose taxes pay their salaries, according to the Congressional Budget Office?

Is it fair that soon almost half the federal budget will take income from young working people and redistribute it to old non-working people, even though those over age 65 are already among the wealthiest Americans?

Is it fair that in 27 states workers can be compelled to join a union in order to keep their jobs?

Is it fair that nearly four out of 10 American households now pay no federal income tax at all—a number that has risen every year under Mr. Obama?

Is it fair that Boeing, a private company, was threatened by a federal agency when it sought to add jobs in a right-to-work state rather than in a forced-union state?

Is it fair that our kids and grandkids and great-grandkids—who never voted for Mr. Obama—will have to pay off the $5 trillion of debt accumulated over the past four years, without any benefits to them?

Mr. Moore is a member of the Journal’s editorial board.

A letter on the law

February 6, 2012

Parents – you need to execute a Last Will and Testament.  I recently represented an unfortunate client whose husband unexpectedly died of a heart attack while he was getting dressed for work.  He was survived by my client (his wife) and their two young children, and he did not have a will.  I write that she was unfortunate, not only because her husband tragically passed away, but also because his untimely death left his widow with a real legal nightmare.

My client and her departed husband didn’t know that under Georgia law, if you are married with minor children and you die without a will your spouse is not your sole legal beneficiary.  Instead, your spouse becomes a joint heir with your children.  Generally speaking, this is not a good thing.

Effectively, this means that the ownership in all of the property of the deceased is split amongst the widow and the children.  To make matters worse, if those children are minors, the law requires that a conservatorship be set up through the Probate Court (above and beyond what is typically required to handle the deceased person’s estate).  In most cases, the conservatorship requires that the guardian of the children (who is appointed by the Probate Court) must purchase a surety bond and file annual returns with the Court.  Whenever the surviving spouse wants to take action with regard to the property that he or she inherited from their partner – such as selling or refinancing the marital residence – he or she will have to get permission from the Judge of the Probate Court to do so.  Filing the motions and attending the hearings to obtain such permission is time-consuming, expensive, and an emotionally draining exercise.

On the other hand, if a spouse with minor children dies with a valid will, the estate will be administered in accordance with the terms of the will, and the aforementioned steps are avoided.  By simply executing a valid Last Will and Testament, parents can control the disposition of their estate and avoid all of the hassles that my unfortunate client has been forced to endure.

It does not matter where you go to get a Will.  Wills are inexpensive, but they can be an invaluable form of “cheap insurance”  against hassles and expenses for your surviving family should you die.  As long as your will meets the requirements of Georgia law, your family is protected.

So please, do your family a favor.  Protect them, even after you die, with a Will.

David L. Walker, Jr., is a partner in the law firm of Flint, Connolly & Walker, LLP in Canton, Georgia, where he represents businesses and individuals in various legal matters.

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