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Alert: Notice to Employees Due October 1, 2013 (Patient Protection Affordable Care Act)

Sep 20, 2013   //   by Preston Delashmit   //   Articles  //  No Comments

We wanted to share with you some important information for small business owners (and it is time-sensitive). Please alert your colleagues and fellow business owners/entrepreneurs:

We’ve been alerting small business owners (who assumed that the “ObamaCare” regulations did not apply to them because they employ fewer than 50 employees, or otherwise, that they were off the hook for compliance until 2015) that they may be facing an impending penalty and expensive wake-up call next month.

Beginning October 1, 2013, any business with at least one (1) employee and $500,000 in annual revenue (the definition captures the majority of small businesses) must notify all employees by letter about the Patient Protection Affordable Care Act’s (the “ACA“) health-care exchanges, or face up to a $100-per-day fine (under the general penalty provisions). Because the ACA amended the provisions of the Fair Labor Standards Act to add the notification requirements, the requirement applies to any business regulated under the Fair Labor Standards Act (the FLSA — those subject to the standard above: at least one employee and $500,000 in revenue). Going forward, letters are to be distributed to any new hires within 14 days of their starting date, according to the Department of Labor.

The Department of Labor ( has published Technical Release 2013-02 outlining the Notice Requirement and providing model forms of Notice to Employees asserting that:  “FLSA section 18B requirement to provide a notice to employees of coverage options applies to employers to which the FLSA applies. In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies. The FLSA also specifically covers the following entities: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies.” The DOL Technical Release 2013-02 does not state that the Notice is optional or that no penalty will apply for failing to comply with this requirement (and only did so informally last week — stay tuned).

Earlier this summer, the employer mandate, which states that every business with at least 50 or more full-time employees must offer workers acceptable coverage or face a $2,000 penalty per-worker, per-year, was pushed back until 2015. But the October 1st employee-notification deadline stands. The general compliance penalty under the ACA (a fine of $100 per-day) has been unfortunately overlooked by many small businesses. Because this notice requirement is now a part of the FLSA there are also penalties there. So the general consensus among practitioners is that some penalty applies and probably the general provision.

This controversy has gained momentum over the past week, because it is unclear how the government will implement the penalty (it appears to be self-reporting). Naturally, the White House declined to comment on how the fine would be implemented, but deferred to the U.S. Small Business Administration, which says education on this FLSA requirement has been part of “any and all outreach that SBA does with small business owners.” The agency says it has participated in more than 750 ACA-related events with more than 30,000 small business owners and community stakeholders since February 2013.

On September 12, 2013, Meredith K. Olafson who is Senior Policy Advisor for the U.S. Small Business Administration (she oversees the agency’s education and outreach efforts around health care and the Affordable Care Act) claimed in her blog post that there is no fine imposed for failing to provide the notice “Myth vs. Fact: Myth #3: Business Owners Will Be Fined If They Don’t Notify Their Employees About the New Health Insurance Marketplace (Created: September 12, 2013, 3:41 pm and Updated: September 12, 2013, 3:41 pm). Ms. Olafson states in her blog post that:  “As part of our ongoing blog series, “Myth vs. Fact: The Affordable Care Act and Small Business,” this week we’re debunking another common myth: Business owners will be fined if they don’t provide notification to their employees about the new Health Insurance Marketplace.  Fact: If your company is covered by the Fair Labor Standards Act, you must provide a written notice to your employees about the Health Insurance Marketplace by October 1, 2013.  However, there is no fine or penalty under the law for failing to provide the notice.”

Ms. Olafson does not, however, reference any of the general penalty provisions or cite any authority or precedent to explain why the general penalties do not apply for failing to comply (other than a naked and unsupported assertion that there is no penalty). It appears that Ms. Olafson was relying upon in an informal FAQ response posted on the Department of Labor website (under the topic Affordable Care Act) as follows:

FAQ on Notice of Coverage Options

Q: Can an employer be fined for failing to provide employees with notice about the Affordable Care Act’s new Health Insurance Marketplace?

A: No. If your company is covered by the Fair Labor Standards Act, it should provide a written notice to its employees about the Health Insurance Marketplace by October 1, 2013, but there is no fine or penalty under the law for failing to provide the notice.

Nevertheless, the general consensus among experienced practitioners, is that compliance is a better approach. When the requirements of the law include the word “shall” it is generally interpreted as mandatory — not permissive or optional. Perhaps the government will choose to waive the penalty or choose not to enforce the penalty provisions on unsuspecting small businesses, but there is risk involved in assuming that position.

Furthermore, due to the breadth and scope of the ACA, other legal exposure may arise from failure to comply. For example, some practitioners have suggested that small businesses who offer an ERISA-covered plan providing health benefits to employees, may be subjecting themselves to ERISA liabilities for failing to notify employees if an employee asserts damage. This exposure may arise in the form of litigation (as opposed to a fine that the government seems to suggest that it will not enforce).

Please contact us if you would like more information regarding the DOL Technical Release 2013-02 (with links to the Model Notice Forms). Please note that the form suggests that page 3 is optional.

Preston C. Delashmit


UPDATE – SEC Announces Rule to Eliminate Prohibition on General Solicitation and General Advertising (Rule 506)

Jul 10, 2013   //   by Preston Delashmit   //   Articles  //  No Comments

After much anticipation, the SEC announced today that it had adopted a new rule to implement a JOBS Act requirement to lift the ban on “general solicitation or general advertising” for certain private offerings.

In April 2012, Congress passed the Jumpstart Our Business Startups Act (JOBS Act), and section 201(a) of the JOBS Act directed the SEC to remove the prohibition on general solicitation or general advertising for securities offerings relying upon Rule 506, provided that (1) sales are limited to accredited investors and (2) an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors. The Final Rule provides a “non-exclusive list” of methods that issuers may use to satisfy the verification requirement for individual investors (including written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser’s accredited investor status).

The Final Rule amends the Form D to add a separate box for issuers to check if they are claiming the new Rule 506 exemption that would permit general solicitation or general advertising. The SEC noted that the rule amendments become effective 60 days after publication in the Federal Register.

Piercing The Corporate Veil: Legal Exposure for Business Owners

May 21, 2013   //   by Preston Delashmit   //   Articles  //  No Comments


In this economic environment in which companies  are struggling, and sometimes failing, we’re finding that creditors (including judgment creditors) are more regularly attempting to “pierce the corporate veil” and hold the individual shareholders/members and officers of a closely-held company liable for a judgment against the company.

The Georgia Court of Appeals has stated that the “legal principle that each corporation is a separate entity, distinct and apart from its stockholders, and insulation from liability is an inherent purpose of incorporation.” Clark v. Cauthen, 239 Ga. App. 226, 227(2), 520 S.E.2d 477 (1999). “[G]reat caution should be exercised before disregarding this separateness.” Garrett v. Women’s Health Care of Gwinnett, 243 Ga. App. 53, 55-56(2), 532 S.E.2d 164 (2000). “The concept of piercing the corporate veil is applied in Georgia to remedy injustices which arise where a party has over extended his privilege in the use of a corporate entity in order to defeat justice, perpetuate fraud or to evade contractual or tort responsibility.” Baillie Lumber Co. v. Thompson, 279 Ga. 288, 289-290, 612 S.E.2d 296 (2005). To pierce the corporate veil, it is necessary to show that the shareholders disregarded the corporate entity and made it a mere instrumentality for the transaction of their own affairs; that there is such unity of interest and ownership that the separate personalities of the corporation and the owners no longer exist. Baillie Lumber Co., supra, 279 Ga. at 289-290, 612 S.E.2d 296. “Sole ownership of a corporation by one person or another corporation is not a factor, and neither is the fact that the sole owner uses and controls it to promote his ends. There must be evidence of abuse of the corporate form.” Clark, supra, 239 Ga. App. at 227(2), 520 S.E.2d 477. Evidence of such abuse can be shown by a “commingling on an interchangeable or joint basis or confusing the otherwise separate properties, records or control.” See J-Mart Jewelry Outlets v. Standard Design, 218 Ga. App. 459, 460(1), 462 S.E.2d 406 (1995).

It is important that business owners are careful “to observe the corporate form” in the operation of the company. Please contact us to assist you with reducing your exposure to legal claims against your business.

Preston C. Delashmit, Esq.

Delashmit Law Group LLC


UPDATE: Rule 506 General Solicitation (Don’t Place That Facebook Ad Just Yet)

Jul 18, 2012   //   by Preston Delashmit   //   Articles, Securities  //  No Comments

Don’t place that Facebook ad just yet, and hold off sending out that email blast, tweet or LinkedIn post to every angel investment group on the internet soliciting investors for your private offering to raise start-up capital for the most revolutionary technology since the Atari.

A word of CAUTION — the old rules still apply and we’re seeing a lot of “gun-jumping” and problematic general solicitation out there in social media.  And be advised that some of the comments from state securities administrators suggest that the text of any ad or general solicitation should be filed with a Form D for review and/or approval prior to any publication. There is heightened concern among state securities administrators around this offering process, and they tend to see gun-jumping and violations as more than just a “foot fault”.

There appears to be some guidance on the horizon. The Securities and Exchange Commission has accepted and considered many comments regarding its mandate under Section 201(a) of the JOBS Act to issue Final Rules relating to the elimination of the prohibition against general advertising and general solicitation in “private” securities offerings conducted under Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act. The SEC was unable to meet the deadline under the JOBS Act, but the SEC has announced that it will hold an Open Meeting on Wednesday, August 22, 2012 at 10:00 a.m., in the Auditorium, Room L-002 to consider this item (Item 3) among other business.

The subject matters of the Open Meeting will be:

  • Item 1: The Commission will consider whether to adopt rules regarding disclosure and reporting obligations with respect to the use of conflict minerals to implement the requirements of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
  • Item 2: The Commission will consider whether to adopt rules regarding disclosure and reporting obligations with respect to payments to governments made by resource extraction issuers to implement the requirements of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
  • Item 3: The Commission will consider rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act, as mandated by Section 201(a) of the Jumpstart Our Business Startups Act.

At times, changes in Commission priorities require alterations in the scheduling of meeting items, but we should have some direction from the SEC soon. Until then, be careful and seek the guidance of experienced securities counsel before soliciting investment (particularly via social media).

Advertising and General Solicitation Soon to be Permitted for Private Offerings Thanks to the JOBS Act

May 22, 2012   //   by Preston Delashmit   //   Articles, Securities  //  No Comments

Attention All Small Business Owners Trying to Raise Capital:  Imagine if you could advertise that you’re seeking equity investment in your company, and promote your company’s Rule 506 private offering (to qualified investors) in your local newspaper, business and trade periodicals or web portals, or even promote your offering on your website?  Perhaps soon those dreams may come true thanks to the JOBS Act (and SEC rulemaking) – but not yet.

In recent weeks, Congress passed the Jumpstart Our Business Startups Act (JOBS Act) and President Obama signed the bill (H.R. 3606) into law on April 5, 2012.  The law takes aim at some of the significant regulatory barriers to successful capital-raising for small businesses and emerging growth companies.

In particular, TITLE II (entitled “Access to Capital for Job Creators“), Section 201, requires that the Securities and Exchange Commission (SEC) shall revise Rule 506 of Regulation D (230.506 of Title 17, Code of Federal Regulations) “to provide that the prohibition against general solicitation or general advertising contained in section 230.502(c) of such title shall not apply to offers and sales of securities made pursuant to section 230.506, provided that all purchasers of the securities are accredited investors.” In addtion, the issuer must undertake reasonable steps to verify the purchaser’s accredited investor status (in accordance with rules to be promulgated by the SEC). The SEC must make the rule changes within 90 days from April 5th, so the “clock is ticking” and the SEC has announced that it is soliciting public comment prior to issuing proposed rule changes.

Of the many exemptions from registration available to businesses seeking to raise capital, in our experience, most small businesses choose to rely upon Rule 506 of Regulation D (for a coordinated private offering beyond “friends and family” for which a Confidential Private Placement Memorandum and other offering documents are prepared for sophisticated investors). One of the key considerations for choosing to rely upon the Rule 506 exemption from registration is that the federal law provides that it preempts state law registration requirements (although states may require a filing fee and certain limited information). This federal preemption feature of the Rule 506 exemption is important to the JOBS Act, because most states have adopted similar prohibitions against general solicitation or general advertising that the JOBS Act seeks to relax for the benefit of small business capital formation. Consequently, the modification of the Rule 506 exemption would be of limited utility to small businesses seeking to raise capital were it not for the federal law preemption of similar state law restrictions.

While we await guidance from the SEC regarding procedures to qualify accredited investors, and safe harbor rules regarding the nature and scope of advertising and general solicitation of accredited investors for private offerings under Rule 506, we remain hopeful that the rule changes brought about by the JOBS Act will improve access to capital for small businesses and emerging growth companies. Stay tuned for further updates.

Leveraged ESOPs Offer Multiple Advantages (Metropolitan Corporate Counsel)

Apr 19, 2012   //   by Preston Delashmit   //   Articles  //  No Comments

For more information about the many advantages of leveraged ESOP transactions, please follow the link below to the interview of Mr. Delashmit conducted by the Metropolitan Corporate Counsel publication.  Please share your questions, thoughts and comments.

Estate Planning

Nov 22, 2011   //   by Preston Delashmit   //   Articles  //  No Comments

The matters discussed in this summary involve a complex area of the law that changes constantly (particularly tax law). Therefore, despite the length of the summary, it is not all-inclusive and does not represent comprehensive legal advice, but is provided for informational purposes. Accordingly, it should not be relied upon without consulting with a qualified attorney about the specific facts and circumstances of your estate. 


Your estate is the total of all assets that you own or control, including any debts that are owed to you, minus your debts to others.  At the time of your death, your estate becomes a separate legal entity in your place.  The estate holds all of the assets and debts you had while alive, and it may enter into transactions and contracts with those assets and debts much the same as you could do while living.  Your probate estate is that part of your estate that is owned in your name and requires probate in order to transfer ownership to your heirs (who are the beneficiaries named by state statute if you do not have a Will) or devisees (who are the beneficiaries named in your Last Will and Testament).

The documents you sign during your lifetime can help in the management and distribution of your estate after your death.  There are two basic approaches: a “will-centered plan” or a “trust-centered plan.”  The most important document in each of these approaches is the foundation document, which will be either a Last Will and Testament or a Revocable Living Trust.  The choice of approaches depends upon your particular situation.  Our plans also include a Georgia Financial Power of Attorney, which authorizes other persons to manage and control your property during your lifetime, and a Georgia Advance Directive for Health Care, which allows you to nominate someone who can make health-care decisions for you when you are unable to do so (as well as give advance instructions to your health-care agent regarding treatments that you may wish to receive, or not receive, in certain health circumstances).


Probate is a process of proving the validity of a Last Will and Testament, ensuring that all creditors of the estate are paid, and transferring ownership of the assets to the heirs or devisees of a deceased person.  Under Georgia law, this is done by the probate court.  The probate court appoints the personal representative of your estate or issues “letters testamentary” to the person you have nominated.  This is the person who is responsible for the proper administration of your estate through the probate process.

The probate court will admit your Last Will and Testament to probate and determine any disputes over its validity if it is challenged by an heir or creditor.  The court will also determine the validity of any claims made against your estate by creditors and require the personal representative to submit proof that any taxes that may be owed have been paid.

What assets must be probated?  Only those assets that were owned by the deceased owner at the date of death.  Assets that the deceased person held jointly with his or her spouse (or anyone else) and assets that are owned by a trust that the deceased person established prior to his or her death do not require probate.  Likewise, life insurance, IRA’s and other benefit plans that name a beneficiary who is to be paid the benefits upon your death do not generally require probate.  Note, however, that such assets may still be subject to estate taxes within your estate.


Your Last Will and Testament (if validly created) governs much of what occurs in the probate process.  Your Will tells the probate court who is to manage your estate (the personal representative) and who is to receive your property after payment of legitimate debts and taxes.  If you do not have a valid Will, the court will require that your probate property be distributed to your heirs, who are the persons entitled under state law to receive your property.  Needless to say, these persons may not be the persons you would have chosen to receive your property (or your choice of distribution percentages may have been different).  Under such a distribution plan, part of your estate will go to your children even if you are survived by your spouse.  Such outcomes are contrary to the wishes of most people, who would, in fact, prefer that their spouse receive the entire estate, and then pass the assets on to their children after the surviving spouse’s death.

In order to have a valid Will, you must be at least 14 years of age and be mentally competent.  A Will normally must be in writing and signed in the presence of two witnesses.

Note that a Will does not avoid probate.  It guarantees that there will be a probate.  This fact is a surprise to many persons. In reality, the Will is a document used in the probate process to determine who is to receive your probate property.  A Will does not control who receives the death benefits of your life insurance, IRA’s, or other retirement plans, nor does it control the ownership of joint property or the distribution of property from a trust.  Such property goes directly to the beneficiaries named in the insurance policy, IRA, retirement plan, or trust and, therefore, does not have to go through the probate process.

If you are the parent of minor children, the Will is a document in which you can express your wishes regarding the person(s) who should be appointed as the guardian(s) of your minor children in the event of your death(s).  If you do not have a Will, there is no guarantee that the probate court will appoint the person who you believe would be the best guardian for your children.


A trust is a kind of contract between the grantor of the trust and the trustee of the trust.  It requires the trustee to manage the property of the trust and distribute the income and principal of the trust to beneficiaries named in the trust.  The trust is a separate legal entity that can own, manage, and distribute property, and pay its debts, much like the grantor can do with property held in his name, alone.

The trust is generally designed to operate for a longer time than a Will and can either be written as part of a Will or as a totally separate document.  The term “revocable living trust” usually refers to a trust that is created during the lifetime of the grantor and can be thereafter amended or revoked by the grantor.  A testamentary trust, on the other hand, is a trust that is created after the death of the grantor under the terms of the grantor’s Will.

As a general matter, Living Trusts are easy to set-up and require little on-going maintenance other than attention to the titling of assets purchased after the date that the trust is established. Living Trusts can afford an extra measure of protection against loss of control, and can help to shield your assets from the public record even after your death. Be advised, however, that a Living Trust does not provide protection against your own creditors or divorce, and does not reduce estate taxes for estates over $5 million in value ($10 million in value, if you are married and plan properly with by-pass trusts, as described below). Please note that these thresholds are likely to change year-to-year.

FLEXIBILITY AND PRIVACY OF A TRUST:  A trust can be as simple or complex as circumstances may require.  As the grantor, you can determine most of the terms and provisions of your trust.  The most commonly used trusts are revocable, which means that the trust can be changed by the grantor at any time prior to death (after death, the revocable trust becomes irrevocable).  For some people, one of the greatest advantages of a trust is that it is a private document setting forth the terms of disposition of assets, not open to public inspection, that does not require judicial scrutiny like a Will.

Trusts need not be filed with the probate court after the death of the grantor, and probate court supervision of the trust is, likewise, not required. For example, after the death of the legendary news anchorman, Walter Cronkite, articles were written describing in great detail the terms and disposition of his estate, because Mr. Cronkite had a Will that was required to be filed for probate. Mr. Cronkite’s Will, therefore, became a public document that was available for review by anyone who might be interested in seeing it for any number of purposes.

On the other hand, after the death of the legendary “King of Pop” Michael Jackson, we discovered that Mr. Jackson chose to set forth the terms regarding the disposition of his assets in the Michael Jackson Family Trust (under Amended and Restated Declaration of Trust executed on March 22, 2002) that was not made public. Mr. Jackson’s Last Will was required to be filed for probate, but the document was a “Pour-Over Will” (described further below) that directed all other assets (not previously titled in the name of his Family Trust) be transferred to the Family Trust for disposition, and set forth Mr. Jackson’s wishes regarding the care and appointment of guardians for his minor children.  In this way, a trust-centered estate plan can help to keep private your wishes regarding the disposition of your estate.

NAMING THE TRUSTEE:  During the lifetime of the grantor, the grantor may serve as the trustee of his own trust, and also be named as a “lifetime beneficiary” to benefit from the use of the trust assets.  For married couples, the spouses usually serve as co-trustees.  This is perfectly legal and avoids the necessity of involving another person or entity in transactions involving the trust property while the grantor is alive and capable of managing the trust assets.

When the grantor is also the trustee, however, the grantor should name successor trustees who can take over management of the assets upon the death or disability of the grantor.  If the grantor/trustee is no longer capable of managing his or her personal and financial matters, the trust would usually provide a mechanism by which the assets in the trust are to be managed by the successor trustee(s).  This determination would be made by a “medical committee” selected and appointed by the grantor/trustee in the terms of the typical revocable living trust.

AVOIDING PROBATE:  Trusts avoid probate of the property held by the trust.  Only property held in the name of the deceased person at the date of death requires probate.  Accordingly, many persons transfer ownership of most of their property to a trust in order to avoid probate of such property upon their deaths.  This technique may avoid multiple probates in different states (if the estate includes real estate located in more than one state).

Revocable living trusts are especially useful for avoiding the ancillary probate of real estate owned in another state (if you own real estate in a state other than the state of your residence at your death, probate of those assets may be required in each other state).  After the death of the grantor, the trust property (including real estate located in any number of states that has been titled in the name of the trust) is distributed to the beneficiaries as required by the terms of the trust.

PROTECTING MINORS AND DISABLED BENEFICIARIES:  As a general rule, all parents of minor children should have a trust receive their property upon their deaths and manage and protect such property for the benefit of the children.  If you die without a trust, a conservator may have to be appointed by the probate court to manage the property left to the children of the deceased.  When the children reach adulthood at the young age of 18 years they are entitled under Georgia law to have full control of the property left by their parents.  This is not a desirable result for most families.  A trust will allow the parents to determine in advance when their children will take over control of the property in the trust (many parents choose to have a portion of the trust assets distributed to the beneficiaries in tranches at the ages of 21, 25, and 30 as the beneficiaries mature).  The trustee would be responsible for managing the assets for the benefit of the children until the terms of the trust direct the assets to be distributed to the beneficiaries.

For persons who have disabled children or other disabled beneficiaries who are entitled to Medicaid and other governmental benefits, the trust can be designed to maximize such benefits and to ensure that governmental benefits are not lost by virtue of an inheritance from a parent or other person.  Normally, such trusts must contain a provision that requires repayment of any Medicaid benefits after the death of the disabled beneficiary.  The advantage of such a trust, of course, is that the property in the trust will not make the disabled beneficiary ineligible for Medicaid during his or her lifetime.  In order to be effective, such trusts must comply strictly with complex regulations applicable to the Medicaid program.

TAX REDUCTION AND ELIMINATION:  Many trusts are designed with features that help to reduce or eliminate federal estate taxes.  Fortunately for most people, the federal estate tax is not imposed on property left to the deceased person’s surviving spouse and only affects that portion of the estate exceeding $5,000,000 in value.  The “unlimited marital deduction” permits any citizen to transfer an unlimited amount of assets to their surviving spouse without the imposition of federal estate or gift taxes.  Nevertheless, in some circumstances a married couple may increase the amount of federal estate taxes imposed upon the total marital estate after the death of the surviving spouse unless proper planning is implemented.

This result occurs because of the so‑called “unified credit” available to each citizen, both husband and wife.  The unified credit is applied as a credit against federal estate taxes so that each spouse can pass $5,000,000 worth of property (the credit exemption for 2011) to the next generation free of federal estate taxes.  But it is a “use it or lose it” proposition.  If the first spouse to die fails to implement proper planning to use his or her unified credit, and instead transfers all of their assets to their surviving spouse utilizing the unlimited marital deduction, the credit will be lost (if not previously used by gifting assets during their lifetime).  That portion of your estate that is larger than the credit exemption will be subject to federal estate taxes.

The estate tax not only affects tangible property going through probate, but also insurance benefits, IRA’s and other survivor’s benefits that may not.  Jointly owned property is also subject to federal estate taxes.  With some exceptions, trust property will also be subject to federal estate taxes.

The applicable tax rates are extremely high, ranging from 35% to as high as 55% over the next several years!

As mentioned above, the marital deduction allows an unlimited amount of property to pass to a surviving spouse free from federal estate taxes.  The effect of this deduction is to defer any estate taxes until the death of the surviving spouse (there is no similar deduction for property left to children or other beneficiaries of your estate).

For persons whose estates exceed $5,000,000, there are various trusts that can limit or eliminate the imposition of the federal estate tax.  Perhaps the most common is the credit shelter trust (sometimes called the “bypass trust” or “marital deduction trust”) under which the credit exemption ($5,000,000 in 2011) from the estate of the first spouse to die is placed in a trust from which all income is payable to the surviving spouse (and the principal of the trust, called the “corpus,” may be used for the health, education, maintenance and support of the surviving spouse, but the surviving spouse does not have otherwise unrestricted access to these funds).  The remainder of the estate of the first spouse to die may be left directly to the surviving spouse and be free from federal estate taxes because of the marital deduction.  Because the use of principal for the benefit of the surviving spouse is restricted, the property in the credit shelter trust is not subject to federal estate taxes upon the death of the surviving spouse.

The end result is that the children of the grantors may receive $10 Million of assets free from federal estate taxes, instead of being limited to the $5,000,000 credit exemption from the estate of the last parent to die.  The $10 Million that the children receive tax-free results from the $5,000,000 in the credit shelter trust of the first parent to die, combined with the $5,000,000 credit exemption from the estate of the second parent to die.

The trusts described above can often be rather complicated because of the necessity of complying carefully with applicable tax laws and regulations.  If drafted properly, however, such trusts can enable your loved ones (rather than the government) to receive a larger share of your hard-earned property.  Because such trusts are somewhat complex, they must be drafted by an attorney who has specialized knowledge in this area of the law.

 GIFTS TO CHARITY:  Trusts are often utilized for the purpose of providing gifts to selected charities, often in combination with gifts to children and other beneficiaries.  Charitable trusts, by their nature, take advantage of the charitable deduction allowed under the federal and state estate tax laws and are irrevocable.  Usually trusts providing specific estate tax advantages must be irrevocable to be effective (such as life insurance trusts, charitable remainder trusts and credit shelter trusts).

Charitable trusts are especially advantageous for individuals who have highly-appreciated assets from which they derive little current income and who will, absent proper planning, have an estate tax problem.  Of course, gifts to charity can be an important part of any estate plan, even if tax reduction or elimination is not a stated objective.


As noted above, a trust is a common method of avoiding probate.  There are, however, other things that you can do to avoid the probate of your property after your death.

GIFTS:  Any property that you give away prior to your death will not be owned by your estate at the time of your death and will, therefore, avoid probate.  Nevertheless, it must be clear that full ownership of the property has been transferred to the donee.  Written evidence of the transfer of ownership is usually a good idea and may be required for certain types of transfers.

Unfortunately, even if the gift avoids probate, it may not avoid the imposition of estate tax (the gift tax and the estate tax are basically the same tax with one affecting property given away during your lifetime and the other affecting property transferred after your death).  The gift tax laws allow you to give away $13,000 to each donee every calendar year without imposition of federal gift taxes.  You and your spouse can combine your annual exclusions to give $26,000 to each donee.  If you exceed this annual exclusion you will be required to file a gift tax return with the Internal Revenue Service.  In some cases, there are good reasons for persons to exceed the annual exclusion but such proposals should be discussed carefully with your attorney and other tax advisors.

Gifts to minor children are often made under the Uniform Gifts to Minors Act (“UGMA“), a law adopted by most states in which a custodian controls the funds in the account until the minor reaches the age of majority (18 under Georgia law).  In other cases, gifts may be made to certain types of “minors trusts” that may allow principal distribution to the minor at a later age.  Such trusts are irrevocable and normally do not allow the grantor to retain any control over the property in the trust.  In addition to the possible advantage of removing the transferred property from the estate of the parent/grantor (and, thereby avoiding estate tax upon the death of the parent/grantor), the parent/grantor may also avoid income tax on the income earned by the UGMA account or minors trust.  Despite the apparent tax advantages, parents must carefully consider the pros and cons of making irrevocable transfers of their property to their children.

If, after giving away some or all of your property, you apply for Medicaid benefits for nursing home care or similar needs, there are also complicated regulations that determine whether the property you gave as a gift will still be counted as one of your resources (and make you ineligible for Medicaid).  Under current regulations, any property given away within 36 months of your application for Medicaid benefits will still be counted to some extent as part of your resources.  If the gift was made more than 36 months prior to the Medicaid application, such property will normally not be counted against you.

JOINTLY OWNED PROPERTY:  Jointly owned property belongs to the surviving joint owner upon the death of the other joint owner.  Accordingly, jointly owned property does not require probate upon your death.  Especially in the case of a husband and wife, joint ownership of assets is a common way of avoiding probate.  There are, however, disadvantages to using joint ownership (including adverse tax consequences), and so it should not be used as a substitute for the benefits provided by a carefully drafted Will or trust.

One disadvantage of joint ownership of real estate is that all of the joint owners must sign off on any sale or transfer of the property.  For parents wishing to make their adult children joint owners of their home or other real estate, the potential problem of placing such control in the hands of the children should be considered.  Moreover, the joint property would also be subject to claims against the children, including claims in a divorce or claims of their creditors.  Transferring ownership of the property to the parents’ trust may be a much better solution.

LIFE ESTATES:  Many elderly persons wish to deed their real estate to their children while reserving a life estate in the property.  The life estate terminates upon the death of the deceased parent, and thus, the real estate does not require probate.  As in the case of jointly owned property, however, the real estate cannot be sold or transferred unless the children sign off their remainder interest in the property.  A life estate will also be subject to estate taxes.


A financial power of attorney is a document that you create to authorize someone else to act on your behalf when you are either unable to do so or cannot otherwise be present.  Most people sign what is commonly called a “financial power of attorney” (previously referred to as a Durable Power of Attorney), which means that it is intended to continue in full force and effect even after the grantor of the power becomes disabled and incapable of acting on his or her own behalf.  The grantor may elect to have the power of attorney become effective immediately or only at such time as the grantor becomes disabled.  In either event, a financial power of attorney must be signed when the grantor is competent and able to understand the legal effect of this important document.

One of the advantages of a financial power of attorney is that it may avoid the necessity of having a court appoint a conservator to handle the business and financial affairs of a physically or mentally incompetent person (we use the word “may” because some banks and title companies, because of liability issues, may not accept the financial power of attorney unless it was signed on their form with certain formalities that they may require to assure its validity).  The appointment of a conservator will generally result in expense and red tape that can be avoided with the financial power of attorney.

A revocable living trust, discussed above, can also provide a mechanism by which the assets in the trust are managed by a successor trustee should the grantor/trustee no longer be capable of managing his or her personal and financial matters.  This determination is made by a “medical committee” selected and appointed by the grantor/trustee in the terms of the typical revocable living trust.

Despite its apparent advantages, there is no guarantee that every financial institution, title company or other entity will accept the authority of the financial power of attorney.  Sometimes a third party will want the appointee to prove that the grantor of the financial power of attorney is, in fact, unable to appear and act on his or her own behalf.  A buyer of real estate may sometimes feel a bit nervous about accepting a deed signed only by an appointee under a financial power of attorney.  For this reason, a revocable living trust containing medical committee provisions can be an effective alternative to managing this concern for real estate.  Notwithstanding these concerns, the execution of a financial power of attorney is generally a necessary part of a complete estate plan, because there may be certain assets (such as IRA’s, 401k’s and other qualified plan assets) that will not typically be transferred to your revocable living trust.

YOUR “ADVANCE DIRECTIVE” (Formerly “Living Will”)

The Georgia Legislature has authorized a form of Advance Directive for Health Care pursuant to which you can make your wishes known concerning health-care issues.  The new form of Advance Directive combines features of two documents previously known as a Living Will and a Durable Power of Attorney for Health Care. The Advance Directive incorporates the features of a Living Will so that you can set forth in writing your wishes regarding the use of artificial life support and other medical treatment in the event of a terminal illness or state of permanent unconsciousness.  For the majority of people, this means a document that states that artificial life support is not to be used to prolong the person’s life if he or she is terminally ill and the quality of life will not be enhanced by artificially prolonging life.

Georgia law also provides for the Advance Directive to replace a document called a “Durable Power of Attorney for Health Care.” By incorporating the features of the Durable Power of Attorney for Health Care, the Advance Directive names a person who has the authority to make decisions regarding the grantor’s medical care in the event that the grantor becomes incapacitated and unable to make such decisions on his or her own behalf.  In the case of married couples, the spouse is normally named as the agent or attorney-in-fact.

In the past, lawsuits have been filed in which family members have fought over the use of artificial life support for a loved one in a “persistent vegetative state” (the Terry Schiavo case in Florida being the most noteworthy case in a number of years, causing lawmakers in many states to reconsider this incredibly emotional issue). During an incredibly emotional and difficult time for a family (dealing with the terminal illness of a loved one), it can be comforting for your family and your physician to know that you have made a clear choice regarding the use of expensive extraordinary measures to prolong your life in the event of a terminal illness.  We recommend that you discuss these documents with your family and let them know that they reflect your wishes.  In many respects, these documents represent an act of kindness and concern for your loved ones who may otherwise have the burden of making a difficult and emotional decision in the event of a terminal illness.


We hope this summary will help you evaluate some of the options and alternatives you should consider in preparing an effective and meaningful estate plan.  Many of the matters covered briefly above are very complex and may require that you be provided with much more information than can be covered reasonably in this document.

If you have questions concerning the information discussed in this summary, please call me at the number listed above.  We would appreciate the opportunity to assist you with your estate planning needs.

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