February 2, 2012 0

Poisonous Estate Planning

By admin in Estate Planning & Wealth Protection

Authored by: Dorothy J. Santos

Here’s a case for making sure you choose the right spouse and friends in life.

A New York State court recently held a widow and her two friends liable in connection with the production of a “sham” Will for the widow’s deceased husband and its admission to probate.  The court’s decision illustrates a terrible family tragedy and the grave consequences of failing to follow the law in this area and doing “favors” for friends or family.    

After the death of the widow’s husband in 2005, the widow convinced her two friends to witness a fake Will for the decedent backdated to 2003.  The widow subsequently offered the fake Will for probate and her two friends executed Attesting Witness Affidavits in support thereof containing false information.  Such an affidavit from witnesses usually states that the witness saw the testator sign the Will, was in the presence of the testator (& the other witness) when he or she signed the Will and that the testator was competent when the Will was executed.

Under a bit of pressure from law enforcement officials, the widow’s two friends came clean about the circumstances surrounding the sham Will when they were given immunity in exchange for cooperating and testifying against the widow in her criminal prosecution for the decedent’s murder.  The widow was subsequently convicted of her husband’s murder by poisoning him with anti-freeze!!  

During the civil suit, after admitting to falsely witnessing the fake Will and signing Affidavits containing false information, the widow’s friends offered “poor me” apologies to the decedent’s son, his sole heir and distributee under New York law by reason of the widow’s murder of the decedent.  In the judge’s opinion, such apologies evoked only “a feeling a nausea and an urge to vomit.”  One friend of the widow testified that she was just trying to do her friend a favor and that she did not understand the legal ramifications of her actions.

Although the widow’s two friends “skated away from their criminal responsibility through the receipt of immunity,” the judge refused to allow them to escape civil responsibility to the decedent’s son.  The judge ordered the widow and her two friends to pay the decedent’s son compensatory damages equaling the value of the decedent’s estate less certain deductions and $250,000 in punitive damages since the “conduct of all three defendants was so repugnant and reprehensible so as to satisfy the threshold of moral culpability necessary to allow the imposition of punitive damages.”  In addition, the Court awarded reasonable attorney’s fees to the decedent’s son given the “egregious conduct” of the widow and her two friends. 

The widow is currently serving a 47-year-to-life sentence for second-degree murder and attempted murder.  She also received 1⅓ years for filing a false instrument in connection with the sham Will. 

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January 23, 2012 0

Andy Thompson selected for class of 2012 of the Institute for Georgia Environmental Leadership

By sustainability in Environmental and Sustainability Law

SGR Partner Andy Thompson has been selected to be a member of the class of 2012 of the Institute for Georgia Environmental Leadership (IGEL).

IGEL is a leadership training program that partners with the Center for Ethics and Corporate Responsibility at Georgia State University’s J. Mack Robinson College of Business in order to build and sustain a diverse network of environmentally educated leaders who will help resolve Georgia’s environmental challenges. IGEL has an alumni network of over 300 graduates from 57 different counties in Georgia and Andy is one of approximately 30 participants in the IGEL class of 2012 which includes members with a proven leadership record from a variety of backgrounds including agriculture, business and industry, federal, state and local governments, non-profit organizations, and educational institutions.

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January 16, 2012 0

Meeting 2010 Energy Standard Saves Buildings 18.5%

By sustainability in Environmental and Sustainability Law

The Department of Energy (DOE) announced recently that buildings that meet 2010 energy efficiency standards use 18.5% less energy than structures using a previous standard. 

DOE simulated 16 different building types of various sizes in 15 climate locations to analyze energy codes published by the American National Standards Institute/American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) and the Illuminating Engineering Society of North America. 

The analysis showed that buildings meeting ASHRAE Standard 90.1, Energy Standard for Buildings, Except Low-Rise Residential Buildings, save commercial building owners energy and money, as well as help meet sustainability goals and reduce carbon pollution. Some of the changes in the new standard resulting in greater savings include day lighting controls under skylights and commissioning of day lighting controls, increased use of heat recovery, control of exterior lighting and efficiency requirements for data centers.  

“Buildings are the largest energy-consumers in the US, more even than industry or transportation, “says Wayne Robertson, president of Atlanta-based sustainability consulting firm Energy Ace. “So, every therm and kilowatt-hour we can save leaves more for our next generations and improvements in energy efficiency in buildings are some of the best payback investments a building owner can make.”

When DOE issues a final determination, states are expected to review the new code provisions and update their own state building codes to meet or exceed the new standard within two years. Certification statements by the states are due October 18, 2013. 

For more information about energy efficiency and sustainability, please contact Steve O’Day or Jessica Lee Reece. A complete copy of the DOE final determination regarding Standard 90.1 is available here.

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January 10, 2012 0

Taxpayers Take Notice: IRS Issues New Voluntary Disclosure Guidelines for Overseas Accounts

By admin in Estate Planning & Wealth Protection

Authored by: Scott Harty, Esq.

On January 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program (the “2012 OVDP”) to U.S. taxpayers who wish to voluntarily disclose unreported offshore assets.  Taxpayers wishing to participate in the 2012 OVDP must file amended returns for the years covered by the 2012 OVDP (generally the prior 8 years); pay any unpaid taxes, penalties, and interest; file FBAR Forms (Form TD F 90-22.1) for all undisclosed foreign accounts held by the taxpayer during the period covered by the 2012 OVDP; and pay a one time penalty equal to 27.5% of the highest aggregate balance of the taxpayers unreported foreign assets during the years covered by the 2012 OVDP.  Specifically, the offshore penalty applies to any and all of a taxpayer’s offshore holdings that are in any way related to non-compliance with the U.S. tax laws.  Therefore, the penalty applies not only to bank accounts, but also to tangible assets such as art or real estate. 

Unlike the IRS’s first two offshore voluntary disclosure programs (the 2009 and the 2011 programs), there is no deadline by which taxpayers wishing to participate must submit all of their data.  Otherwise, though, the terms of the 2012 OVDP are virtually identical to the terms of the 2011 program (with the exception of the offshore penalty being increased from 25% to 27.5%). The availability of the reduced 5% and 12.5% offshore penalty for certain taxpayers remains unchanged.  Nevertheless, taxpayers wishing to voluntarily disclose their offshore holdings should attempt to comply as soon as possible, as the IRS reserved the right to change or amend the terms of the 2012 OVDP at their discretion. 

While the 2012 OVDP, like the 2009 and 2011 programs, offers taxpayers a fairly well defined means of bringing their account into full compliance, some taxpayers will be better served by disclosing their foreign assets outside the confines of the 2012 OVDP. 

If you are unsure whether the 2012 OVDP is the best option for your circumstances, please contact Scott Harty in Smith, Gambrell & Russell’s tax practice to discuss the various options available to you.

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January 9, 2012 0

EU Regulation of Airline Emissions Begins

By sustainability in Environmental and Sustainability Law

Flights to Europe might just become a bit more expensive. 

In an effort to reduce carbon dioxide emissions and the impact of climate change, since 2005, the European Union has enforced an Emissions Trading Scheme (“ETS”) to regulate the carbon emission from more than 11,000 utilities and manufacturers. In November 2008, the ETS was extended to airlines. 

As of January 1, 2012, under the ETS, any airline arriving at or departing from the EU must have sufficient carbon emission allowances or pay a fine. In 2012, international carriers will be given emission allowances making up 85 percent of the emissions cap set for 2012 and will have to buy the remaining 15 percent at auction. According to the International Air Transport Association, the ETS could cost airlines $1.6 billion this year. It is estimated that the airline industry contributes roughly 2 percent of the total carbon dioxide emissions created by human activity. 

Approximately 40 nations oppose the EU plan and the U.S. House of Representatives passed recent legislation prohibiting domestic carriers from participating in the program. Yet the European Court of Justice recently issued a statement in support of the ETS, saying the “emissions trading scheme is valid,” according to the Agence France Presse. 

A number of airlines are passing the expense of compliance to consumers. Recently, Delta Air Lines announced it will add $6 to the cost of a round-trip ticket to Europe to cover its anticipated costs. US Airways, American Airlines and United Continental are following Delta’s lead. Meanwhile, representatives of the airline industry claim other efforts, such as new aircraft and engine designs that promise to dramatically reduce emissions, are the better solutions to the problem. 

For more information regarding regulation of emissions, please contact Steve O’Day or Jessica Lee Reece. For questions about the air transport industry, please contact Pete Barlow or Nick Ivezaj.

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January 4, 2012 0

The Weekly Environmental & Sustainability Round-up

By sustainability in Environmental and Sustainability Law

1) Panel Orders EPA to Delay Cross-State Emissions Rule 

The U.S. Environmental Protection Agency must delay implementing rules on interstate air pollution on Jan. 1, a federal court ruled, siding with electric power producers seeking to defeat the new regulations. A three-judge panel of the U.S. Appeals Court in Washington granted a request by electric power producers and other challengers to delay the deadline for plants in 27 states to begin reducing emissions of sulfur dioxide and nitrogen oxide while the court considers the rule’s legality. (Source: Bloomberg Businessweek, 2011-12-31)

2) EPA Faced Challenging 2011, Big Decisions Expected in 2012 

Environmentalists swiped at the EPA for not doing enough to protect the environment and curb pollution, while conservatives say the agency is destroying American jobs. But they’re poised to reveal some big decisions in 2012. (Source: Public Radio International, 2011-12-27)

3) Wind Turbine Firms File Trade Complaint Against China, Vietnam  

Four domestic companies that make most of the steel towers for wind turbines in the United States filed a trade complaint against China and Vietnam, seeking tariffs in the range of 60 percent. The action is a significant new skirmish in an emerging green energy trade war. (Source: The New York Times, 2011-12-29)

4) EU Court Approves Charging Biggest Airlines for Emissions 

United, Continental and American Airlines and their trade association have failed to block a European Union law that charges airlines flying to EU destinations for their greenhouse gas emissions. The Court of Justice of the European Union ruled that the EU law that brings aviation activities into the EU’s emissions trading scheme is valid.

(Source: Environment News Service, 2011-12-22)

To have “The Weekly Environmental & Sustainability Round-up” sent straight to your inbox, sign up for SGR’s weekly Environmental & Sustainability newsletter by emailing sustainability@sgrlaw.com. Please note that the articles above do not necessarily represent the views or opinions of SGR and its attorneys.

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January 4, 2012 0

EPA Releases New Rules on Power Plants

By sustainability in Environmental and Sustainability Law

On December 21, 2011, the U.S. Environmental Protection Agency (EPA) unveiled its Final Mercury and Air Toxics Standards (MATS) for Power Plants in what has been called one of the most important anti-pollution measures in recent memory by environmental groups and criticized by others who predict a strain on the nation’s power grid and lost jobs. 

Under the new rules, EPA imposes strict new limits on the amount of mercury, acid gasses and other pollutants emitted by coal and oil-fired power plants. The new standards will impose numerical emission limits for all existing and future coal plants and propose a range of “widely available, technical and economically reasonable practices, technologies, and compliance strategies,” to meet the new demands. 

By the agency’s own estimates, implementation of MATS will cost $9.6 billion, but EPA anticipates that healthcare costs will be reduced by between $59 billion and $140 billion by 2016 as a result of the rule, and that the new regulations will prevent 17,000 premature deaths each year. The agency does acknowledge the regulations will result in increased power grid strain: by its own estimate, 14.7 gigawatts of power supply—enough to power approximately 10 million households—will be eliminated from the domestic power grid when the rules take effect by 2015. 

For more information about the new federal rules, please contact Steve O’Day (soday@sgrlaw.com), Phillip Hoover (pehoover@sgrlaw.com) or Jessica Lee Reece (jreece@sgrlaw.com).

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January 4, 2012 0

From Super Committee to Sensible Estate Tax and Beyond…

By admin in Estate Planning & Wealth Protection

Authored by: Neeli Shah, Esq.

In light of Congress’s recent quest to find new sources of revenue and the looming changes to the estate and gift tax regimes, the time to focus on estate planning to make optimum use of current planning opportunities is now. 

Super-Committee

On August 2, 2011, the Budget Control Act of 2011 created the Super Committee, whose sole mission was to find new sources of revenue in their quest to reduce the U.S. deficit.  The estate and gift tax regimes were expected to be its prime target.  In early November, there was significant speculation (in the estate planning community) that the Super Committee would propose legislation to reduce the current $5 million federal estate and gift tax exemption amount to the 2009 levels to $3.5 million or even as low as the pre-2001 levels to $1 million.    However, late last year, after months of negotiations, the Super Committee threw in the towel and issued the following statement: 

“After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.” 

Under the current law the $5 million exemption at the top rate of 35 percent is currently set to expire on December 31, 2012, when the exemption amount will be lowered to $1 million at the top rate of 55 percent.  Nevertheless, the recent speculation due to the establishment of the Super Committee and the uncertain economic and political environment has focused our attention on the possibility that the window of opportunity for our clients to transfer up to $10 million of capital (per couple) free of all transfer taxes may not be available through the end of 2012. 

Sensible Estate Tax Act of 2011

In fact, on November 17, 2011, even before the Super Committee released its statement, Jim McDermott, a senior member of the House Ways and Means Committee, introduced HR 3467, the Sensible Estate Tax Act of 2011 (the “Bill”).  Congressman McDermott stated that the Bill will “fix” the estate tax by providing “the kind of certainty that practitioners and taxpayers have been calling for since the Bush tax cuts took effect.”

The Bill proposes to reduce the estate tax exemption amount to $1 million for decedents dying after Dec 31, 2011 at a top estate tax rate of 55 percent.  The Bill includes provisions designed to co-ordinate with the gift tax to reflect the decrease in the applicable credit amount, allows portability of estate and gift tax exemptions between spouses, calls for consistent basis reporting, and restores the state death tax credit.  The legislation also includes a number of critical provisions designed to close estate and gift tax “loopholes” as follows:

  1. Valuation and Minority Discounts – The Bill eliminates (i) valuation discounts with respect to certain assets which are not used in the active conduct of one or more trade or business, and (ii) lack of control discounts if the transferee and the transferee’s family members have control of the entity. 
  2. Minimum 10-year Term for GRATs – The Bill requires that a Grantor Retained Annuity Trust (“GRAT”) have a minimum 10 year term.  The Bill also prohibits annuity payments to be reduced from one year to the next for the first 10 years.  Finally, the Bill requires the remainder interest to have a value greater than zero at the time of transfer. 
  3. GST Tax Exemption – The Bill also limits the use of GST tax exemption past 90 years.  Thus, the Bill would limit the duration of any dynasty trust to 90 years despite the respective state law rules, which typically determine the duration of a trust. 

While it is unlikely that the Bill will pass, it is the first attack in what may become a combative political battle over the next year.  Some of the Bill’s provisions have been on Congress’s radar for quite some time now, and if enacted, would eliminate several major tax and estate planning opportunities.  These political and tax issues will not fade so quickly from the public mind as there is noticeable anger from many citizens over the tax benefits received from a relatively small population of affluent taxpayers and disparities in income levels all of which have been partly to blame for fueling protests across the U.S.  But how Congress chooses to find budget cuts, and where the lines will be drawn, is beyond prediction.  Thus, it is important for clients looking to make large transfers to future generations, free of gift, estate and GST taxes, to consider doing so now. 

2012: Practical Planning Tips for Clients

For clients who wish to make gifts, but still want to retain some control of the assets, a popular way of using the $5 million gift tax exemption is for one spouse to make a gift to an “inter-vivos credit shelter trust” (also commonly known as a “By-Pass” trust) for the lifetime benefit of the Grantor’s spouse and descendants.  An inter-vivos credit shelter trust is typically structured as an irrevocable trust and is very similar in terms to a standard credit shelter trust created under a one’s Last Will and Testament or Revocable Living Trust.   As such, the donor’s spouse and children can be permissible beneficiaries and get the income (& discretionary distributions of principal) from the trust during the spouse’s lifetime and at the spouse’s death, the trust property will pass to the trust beneficiaries (typically donor’s children) free of estate taxes.  With this approach, the income from the trust can still be used for the ‘marital unit’ if the client is concerned that large gifts may unduly impoverish the donor and his or her spouse.  However, the donor gets the tax benefit of having the assets being excluded from the donor’s and his or her spouse’s gross taxable estate.  An inter-vivos credit shelter trust is also ideal for the spouse because the spouse can be the trustee, have a limited power of appointment (exercisable at death of in life), and the trust is protected against claims of both the donor’s and spouse’s creditors.  Careful planning is required if both spouses want to attempt to use their federal gift exemptions within this planning strategy.

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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December 21, 2011 0

If It’s Broken, Fix It! (Part II)

By admin in Estate Planning & Wealth Protection

Authored by: Paul J. Sowell, Esq.

A recent amendment to New York law gives more Trustees the ability to fix or otherwise change the terms of a trust.  Specifically, Governor Andrew M. Cuomo recently signed a bill amending Section 10-6.6(b) of the Estates, Powers and Trusts Law, commonly referred to as New York’s “decanting” statute.  In this context, decanting is the process of a Trustee distributing trust property from one trust to another.  Decanting is oftentimes used to change the terms governing an irrevocable trust by distributing trust property from a “broken” or antiquated trust to a newly-created trust with new and improved terms. 

New York was the first state to enact a decanting statute.  One main goal of the recent amendment of the law was to increase the flexibility of the law and bring it more in line with the law of the other states that now have decanting legislation.

Of course, there are many reasons that a fiduciary of a trust and the family members might want to change the terms of the trust, including correcting drafting errors and making the trust more tax efficient for the beneficiaries. 

Under prior law, a Trustee could only decant a trust if the Trustee had “absolute” discretion to distribute the principal of the trust to the beneficiaries.  For example, if a Trustee’s discretion to distribute principal was limited to the ability to distribute principal for the health, education, maintenance, and/or support of the beneficiaries, the Trustee’s discretion was not absolute and the Trustee could not decant the trust.  Under the new law, even if a Trustee’s discretion to distribute principal is limited, the Trustee may decant the trust.  This change in the law provides an opportunity to Trustees with limited discretion to change the terms governing the trust because of a drafting error, changed circumstances, etc. 

It is important to note that there are certain restrictions imposed by the new law when decanting a trust.  For instance, there are certain requirements regarding the identity of the beneficiaries of the new trust and the level of discretion of the Trustees of the new trust.  When decanting a trust, it is imperative that the Trustees comply with all applicable requirements and make sure that their proposed action does not violate any restrictions imposed. 

What if your trust is located in a state which does not have a decanting statute? If the trust agreement allows for a change of situs of the trust, then the trustee may move the trust to New York, or any other state, which allows for decanting. The trust will need to have some legal nexus with the new jurisdiction, such as a local trustee, in order to be governed under that state’s laws.  Once the trust is moved, the trustee may then decant the trust to another trust.

There are some complex tax issues which need to be addressed before such a change in situs occurs. One must determine if the Trustee who is exercising the change in situs is considered an “interested trustee”.  A trustee who is the grantor or a beneficiary of the trust could, under the laws of some states, create a taxable situation due to the fact that changing the situs of the trust may ultimately effect how the trust’s beneficiaries are treated. Note that this power to change the situs of the trust, even without exercise, may raise unwanted tax consequences so it is best to closely examine the trust in question and ensure that the power to change situs is only exercisable by a disinterested trustee. If the trust does not have such a power to change the situs by a disinterested Trustee, then the only alternative may be to petition the local court to allow for a change in situs. Depending on the size of the trust and the issues involved, this may be warranted.  It must also be noted that it may be prudent in any event for a trustee who questions whether or not it is necessary to amend (or decant) a trust to have a written opinion in his or her trust records to show that this issue was reviewed by counsel familiar with these issues.

In summary, the new New York law may provide a solution for Trustees with limited discretion who find themselves administering an antiquated or “broken” trust or dealing with changed and unanticipated circumstances. Furthermore, trustee(s) who administer trusts outside of New York may find it prudent to consider changing the trust’s situs to New York to avail themselves of the amended law.  If you have created a trust or are the Trustee of a trust that may require a change in terms, please contact us if you would like to learn more about these planning options.

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December 8, 2011 0

Absolute Pollution Exclusion in Liability Policy Enforced in Florida

By sustainability in Environmental and Sustainability Law

Insurers and insureds in Florida should check their liability insurance policies for absolute pollution exclusion language.  If present, and if pollution liability is a possibility, insureds should explore the purchase of pollution liability coverage.  

Earlier this year, the United States Court of Appeals for the 11th Circuit had occasion to interpret an absolute pollution exclusion clause under Florida law.  Markel International Insurance Co. v. Florida West Covered RV & Boat Storage LLC (No. 11-11511, 8/1/11). 

The claim was filed by the renter of a storage unit who claimed he contracted a bacterial infection when he had to wade through roadwork millings in flood water to retrieve his personal property from a storage unit.  The storage company sought defense and indemnity from Markel International Insurance Company, which then filed a declaratory judgment action.  The district court granted the insurer summary judgment under the absolute pollution exclusion.  

The Eleventh Circuit affirmed, ruling that the district court correctly used the dictionary definitions of the terms “irritant” and “contaminant” used in the absolute pollution exclusion clause, and finding that a product that causes no harm when used properly may still be classified as a pollutant under the exclusion when used improperly.  

For information or an evaluation of pollution insurance issues, contact Steve O’Day (soday@sgrlaw.com).

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