Georgia's New Trust Code

GEORGIA’S NEWTRUST CODEPRACTICAL IMPLICATIONS FORTHEPRACTICAL IMPLICATIONS FORTHE

PROFESSIONAL ADVISOR

SHARI HARVEY MARTINPRINCIPAL

The information herein is presented for illustration and discussion purposes only and is not intended to be tax or legal advice.

2010 Revised Georgia Trust Code• Effective July 1 2010• Effective July 1, 2010

• Applies to ALL trusts

• Created before or after effective date

T i i• Testamentary or intervivos

• Generally considered “default statutes” – trust document prevails – EXCEPT

• Requirements relating to creation or validity of trusts

• Rules relating to spendthrift trusts

• Provisions regarding power of beneficiaries to change trustee’s compensation

• Duty of trustee to operate in good faith

• Effect of provision that relieves trustee from liability and statutes of limitations on actions


Georgia’s 1991 Trust Act was one of the models for the Uniform Trust Code, first enacted in 2000.

Client’s Existing Estate Plan• Will dated 4/1/99• Will dated 4/1/99

• Creates testamentary trust for adult child

• Pours over into Living Trust dated 4/1/86

Ab l• Absent any powers clause

• Living Trust dated 4/1/99

• Absent any powers clause

• Absent any statement with respect to revocability

• Creates trust for grandchild and is absent language regarding reports to beneficiary

• Irrevocable Insurance Trust created 3/15/10

• Oral


Impact of New Georgia Trust Code on Existing Plan• OCGA §53 12 260• OCGA §53-12-260

• Powers are now automatically granted to a trustee.

• Powers are NOT automatically granted to executor.

V li i d d l i d §53 7 1 h h• Very limited powers granted to personal representative under §53-7-1 through§53-7-6.

• OCGA §53-12-40 (unchanged)

• Living trust is deemed irrevocableLiving trust is deemed irrevocable.

• OCGA §53-12-242

• Duty to notify “qualified beneficiaries” of existence of trust and contact information fortrustee.

• Duty waived for pre - 7/1/2010 irrevocable trusts.

• OCGA §53-12-243

• Reports required in absence of contrary language.p q y g g

• Repeal of OCGA §53-12-22.1

• Oral insurance trusts no longer recognized.

• Oral ILIT would need to have been committed to writing within 6 months of creation


Oral ILIT would need to have been committed to writing within 6 months of creationnot to have been deemed terminated.

Client’s Objectives• Reasonable assurance that testamentary plan will stand• Reasonable assurance that testamentary plan will stand

• Interpretation of provisions consistent with current understanding of law

• Refrain from turning beneficiaries into “Trust Babies”

R f i f ki i d b fi i i f• Refrain from making remainder beneficiaries aware of trust

• Preserve trusts for future generations unless current generations have legitimate need

• Eliminate availability of trust assets to satisfy beneficiaries’ debt or liabilities

• Limit third-party knowledge of details of trust terms

• Management of risk of concentrated asset

• Establish an endowment, but with stipulations

• Ensure care for family pet

• Cost-effective trust administration


Client is beginning to show signs of dementia but clearly has decided and rational desires as to the disposition of property. (See OCGA §53-12-23)

Capacity to Create a Trust – OCGA §53-12-23

Prior Trust CodePrior Trust Code

• No change

N T C dNew Trust Code

• GA standard remains “capacity to contract,” a higher standard than that required to executea will and different from UTC.

• Limited use in GA of trusts as “will substitutes”Limited use in GA of trusts as will substitutes

• Lack of protective formalities required for execution of a will

Implications to New Estate PlanImplications to New Estate Plan

• While a trust is often considered more difficult to “break,” it may be more difficult for theclient to meet the capacity standards for establishing a trust than for creating a new will.


Governing Law – OCGA §53-12-4 and §53-12-5


• N/A

New Trust Code

V lidi• Validity

• Matters related to real property owned by trust - the law that would be applied by thecourts of the state of the location of the real property

• Matters related to other property owned by trust –Matters related to other property owned by trust

• Generally, the law of the jurisdiction designated in the trust instrument

• If not designated, the law of the jurisdiction having the most significantrelationship to the matter at issue

• Meaning and Effect

• Generally, the law of the jurisdiction designated in the trust instrument

• If not designated, the law of the jurisdiction having the most significant relationship tog , j g g pthe matter at issue

Implications to New Estate Plan

• If client specifically desires laws of a particular state, Georgia or otherwise, to dictate thelidi f h h i d ff f i h h ld b d i d


validity of the trust or the meaning and effect of its terms, that state should be so designated,lest another state have “the most significant relationship to the matter at issue” in the future.

Notice – OCGA §53-12-242


• N/A


• Within 60 days after the creation of an irrevocable trust (or the date when a revocable trustbecomes irrevocable), the trustee shall notify the qualified beneficiaries of the trust

• Of the existence of the trust andOf the existence of the trust and

• Of the name and mailing address of the trustee.

• Notice requirement is waived for trusts that were irrevocable prior to 7/1/10.


• If client does not want certain beneficiaries to be aware of the existence of the trust, thisnotice requirement should be waived explicitly in the document.q p y

OCGA §53-12-8 was added to the Trust Code when SB 134 was signed into law on 5/12/11. This provision allows a parent to “represent and bind such parent's minor child or unborn child if a


p p p pconservator or guardian for the child has not been appointed and there is no conflict of interest between the parent and child.”

Qualified Beneficiaries – OCGA §53-12-2(10)


• N/A

New Trust Code

A lifi d b fi i li i i di id l h i i h h d• A qualified beneficiary means a living individual or other existing person who, on the dateof determination of beneficiary status:

• Is a distributee or permissible distributee of trust income or principal, or

• Would be one of the above if the interests of the distributees above terminated withoutWould be one of the above if the interests of the distributees above terminated withoutcausing the trust to terminate or if the trust terminated.

• The Attorney General has the rights of a qualified beneficiary with respect to a charitabletrust.

• A person appointed to enforce a trust created for the care of an animal has the rights of aqualified beneficiary.


• If client does not want remainder beneficiaries to be aware of the existence of the trust this• If client does not want remainder beneficiaries to be aware of the existence of the trust, thisnotice requirement should be waived explicitly in the document with respect to thosebeneficiaries.

OCGA §53-12-8 was added to the Trust Code when SB 134 was signed into law on 5/12/11. This i i ll “ d bi d h ' i hild b hild if


provision allows a parent to “represent and bind such parent's minor child or unborn child if a conservator or guardian for the child has not been appointed and there is no conflict of interest between the parent and child.”

Qualified Beneficiary Illustration

Trust Sample Provisions I Trust Sample Provisions II Trust Sample Provisions IIITrust Sample Provisions I

• Beneficiary A shall receive all income and principal in the trustee’s discretion.

• Upon Beneficiary A’s death

Trust Sample Provisions II

• Beneficiary A may receive income and principal in the trustee’s discretion

• Upon Beneficiary A’s death

Trust Sample Provisions III

• Beneficiary A may receive income and principal in the trustee’s discretion.

• Beneficiary C may receive • Upon Beneficiary A s death, Beneficiary B shall receive all assets remaining.

• Upon Beneficiary A s death, Beneficiary B shall receive all assets remaining.

• Beneficiary C may receive income, but only in the case of dire emergency.

• Upon the death of A, the trust shall continue for the benefit of the children of Beneficiary A,who may then receive income and principal in the trustee’s discretion.

T t S l P i i VT t S l P i i IV T t S l P i i VITrust Sample Provisions V


B fi i A i t

Trust Sample Provisions IV

• ABC Charity shall receive $50,000 annually.

• 10 years after the creation of th t t ll t ill b

Trust Sample Provisions VI


U A’ d th ll t • Beneficiary A may appoint assets upon his death to anyone other than his estate or its creditors.

• Any assets remaining and

the trust, all assets will be distributed to the children of Beneficiary A.

• Additional QB: Attorney General

• Upon A’s death, all assets remaining shall be distributed to A’s estate.

y gunappointed at A’s death shall be distributed to A’s children.


Reports and Accountings – OCGA §53-12-243


• Very similar other than reporting requirements are limited to “qualified beneficiaries” asopposed to the broader group of “beneficiaries,” which, under the old law, would includeanyone with even a remote interest, as long as they were ascertainable

New Trust Code

• The trustee shall account:

To each qualified beneficiary of an irre ocable tr st to hom

At least annuallyan irrevocable trust to whom income is required or authorized to be distributed currently and to any person who may revoke the trust.

At the termination of a trust Also to each remainder beneficiary

Upon a change of trustees Also to the successor trustee

• The accounting shall include:

• A statement of receipts and disbursements of principal and income for that year orsince last accounting to that beneficiary

• A statement of assets and liabilities of the trust as of the end of the accounting period.

• A beneficiary can waive the right to a report and duty can be satisfied by providing reportto parents of minor or unborn children, provided no conflict exists.

I li i N E Pl



• Client should state clearly who should receive accountings and when.

Principal And Income Reporting

The Committee on National Fiduciary Accounting Standards (a joint effort of the American BarAssociation, American Bankers Association, American College of Trust and Estate Counsel andAICPA, among other groups) defines the basic objective of a fiduciary accounting as:

To provide essential and useful information in a meaningful form to parties of interest

With respect to reporting of principal and income, the Uniform Standards for Fiduciary Accountingadopted by this body stipulate the following.

• A fiduciary accounting must allocate receipts and disbursements between income andprincipal when there is a mandatory income interest of the amount to be currentlyp p y ydistributed is measured by reference to income.

• If the trust is entirely discretionary, the classification between income and principal is notnecessary.


What Trust Accounting Income is Not

I f f t t d i i t ti iIncome, for purposes of trust administration, is

Fiduciary (Trust) Accounting Income,

Not taxable income, and

Not distributable net income.

Fiduciary Accounting Income – Defined by the terms of the governing instrument and applicable local y g y g g pplaw

Taxable Income – Determined by applying the Internal Revenue Code provisions to receipts and disbursements of the trust

Distributable Net Income (DNI) – The amount of taxable and nontaxable income that the fiduciary may pass to the beneficiary through distributions


Allocation of Principal and Income Receipts

The Basics – Income includes

• Interest

• Dividends

• Rents

• Royalties

Generally, all else is principal.


Allocation of Principal and Income Receipts

B d th B iBeyond the Basics

• Distributions from corporations, partnerships, LLCs, regulated investment companies, REITs, common trust funds

• Income – Money receivedIncome Money received

• Principal –

• Property other than money

• Proceeds from sales• Proceeds from sales

• Proceeds from a total or partial liquidation

• Funds received that are designated as capital gain

U l th i d i t d b th tit• Unless otherwise designated by the entity

• IRA distributions (unless otherwise provided by IRA Trustee/Custodian)

• RMD – 10% to income/90% to principal

• Non-RMD – 100% to principal

• Relief for ‘insubstantial’ allocations

• The receipt would increase or decrease net income by less than 10%.

• The value of the asset generating the receipt comprises less than 10% of the trust’s value.


Allocation of Principal and Income Disbursements

Income

• One-half of trustee, investment advisory or custodial fees

O h lf f t t d tt ’

Principal

• One-half of trustee, investment advisory or custodial fees

All f t di t ib ti • One-half of court costs and attorney’s fees for matters that involve both income and remainder interests

• All other ordinary expenses incurred ith th d i i t ti t

• All of any acceptance, distribution, or termination fee

• All disbursements made preparing a property for sale

with the administration, management, or preservation of trust property and distribution of income

• Recurring premiums on insurance i th l f i i l t

• Court costs and attorney’s fees for matters that involve primarily principal interests

• Premium payments for ILIT

covering the loss of a principal asset or the loss of income from or use of the asset


Basic AccountingJ D M it l T t U/W J h DJane Doe Marital Trust U/W John DoeIncome Beneficiary: Jane DoeRemainder Beneficiaries: Richard Doe and Susan Doe, John's children from a prior marriageTrust's Value: $5,000,000

BASIC ACCOUNTINGDate Activity Amount Notation

4/1/2011 Withdrawal -$40,000.00 Monthly disbursement to Jane Doe4/13/2011 Withdrawal -$52,000.00 Federal Tax due: United States Treasury4/13/2011 Withdrawal -$19,000.00 Federal Tax Estimate: United States Treasury

• Is Jane’s monthly disbursement entirely from income?

4/13/2011 Withdrawal -$4,000.00 Preparation of 2010 tax return: Johnson CPA Firm4/25/2011 Withdrawal -$2,500.00 Trustee fee4/25/2011 Withdrawal -$10,000.00 Portfolio management fee

-$127,500.00

Is Jane s monthly disbursement entirely from income?

• Are the taxes being paid the trust’s taxes or Jane’s personal taxes that the trust is paying on herbehalf? If the latter, are they being paid out of her income or principal?

• Is the CPA fee to pay for preparation of the trust’s tax return or Jane’s?

• How are the fees being charged?


Trust AccountingJ D M it l T t U/W J h DJane Doe Marital Trust U/W John DoeIncome Beneficiary: Jane DoeRemainder Beneficiaries: Richard Doe and Susan Doe, John's children from a prior marriageTrust's Value: $5,000,000

TRUST ACCOUNTINGTRUST ACCOUNTINGDate Activity Principal Income Notation

4/1/2011 Withdrawal -$15,000.00 -$25,000.00 Monthly disbursement to Jane Doe4/13/2011 Withdrawal -$52,000.00 Federal Tax due by Jane Doe: United States Treasury4/13/2011 Withdrawal -$19,000.00 Federal Tax Estimate for Trust: United States Treasury4/13/2011 Withdrawal -$2,000.00 -$2,000.00 Preparation of Trust's 2010 tax return: Johnson CPA Firm4/25/2011 Withdra al $1 250 00 $1 250 00 Tr stee fee

• The trustee is exercising its discretion in distributing $15,000 per month out of principal, butneither Jane (who depends on the trust for her support), nor Richard nor Susan (who will ultimately

4/25/2011 Withdrawal -$1,250.00 -$1,250.00 Trustee fee4/25/2011 Withdrawal -$5,000.00 -$5,000.00 Portfolio management fee

-$94,250.00 -$33,250.00

neither Jane (who depends on the trust for her support), nor Richard nor Susan (who will ultimatelyreceive the trust remainder) are aware.

• The trustee is exercising its discretion in paying Jane’s personal income taxes out of this trust, butagain, no one knows it.

• The accounting, trustee and portfolio management fees are all allocated properly, but what if theyweren’t?

10-Year Impact (does not consider lost earnings, etc.)Distributions to widow from principal $1 800 000


Distributions to widow from principal -$1,800,000Widow's taxes paid from principal -$520,000

-$2,320,000

Statute of Limitations for Actions for Breach– OCGA §53-12-307


• Six years after the beneficiary discovered, or reasonably should have discovered, thesubject of the claim

New Trust Code

• A claim can generally be brought up to two years from the date a beneficiary has receivedwritten report that adequately discloses the existence of a claim.

• Otherwise, a claim can be brought up to six years after the beneficiary discovered, orreasonably should have discovered, the subject of the claim.


• Be aware that, particularly in cases where there is heightened concern over litigation,trustees may elect to provide statements even when not required to do so.


Note: Unlike most of the Code, this provision cannot be waived or modified by the trust instrument.

Investigation of Beneficiary Resources – OCGA §53-12-245


• N/A


• A trustee is under no duty to investigate the resources of any beneficiary when determiningwhether to distribute trust property to such beneficiary.


• If client wants resources to be investigated, the document should specifically includelanguage to that effect.


Spendthrift Provisions – OCGA §53-12-80 through 53-12-83Prior Trust CodePrior Trust Code

• A spendthrift provision is generally valid in preventing a creditor for making a claim againsta beneficiary’s right to a current distribution, whether such claim was establishedvoluntarily or involuntarily, other than for the claims listed below.

• Alimony or child support• Taxes or governmental claims• Tort judgments

New Trust Code

• Spendthrift provisions are also not enforceable with respect to judgments or orders forrestitution as a result of a criminal conviction of a beneficiary.

• A trustee cannot be forced to make a discretionary distribution, even if the trustee is abeneficiarybeneficiary.

• Any amount contributed by or subject to a withdrawal right held by a beneficiary is notprotected by spendthrift provisions.

• Revocable self-settled trusts are subject to claims against the settlor; irrevocable self-settledtrusts are subject to claims to the extent of what could be distributed to or for settlor’sbenefit; and assets remaining in self-settled trusts that were revocable during the settlor’slifetime are subject to claims of creditors to the extent probate estate is inadequate.



Note: Unlike most of the Code, this provision cannot be waived or modified by the trust instrument.

• Consider making the trusts fully discretionary.

Certification of Trusts – OCGA §53-12-280 Prior Trust CodePrior Trust Code

• N/A


• The trustee may furnish a third party “certification” of the trust rather than the entiredocument.

• Any person who acts in reliance upon the certification of the trust without knowledge thatAny person who acts in reliance upon the certification of the trust without knowledge thatany information therein is incorrect shall not liable to any person for so acting.

• A person who in good faith enters into a transaction relying upon the certification mayenforce the transaction as if the information were correct.

• A person making a demand for the trust instrument in addition to a certification shall beliable for damages including court costs and attorney’s fees if the court determines thatdemand was not made in good faith.


• Language of a trust does not need to be “watered down” simply due to concerns aboutprivacy.


Management of Asset Concentration – OCGA §53-12-341


• N/A


• A trustee shall reasonably manage the risk of concentrated holdings of assets bydiversification or other appropriate mechanisms, unless

• The purposes of the trust are better served without complying with the duty orThe purposes of the trust are better served without complying with the duty, or

• The terms of the trust instrument specifically limit or waive the duty.

• For any trust which became irrevocable prior to 1/1/11, this duty shall not apply if

• The trust directs or permits the trustee to retain invest exchange or reinvest assets• The trust directs or permits the trustee to retain, invest, exchange or reinvest assetswithout regard to any duty to diversify, or contains similar language, or

• Absent gross neglect, the concentrated asset was contributed to the trust by thesettlor.


• Give consideration to including language instructing both the trustee and the executor toh i k f d h ldi


manage the risk of any concentrated holding.

Enforcement of Charitable Trusts– OCGA §53-12-175


• N/A


• The settlor of a charitable trust (or by implication the settlor’s heirs) may maintain a civilaction to enforce a charitable trust.


• Provided the provisions of the charitable trust are not in conflict with public policy, the clientcan take comfort in knowing that enforcement extends beyond the attorney general.


Pet Trusts– OCGA §53-12-28


• N/A


• A trust may be established with only non-humans as beneficiaries, provided that the trustterminates upon the death of the animal(s).


• The client can be assured that the funds left in the Pet Trust will be used for the benefit of thepet as opposed to the pet’s caretaker.


Trustee Fees – OCGA §53-12-210


• The trustee and a majority of the sui juris income and remainder beneficiaries may mutuallyagree upon fees if there is no written agreement. Otherwise, the trustee’s compensationshall be those set forth for Conservators (29-5-50).

New Trust Code

• The trustee and the sui juris qualified beneficiaries and the guardians or conservators of thei j i lifi d b fi i i b i dif i i fnon-sui juris qualified beneficiaries may by unanimous consent modify an existing fee

agreement or put in place an agreement if one does not exist. If any non-sui jurisbeneficiary does not have a guardian or conservator, fees cannot be modified/put in placewithout court approval requiring a guardian ad litem. Otherwise, a corporate trustee’s feesshall be according to its published schedule, if it is reasonable under the circumstances, andg p , ,an individual trustee’s compensation shall be according to a separate schedule stipulated inthe Code.


• The client can more accurately compare the cost of having an individual trustee to the costof a corporate trustee and make a more informed decision.


Trustee Fee Schedules – OCGA §53-12-210(c)

1.10% on the first 2,500,000$ 0.90% on the next 2,500,000$ 0 70% on the ne t 5 000 000$

Sample Corporate Trustee Fee Schedule

1.75% on the first 500,000$

1.25% on the next 500,000$ 1 00% h 1 000 000$

Individual Trustee Fee Schedule

0.70% on the next 5,000,000$ 0.50% on the next 10,000,000$

0.40% on value over 20,000,000$ Minimum Annual Fee: 10,000$

1.00% on the next 1,000,000$ 0.85% on the next 3,000,000$ 0.50% on value over 5,000,000$

1.00% on principal received

VALUE OF TRUST 250,000$ 500,000$ 1,000,000$ 2,500,000$ 5,000,000$ 10,000,000$ 25,000,000$

SAMPLE CALCULATIONS

Total Estimated Annual Fees 10,000$ 10,000$ 11,000$ 27,500$ 50,000$ 85,000$ 155,000$

SAMPLE CORPORATE TRUSTEE

Year 1 2,500$ 5,000$ 10,000$ 25,000$ 50,000$ 100,000$ 250,000$ Annual Fee 4,375$ 8,750$ 15,000$ 29,250$ 50,500$ 75,500$ 125,500$

Total Year 1 Fee 6,875$ 13,750$ 25,000$ 54,250$ 100,500$ 175,500$ 375,500$

Trustee Fee Annually Thereafter 4 375$ 8 750$ 15 000$ 29 250$ 50 500$ 75 500$ 125 500$

INDIVIDUAL TRUSTEE


Trustee Fee Annually Thereafter 4,375$ 8,750$ 15,000$ 29,250$ 50,500$ 75,500$ 125,500$

Est. Investment Management Fees 2,500$ 5,000$ 10,000$ 22,500$ 40,000$ 65,000$ 125,000$

Total Estimated Annual Fees 6,875$ 13,750$ 25,000$ 51,750$ 90,500$ 140,500$ 250,500$

AppendicesAppendices“Highlights of the 2010 Revision of the Georgia Trust Code” by Mary F. Radford, Georgia State University College of Law,

originally published in Georgia Probate Notes, May/June 2010. Reprinted with permission.

Senate Bill 134, Section 6 –Revisions to Chapter 12 of Title 53 of the Official Code of Georgia Annotated.

Recommended ResourcesOfficial Code of Georgia Title 53 Chapter 12Official Code of Georgia, Title 53, Chapter 12.

AICPA Fiduciary/Trust Accounting: A Comprehensive Practice Guide published 2007 by the AICPA Tax Division.

Fiduciary Accounting Answer Book, Carol A. Cantrell and F. Gordon Spoor. Published 2009 by CCH.

Special Thanks toMary F. Radford, Georgia State University College of Law

Donna G. Barwick,Wilmington Trust CompanyCraig M. Frankel, Gaslowitz Frankel LLCAdam R. Gaslowitz, Gaslowitz Frankel LLCShelly Nixon, Lefkoff, Duncan, Grimes, Miller & McSwain, PCBenjamin H. Pruett, Bessemer Trust CompanyAllen L Venet SunTrust


Allen L.Venet, SunTrustO. Med Walstad, U.S. Trust, Bank of America Private Wealth ManagementJennifer Whittaker, Regions Morgan Keegan TrustOscar Lee Wiseley, Jr., Synovus Family Asset Management

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