Georgia Business and Family Law Blog

Life Insurance Trusts

2008-07-14T20:23:00.003-04:00

Many families have life insurance policies on the parents, especially while the children are minors. The idea is to provide financial support for minor children and to provide liquidity in an otherwise illiquid estate. But if your estate has any sort of assets, your estate may run into tax problems - you'll owe money to the IRS. This can sometimes be avoided or minimized with a life insurance trust.

A life insurance trust is a separate entity apart from the insured so the policy is not included in the insured's estate. But there are many rules to follow when setting up a life insurance trust to make sure that it is properly segregated from the insured's estate.

First off, the life insurance must be an irrevocable trust. This means that once you make the trust, you cannot change the terms of the trust. This also means that you, as the insured, will not be able to change the beneficiaries of the life insurance policy.

Second, you must name a trustee that will manage the trust. You cannot be the trustee, and if you are named as the trustee, the insurance policy will be included in your estate (the objective being to keep the policy out of your estate). Often times, you will see the family accountant or attorney named as the initial trustee.

Next, the irrevocable life insurance trust must own the life insurance policy. This can be achieved in basically two ways: the trust may purchase the policy or the insured may gift a pre-existing policy to the trust. If a gift is made, then the insured must live at least three years or the policy will still be included in the insured's estate. If the trust purchases the policy, it must obtain the cash in order to do so. In the typical trust, the premiums are obtained from the insured via gift.

This leaves a substantial problem - the gift of a future interest. The gift would still be included in the insured's estate. The solution: Crummey letters, named after the case that first presented this solution. In the typical Crummey letter solution, the Grantor/insured makes a gift to the trust, then the trustee sends a letter to the beneficiaries stating that they have the ability to withdraw the gift for a certain period of time. Once that period expires, the trustee then uses the cash to pay the annual premiums. By giving the beneficiaries a right to withdraw the gifts to the trust, the premiums become a present interest and thus excludable from the insured's estate.

Once the insured passes on, the policy is paid to the trust. The trust is then distributed to the beneficiaries (typically the insured's children) according to the terms of the trust set up at the beginning.

Irrevocable Life Insurance Trusts ("ILIT" for short) are good vehicles to provide liquidity to estates, but still be able to avoid estate tax consequences if done properly.

New Postage Rates

2008-05-09T14:21:00.001-04:00

Just a friendly reminder: postage rates go up May 12.

For more information, check the US Postal System website.

Want Your Stimulus Check This Spring?

2008-03-20T15:49:00.004-04:00

The IRS has announced the timeline for releasing the stimulus checks. The best way for you to get your payments early: file electronically with direct deposit information included, and do so early enough for the return to be processed by April 15.

The exact date that you will get your stimulus payment depends on the last two digits of your social security number or the first one, if filing jointly.


DIRECT DEPOSIT

Last Two           Payment
SSN digits:        Date:
 00 through 20     May 2
 21 through 75     May 9
 76 through 99     May 16
 
PAPER CHECK

Last Two           Payment
SSN digits:        Date:
 00 through 09     May 16
 10 through 18     May 23
 19 through 25     May 30
 26 through 38     June 6
 39 through 51     June 13
 52 through 63     June 20
 64 through 75     June 27
 76 through 87     July 4
 88 through 99     July 11

If you file near or after the April 15 deadline, expect an additional two weeks to the schedule above.

Sales and Use Tax on Services

2008-02-26T17:59:00.004-05:00

I just received a call to action from the Georgia State Bar regarding Speaker Glenn Richardson's proposal for a constitutional amendment to repeal the collection of certain property taxes and to replace that revenue stream with an additional sales and use tax, this time on services. It has been hotly contested, in the newspapers, blogs, and other local media, throughout the fall.

Now, the House Ways & Means Committee has favorably reported HR 1246 and HB 979.

According to the email from the Georgia Bar, they oppose the new sales and use tax on services because it would interfere with the attorney-client relationship. (In some instances, just the fact that an attorney represents a certain client can be privileged information.) The Georgia Department of Revenue would have the ability, under its audit authority, to have access to a list containing the clients names and the fees paid. Additionally, businesses would be exempt from this tax, so only individuals seeking legal assistance would have to pay the sales tax. This is clearly a disparate treatment and could cause challenges to its constitutionality.

My practice is mostly geared to small businesses and their owners. Think about this from their perspective. Many of my clients will come to me for several issues, both personal and professional. For their company, I will write a buy-sell agreement or succession plan that has many estate plan implications. I will then write their Last Will and Testament and the rest of their estate plan. Part of their legal services will have a sales tax while the remaining part will not. There will be incentives for attorneys and clients to mis-categorize certain legal services in order to avoid the additional tax.

Think about what this will do for you and your attorney. Increased record keeping. More difficult and harder to understand bills. Increased costs for the individual consumers.

This tax does not apply just to your attorneys. It would also apply to many of the professionals that you see on a constant basis, including accountants and CPAs, dry cleaners, beauty technicians (nail, hair, massage), consultants, interior designers, doctors, dentists, and many more.

In addition to the burden on the professionals, remember that you pay your property taxes directly to your county, not the State. This proposed regime would remove almost all of a county's revenue collection authority and place it in the hands of the state government. Under the sales and use tax regime, all the sales and use taxes are paid to the State who then distributes the collected sales taxes to the individual counties. There is at least one current battle going on between a county and the state over the amount of sales tax that should be paid to the county. The State has also been known to rob one portion of its budget to pay for another portion of its budget. With the State handling the collection of sales tax instead of the county handling the property tax, do not be surprised if money would get cut off from the schools to fund another project, perhaps roads, water management, or public buildings or parks.

This is not a good deal for Georgia taxpayers, the counties, or the professionals that you deal with on a constant basis.

15 Costly Divorce Mistakes

2008-02-21T19:41:00.002-05:00

There's currently an article on MSN Money about 15 Costly Divorce Mistakes. They are:

Becoming a financial victim
Not considering mediation
Hiring a combative lawyer as punishment
Failing to recognize your enemy: the IRS
Not producing an accurate budget
Not evaluating a divorce settlement on an after-tax basis
Failing to use computer models to evaluate settlements
Bringing an emotional attachment to assets
Using your lawyer as a financial planner, therapist or messenger
Accepting a settlement that isn't as good as it seems
Disregarding the impact of inflation
Not waiting until a wife is eligible for her husband's Social Security
Forgetting to update estate documents
Failing to adequately insure the divorce settlement
Failing to develop a financial plan

All of these are good points; one thing to consider when hiring an attorney is their effectiveness at negotiations and mediation. Can they effectively work outside the court system to get you a settlement that you can live with after the divorce? Remember, your costs will go up - where there was once one house, there are now two. Two rents or mortgages, two utility bills, two water bills, two internet service providers, and the list goes on and on. Add in child support and alimony, and it will take some adjusting to before you are back on your feet. Work to minimize legal fees to help with the transition.

Taking Stock Before The Divorce

2008-02-12T13:28:00.000-05:00

Are you ready to file for divorce? Is your spouse threatening to file? No, I do not mean that you take any shares of stock that your spouse may own before you get divorced. But you do need to review where you stand before you file for divorce. Here are a few things that you should review as divorce becomes more imminent:

Take stock of your career. Are you earning enough money to support yourself and your children? Do you have the necessary education and training to go back to work, if necessary?
Take stock of your spouse's career. What is your spouse earning? Will he or she be able to support his or herself without support from you? Will he or she need additional training to return to work?
Take stock of your finances. As part of the taking stock of your career, you will need to look at the current status of your finances. Get copies of your recent tax returns, bank statements, and retirement and investment account statements. Catalog all the major assets that you and your spouse currently have. Did you or your spouse have any of them (pre-marital assets) before you got married? Do you and your spouse have any credit card debt? How much is left to pay on the mortgage? Any car loans?
Take stock of insurance plans. After you are divorced, you may no longer be eligible for your spouse's health insurance. Figure out if your employer can provide insurance if your spouse has been providing the insurance. Remember, if you will soon be a single parent, you will probably want to provide your children with adequate life insurance. You may also want to investigate disability insurance in case you cannot work due to injury or disability.
Take stock of major assets. The house, the car, the furniture, the big-screen television. List them all. Do you have valuable pieces of artwork, collections, or jewelry? What about a boat, airplane, vacation home, timeshare, or any other assets?
Take stock of your legal options. Most often, you will need to consult with an attorney. Often times, you may have rights to the marital home, bank accounts, and temporary alimony and/or temporary child support while the divorce is pending. Consult with an attorney to determine what, if any, additional steps you need to take.

Most of these options refer to your finances. That is because you will have to pay for all your own household expenses, without much help from your former spouse. During the divorce proceedings, you will need this information, much of it when you initially file or answer a complaint for divorce. It is often times easier to gather the information before you tell your spouse that you want a divorce.

In any event, if there has been domestic violence, do not wait to take stock of anything. You must protect your physical safety first and foremost.

Florida Joins Clemson, Auburn on Georgia Roadways

2008-02-08T13:53:00.000-05:00

The University of Florida is joining the ranks of Clemson University and Auburn University as the only out-of-state colleges with Georgia license vanity plates.

Hopefully, the Gator faithful can help defray the impact of the reduced state tax collections. In January, tax collections were down 7.1% or about $140 million from a year ago. Sales and income taxes account for the majority of the State's tax revenues. If tax collections do not increase, then the state could be looking at not being able to meet its budget for the fiscal year. The budget is approximately $20 billion for the fiscal year July 1, 2007 - June 30, 2008.

Quarterly Payroll Tax Reminder

2008-01-31T15:19:00.000-05:00

Don't forget to mail in your quarterly and annual payroll tax reports today. This includes your IRS 941 and 940 forms and Georgia state withholding and state unemployment quarterly reports. There are two state withholding reports this quarter - your quarterly report, G-7 and the annual report, G-1003. If your taxes were prepared by a CPA, then they will probably electronically file your W-3 with the IRS, but check the instructions from your CPA, as your individual CPA may handle things differently.

You also need to distribute to your employees their W-2s and to your contractors their 1099s today. The 1096 with the IRS copies of the 1099s needs to be filed by the end of February.

Where Do We Sue?

2008-01-17T12:34:00.001-05:00

One of the questions that I get most often is "where do we file the lawsuit?" The simplest and most basic answer to this is: where the defendant is. Generally speaking, the court where the lawsuit is filed must have jurisdiction over the defendant, also known as personal jurisdiction.

There are several ways for a court to get personal jurisdiction, but the easiest and most obvious way is for the defendant to live in the territorial limits of the court. For a business, this includes the county in which the principal offices are. In the case of multiple defendants, you can pick any court that has jurisdiction over any one of the defendants.

There are other ways for a court to get personal jurisdiction over a defendant. Another common way that courts get jurisdiction is by agreement. In many contracts, particularly in the business contetxt, the parties agree to the personal jurisdiction of a given court. This is often determined by the stronger or bigger party to the contract or whoever drafts the contract.

Georgia also has a long-arm statute that allows the courts of Georgia to have personal jurisdiction over out-of-state residents when they have some sort of connection to this state. Generally, that involves situations where the defendant was once in the state - think a motorist driving through the state that gets in a car wreck - or has significant connections to the state - think a business advertising for sales in a state. In those cases, you have to follow the statute to determine where the lawsuit will be filed, but it is most often filed in the county where the harm occurred.

The above aren't the only ways for a court to get personal jurisdiction over a defendant, but are the most common ways.

Employment Forms for 2008

2008-01-15T15:38:00.000-05:00

For 2008, the Georgia employment forms remain the same. However, the IRS W-4 and the Immigration I-9 have changed. All four forms are available through the DeCarrera Law, LLC website in the forms section.

Important Numbers for 2008

2008-01-14T20:24:00.000-05:00

The highest estate tax rate remains at 45% and the exemption amount (the tax free part) also remains at $2 million. Meanwhile, in an effort to reduce your estate, you may give $12,000 under the annual exclusion.

For retirement plans, you can defer up to $15,500 through a 401(k) and $10,500 through a SIMPLE plan. Meanwhile, the IRA contribution limits increase to $5,000. All three retirement plans have higher limits if you above 50 ($20,500 for 401(k), $13,000 for SIMPLE, and $6,000 for IRA). Remember that you must have earned income to be eligible for those plans.

Speaking of earned income, the Social Security taxable wage limit has increased to $102,000. It'll be a little later in the year, if ever, before you see those taxes disappear from your check. If you are under the age of 65 and retired (lucky you!), you can earn up to $13,560 without losing your benefits.

Meanwhile, the kiddie tax is coming after your little ones that don't actually work for their income. The threshold increases to $1,800 for children up to the age of 19 unless they are full-time students, in which case the age limit is 24 years old.

But if you have a nanny or household help, you have to withhold taxes on wages over $1,600.

Let Your Family Know About Your Accounts

2008-01-10T13:20:00.000-05:00

Even if you do not have a will, a trust, or any other parts of a complete estate plan, at least do one thing for your family before you die: Make a list of all your accounts with the following information:

Institution where the account is located
Account Number
PIN Number or Password
The name and phone number of the broker or account representative, if any
Estimated balances

The accounts you should be on this list include but are not limited to:

Checking and Savings Accounts at your primary bank
Checking and Savings Accounts at any secondary bank (think online Savings Accounts)
Retirement Accounts
Credit Cards
Mortgages
Safe Deposit Boxes
Insurance Policies

Also include information on how the bills are received (US Mail, Email, Website, etc) and paid (automatic draft, check, credit card, etc). Please do not leave your children in the dark because they do not know how to get the bill and how to pay for it. It is also helpful to leave your email addresses and passwords on this same list - often times you get notices or copies of bills at your email address that you may not receive in the mail.

Include on this list the name of any accountants or CPAs that may handle your tax matters, any attorney that you have worked with (especially if you have done any estate planning work with them), doctors, bankers, or other people that would have important information that your family would need to know.

After you have completed this list, let someone know where it is. If you want, you can seal it in an envelope to prevent disclosure of the information (you'll know when it has been tampered with). Do not leave it in your safe deposit box, however. If you are deceased, the bank will most likely seal the box until a court orders it opened.

If you fail to provide anyone with this information, your family will have to go through all your records to find this information. Some of it may be lost forever (if they don't know about that insurance policy, how can your family collect on it?) Your family will appreciate the fact that you were responsible and took the time to gather this information for them. Remember, you know best where your accounts are.

Happy New Year

2008-01-07T18:18:00.000-05:00

Happy New Year! It's been awhile since I posted anything, but now that it is 2008, it is as good a time as any to start blogging again. I am taking a little bit of a different approach to this than before. I will not be adding news bits unless I am using the news to explain a point. I will be using this Blog as more of an educational tool for my clients, friends, and those in and around the Georgia legal community. There will generally be around 2-3 posts per week. If you have any questions, comments, or suggestions, please let me know.

Once again, Happy New Year! Here's to a prosperous year with plenty of time off to enjoy family, friends, and the good times. Remember, that tomorrow is not a guarantee for any of us. Enjoy your time here today... and plan for the future... Your family would definitely love you all that much more if, when you die, you do not leave them with a mess of an estate.

St. John's Estates

2007-10-22T21:36:00.000-04:00

Today, members of SJE Development Company, LLC and Mt. Olive Community Outreach Center, Inc. (the community center for Greater Second Mt. Olive Baptist Church) broke ground on a new project in Albany, Georgia. In Phase I of the project, St. John's Estates will provide 148 housing units for members of the Mt. Olive Baptist Church and the surrounding community. The Boyett Village was part of the abandoned military housing left by the Navy when it closed the Albany base.

I am proud to have been an attorney working on this project. Everyone involved believes that this will help fill a vital need for affordable housing in Albany as well as revitalize an area of the city that was otherwise abandoned when the military left.

News Coverage: WALB News, Channel 10, Albany, Georgia, WALB Video
Albany Herald

New Jobs For Georgia

2007-10-16T12:10:00.001-04:00

Sy-Klone International is moving all of its manufacturing operations to Perry, Georgia. Sy-Klone will occupy the former HAG Steel plant and invest about $7 million into the plant. The operations will provide about 50 jobs once it is fully operational. The Macon Telegraph

HNI Corporation announced last week that it was closing its manufacturing facility in Virginia and consolidating operations at the Cedartown, Georgia, facility in 2008. The Cedartown HON Company, which manufactures office furniture, anticipates the move will add 175 local jobs. Rome News Tribune

Sumitomo Chemical and Toyo Ink Group are creating a joint venture in Griffin, Georgia, adding another 50 jobs in the process. The joint venture will make products for the automotive industry after constructing a 90,000 sq. foot facility. Atlanta Business Chronicle

Self-Employed Want Insurance Deduction

2007-10-15T14:00:00.000-04:00

The Atlanta Business Chronicle has a story today about the health-care costs for the self-employed.

Other types of businesses can deduct health insurance costs as a normal business expense. Sole proprietors can deduct these costs when they calculate their income taxes, but not when they calculate the 15.3 percent self-employment tax, which covers Social Security and Medicare... The average self-employed individual pays $12,106 a year for family health coverage, according to the Kaiser Family Foundation. He or she could save $1,852 in payroll taxes if these costs were deductible.

Rep. Ron Kind, D-Wis introduced H.R. 3660 that would provide the tax deduction for the self-employed. It was referred to the Committee on Ways and Means.

Major Banks Losing Market Share

2007-10-15T13:47:00.000-04:00

The Federal Deposit Insurance Corporation (FDIC) announced late last week that local deposits grew by about four percent. However, there has been a shift in deposit activity, away from the largest national banks to smaller, local banks. Atlanta has added 10 more banks since this time last year.

FDIC Numbers

Atlanta Business Chronicle

Related Blog Posts:
Fifth Third Bank Expanding in Georgia
New Small Business Bank Opens

A Big Thank You

2007-10-15T11:30:00.000-04:00

The Bert Show, on Q100, is trying to gather enough handwritten letters to be able to send one to every soldier serving outside the United States on Thanksgiving Day. Letters may be dropped off at any Taco Mac location, starting on Wednesday. All letters must be received by October 26. For more information, please see The Bert Show.

Hawkinsville Bans Baggy Pants

2007-10-12T11:08:00.000-04:00

Hawkinsville, a Georgia town of approximately 4,000 people, now has a ban on baggy pants below the waist and exposes skin or undergarmets. Violations could result in fines and/or community service.

Atlanta is currently considering a similar ban.

McDonough + Beer/Wine + Parks

2007-10-12T10:48:00.000-04:00

JasonPye.com is reporting that the City of McDonough has passed an ordinance allowing beer and wine at two of the city parks, under certain conditions. The various conditions include 1) an event hosted for a non-profit organization, 2) not at the same time as any youth events, 3) the event must be catered, and 4) Henry County must provide police services.

Sales Taxes for Service Businesses?

2007-10-11T11:20:00.000-04:00

In case you have not been following the news coverage on Georgia's Speaker of the House Rep. Glenn Richardson's tax reform bill, here is a rundown.

A RESOLUTION proposing an amendment to the Constitution so as to provide for the comprehensive revision of provisions regarding taxation and finance and abolish most state and local taxes; to provide for a comprehensive flat tax to be known as the fair tax; to provide for procedures, conditions, and limitations; to provide for local revenue guarantee proceeds; to provide for applicability of prior tax provisions; to change certain provisions regarding certain defaulters; to change certain provisions regarding specific powers and limitations of powers of the General Assembly; to change certain provisions regarding other or supplementary appropriations; to change certain provisions regarding appropriations; to eliminate certain provisions regarding the motor fuel tax; to provide for the submission of this amendment for ratification or rejection; and for other purposes.

In other words, Richardson wants to do away with property taxes and tax services at 4%. However, I can see counties doing the same thing to services that they have done to the sale of goods - every county has added to that base 4% - not to mention occupancy taxes where most counties and/or local municipalities have added another 5-8% tax on hotel stays in addition to sales taxes. Some of the news articles even hint at this possibility.

Georgia General Assembly - Summary of Bill

Americus Times-Recorder - Positive net gain for Georgia since tourism is the second largest industry, demand for services will not change, but demand for land ownership will go up and help landowners, particularly farmers, reduce the cost of business.

Augusta Chronicle - Some are worried that it will hit low- and middle-income people the most, the ones that do not own land.

Augusta Chronicle - The change would hurt businesses, as most outsource at least some of their services (accounting, legal, janitorial), and this additional cost is passed on to the consumer.

The Brunswick News - Some are pointing out that it would help the housing markets not to have property taxes.

And from other Georgia Blogs...

Safe As Houses talks about the property tax deduction that you will have to forego on your federal income tax return.

Tondee's Tavern opposes the bill because it will hurt Georgia businesses, particularly ones near one of the state borders.

Today is the Last Day To Register to Vote

2007-10-09T11:22:00.000-04:00

If you want to vote in this November's elections, then you must register to vote today. Voter registration applications are available at the Secretary of State's Website.

Guns in Employer Parking Lots Again on the Agenda

2007-10-09T11:14:00.000-04:00

Dick Petty's InsiderAdvantage is reporting that the state Republicans are bracing for another heavyweight bout with the National Rifle Association on one side and the Georgia Chamber of Commerce on the other side in this year's battle over whether employers may ban guns in cars parked at the workplace. The Republicans are preparing for an off-campus caucus this week and both sides have already started the lobbying.

As previously mentioned in "Some of This and That..."

A Push To Change Juvenile Laws

2007-10-09T11:06:00.000-04:00

Rome will be one of the sites for a town hall meeting by JUSTGeorgia, a new coalition trying to update Georgia's juvenile laws. JUSTGeorgia is holding several such town hall meetings across the state in an effort to collect local ideas in preparation for the next General Assembly session. Savannah was the first city to host a town hall meeting; other sites include Macon, Conyers, Albany, Columbus, Atlanta, Gainesville, Athens, Milledgeville, Griffin, and Cobb County.

JUSTGeorgia
Rome News Tribune
Savannah Morning News

Immigration Policies and Work-Site Enforcement

2007-10-08T15:12:00.001-04:00

Today must be focus on illegal immigration day as both the "local newspaper" and the Savannah Morning News both have articles relating to immigration enforcement. The Savannah Morning News reports that immigration policies are hurting law enforcement investigations. The AJC says that immigration work-site enforcement has changed, resulting in nearly zero noncriminal fines to businesses employing illegal immigrants. Instead, Immigration and Customs Enforcement have been focusing on criminal cases where employers are "knowingly break the law by encouraging or participating in immigrant smuggling, abusing workers, not paying taxes or document fraud."