Estates and Trusts
Not Knowing the Tax Implications of How Your Client is Classified
The Top 10 Mistakes Made When Planning for Art and Other Collectibles: A Guide for Professionals and Their Clients Mistake #1: Not knowing the tax implications of how your client is classified Navigating the tax landscape for art dealers, investors, and collectors can be a complex endeavor, but proper classification is key to maximizing tax savings and avoiding pitfalls. Professionals working with clients in the art world must understand how classifications affect income tax treatment, as well as practical steps to ensure clients benefit from the most favorable outcomes. This guide outlines the critical distinctions, tax implications, and actionable strategies to support clients. Understanding the Classifications The IRS recognizes three primary classifications for individuals engaged in art-related activities: dealers, investors, and collectors. Each carries distinct tax implications: Dealers: These individuals are in the trade or business of buying and selling art for profit. To be classified as a dealer under Internal Revenue Code Section 1221(a)(1), a client must demonstrate continuity and regularity in their activities and a primary purpose of generating income or profit. For example, an artist selling their own creations may qualify as a dealer. Investors: Clients who buy and sell art primarily for investment purposes fall under this category. Unlike dealers, investors do not actively market art as part of a trade or business but instead hold it as a capital asset Collectors: This classification applies to those who acquire art for personal enjoyment or aesthetic purposes. Collectors are not considered engaged in a business or investment activity and face the most restrictive tax treatment. Tax Implications The tax treatment of gains, losses, and deductions varies significantly depending on classification: Dealers: Gains are treated as ordinary income, taxed at rates up to 37%. Losses are ordinary losses, fully deductible against other income. Expenses incurred in the trade or business, such as storage or marketing, are deductible as ordinary and necessary business expenses on Form 1040. Note: For artists classified as dealers, the basis of their artwork is typically limited to the costs of their materials, often resulting in significant gains upon sale. Investors:Gains on the sale of collectibles are taxed as capital gains, subject to a maximum rate of 28%. Losses are capital losses, deductible against capital gains, with a $3,000 annual limit for net losses against ordinary income. Ordinary and necessary expenses for holding the art for income production are deductible. Collectors:Gains are taxed at the same 28% capital gains rate as investors. Losses are considered personal and cannot offset other income. Expenses related to collecting activities are generally nondeductible unless the client can demonstrate an investment intent. Practical Steps for Professionals Helping clients achieve the most advantageous classification involves careful analysis and documentation. Here are actionable strategies: Identify the Appropriate Classification: Evaluate the client’s level of activity, intent, and historical practices. Consider whether the client’s actions align with IRS criteria for a trade or business (e.g., continuity, regularity, and profit motive). Document Investment Intent:For collectors seeking reclassification as investors, gather evidence such as:Businesslike records of transactions. Consultation with art experts or advisors. Efforts to publicly display the collection. A history of profitable investments in similar areas. Educate Clients on Tax Treatment:Explain the impact of classification on their tax liabilities, including applicable rates and deduction limits. Highlight the importance of meeting the profit presumption test (three profitable years out of five) for activities presumed to be for profit. Leverage Deductible Expenses:For dealers and investors, ensure all ordinary and necessary expenses, such as insurance, storage, and advisory fees, are properly documented and claimed. For collectors, explore opportunities to demonstrate investment intent for potential reclassification. Monitor Changes in Activity:Reassess clients’ classifications periodically as their circumstances and activities evolve. A client who begins as a collector may transition to an investor or dealer over time with proper adjustments to their approach. Conclusion Proper classification of collectible and art-related activities can have a significant impact on a client’s tax liabilities, deductions, and overall financial outcomes. Professionals who understand these distinctions and proactively guide clients can unlock substantial tax savings and help avoid costly errors. By identifying the appropriate classification, documenting intent, and leveraging allowable deductions, you can ensure your clients are well-positioned to navigate the complex intersection of art and taxation. For tailored advice and support, consult a tax professional experienced in the unique considerations of art-related activities.
January 7, 2025
Labor and Employment
New Employment Laws Become Effective on January 1, 2025
The following is a summary of new employment laws which become effective on January 1, 2025. All States Minimum Wage Increases Employers should check their state statutes and local ordinances to determine whether the minimum wage has been increased. Failure to do so could lead in underpayment to employees and potential fines and penalties. State minimum wage increases, effective January 1, 2025: California: $16.50/hour Delaware: $15/hour New Jersey: $14.53–$15.49/hour$15.49 (employers with six or more employees) $14.53 (seasonal employers and employers with fewer than six employees) New York: $15.50–$16.50/hour$16.50 per hour (New York City, Long Island and Westchester County) $15.50 per hour (rest of the state) Also, in some states, like California, the salary test for exempt employees is dependent on the state’s minimum wage. Failure to increase an exempt employee’s salary would result in breaking the exemption and entitling exempt employees to overtime and other requirements for non-exempt employees. California Seven new employment laws in California took effect on January 1, 2025. Changes to the Fair Employment and Housing Act The Fair Employment and Housing Act was amended as follows: Government Codes § 12920 was amended to state that employers may not discriminate against employees based upon any combination of characteristics protected under the Fair Employment and Housing Act. Government Code § 12926 is amended to define “race” as including traits associated with race (rather than historically associated with race), such as hair texture and protective hairstyles. Any city, city and county, county, or other political subdivision of the state will be able to enforce local law prohibiting discrimination in employment against classes of persons covered by the Fair Employment and Housing Act if certain requirements are met, including a requirement that local enforcement is pursuant to a local law that is at least as protective as the act. The Civil Rights Department will promulgate regulations governing local enforcement pursuant to those provisions. Changes to Leave Laws There are two amendments to statutes related to employee leaves of absence: Paid Sick Leave – Employers must provide sick leave to agricultural employees to avoid smoke, heat or flooding conditions created by a state of local emergency. Paid Family Leave – Employers can no longer require that employees take up to two weeks of earned vacation leave prior to using paid family leave. California Worker Freedom from Employer Intimidation Act The California Worker Freedom from Employer Intimidation Act prohibits employers from retaliating against employees who decline to attend employer sponsored meetings or to listen to employer communications that have the purpose of communicating the employer’s religious or political opinions. Workplace Violence Law Employers may seek a temporary restraining order against an individual who has harassed employees or engaged in workplace violence or threats of violence against employees. Worker’s Compensation Notices Employers will be required to include the following in the notice to employees: The employee has the right to consult with an attorney The attorney’s fees will be paid in most cases This is a good reminder to update your employment posters effective January 1st of every year. Prohibition on Requiring Employees to Provide Driver’s License Employers cannot require applicants to have a driver’s license unless the employer reasonably expects driving to be one of the job functions and an alternative form of transportation would not be comparable in travel time or cost to the employer. Freelance Worker Protection Act This Act requires the following for contracts with a freelance worker, defined as a person, that is hired or retained as a bona fide independent contractor by a hiring party to provide professional services in exchange for an amount equal to or greater than $250: Contracts between a hiring party and a freelance worker be in writing and the new law requires a hiring party to retain the contract for no less than 4 years. A hiring party to pay a freelance worker the compensation specified by a contract for professional services on or before the date specified by the contract or, if the contract does not specify a date, no later than 30 days after completion of the freelance worker’s services. The law prohibits a hiring party from discriminating or taking adverse action against a freelance worker for taking specified actions relating to the enforcement of these provisions. The law authorizes an aggrieved freelance worker or a public prosecutor to bring a civil action to enforce these provisions. Delaware Healthy Delaware Families Act The Healthy Delaware Families Act requires that employers with ten or more employees must enroll in the paid leave program and begin paying the following contributions: The contribution rate for medical leave benefits as a percentage of wages is 0.4%. The 2025 contribution rate for family caregiving benefits as a percentage of wages is 0.08%. The contribution rate for parental leave benefits as a percentage of wages is 0.32%. Employers may deduct up to 50% of premiums from employees’ wages. New York Equal Protection The New York Constitution, and specifically Article 1, § 11 (the equal protection law) is amended to also prohibit discrimination based upon: Ethnicity National origin Age Disability Sex, including:Sexual orientation Gender identity Gender expression Pregnancy Pregnancy outcomes Reproductive healthcare and autonomy Paid Prenatal Leave Private sector employers must provide pregnant employees with twenty (20) hours of paid prenatal leave per year. The twenty hours must be made available upon hire. Pregnant employees can use this leave for healthcare services received by the employee during the employee’s pregnancy or related to such pregnancy, including physical examinations, medical procedures, monitoring and testing, and discussing with the employee’s health care provider related to the employee’s pregnancy. Prenatal leave may be taken in one-hour increments. Prenatal leave is not paid out when an employee leaves their employment. Pennsylvania Fair Contracting for Health Care Practitioners Act The Fair Contracting for Health Care Practitioners Act prohibits non-compete agreements exceeding one year for doctors, Certified Registered Nurse Anesthetists (CRNAs), Certified Registered Nurse Practitioners (CRNPs), and Physician Assistants (PAs). Disclaimer: This list is not intended to provide a comprehensive overview of all employment laws effective January 1, 2025, across the United States. Instead, it highlights significant employment law updates in jurisdictions where Offit Kurman serves clients. This content is for informational purposes only and does not constitute legal advice. For personalized guidance, please consult with an attorney.
December 31, 2024
M&A Nuggets
M&A Nugget: Letter of Intents should be neither a Gimme nor an Obstacle
The letter of intent is the first significant document signed by the target and potential acquiror in a merger transaction. Many times over the years, clients have first contacted me after signing a letter of intent to sell or purchase a business. That is usually a mistake. The letter of intent should set forth the parties’ expectations of the business deal and the most core legal issues. Accomplishing that, while not allowing the letter of intent to bog down the progress of the deal, is a fine balance and takes professionals who have been through the process many years. Some clients hurry through a letter of intent because they are under a misconception that the letter of intent is non-binding. However, the letter of intent is in fact a legally binding document in part. Although most letters of intent do not create a legal obligation to close the transaction, letters of intent do typically contain clauses that bind the seller and the purchaser, including, a) a no-shop clause prohibiting the seller from seeking or negotiating with other buyers; b) a confidentiality provision; c) a statement that from the signing of the letter of intent through the termination of the letter of intent, the seller will operate in the ordinary course of business; d) the date the letter of intent expires; and e) a statement of which State’s law governs the letter of intent. The primary purposes of these binding clauses are 1) to ensure the buyer who will be expending time, money and resources investigating the seller, that the seller will operate ordinarily and not seek to negotiate against the buyer, and 2) to give the seller with comfort that its willingness to sell its business will remain confidential and that there will be a date to move on if the parties agree on the terms of a definitive agreement. Since the letter of intent sets the parties’ expectation of the business terms, a rushed letter of intent can miss the boat on key business terms that, if thought of later, are difficult to incorporate into the deal. While the letter of intent must be dealt with expeditiously to move on to the next steps as quickly as possible, one side will be very unhappy later if a key business term is missed.
December 18, 2024
Bankruptcy
2024: Year in Review: Third-Party Releases After Purdue Pharma
"Lately I’ve been, I’ve been losing sleep Dreaming about the things that we could be" - Counting Starts, One Republic The most notable decision in the bankruptcy world in 2024 was the Supreme Court’s decision in Purdue Pharma. Harrington v. Purdue Pharma, L.P., 144 S. Ct. 2071 (2024). At the heart of the fight in Purdue Pharma were nonconsensual third-party releases where Purdue’s chapter 11 plan released all opioid crisis-related claims against the Sackler family[1]. Why are third-party releases important? A third-party release is a provision in a chapter 11 plan that can eliminate future liability for pre-bankruptcy conduct of non debtors like affiliates and officers and directors of the company that sought bankruptcy protection. For many years, debtors have used third-party releases as an important restructuring tool in chapter 11 cases. Bankruptcy lawyers and judges have been losing sleep over strategies to preserve this tool Circuit courts were divided on whether bankruptcy courts had the authority to grant nonconsensual third-party releases. The Second and Seventh Circuits permitted nonconsensual third-party releases when the particular release is essential and integral to the reorganization itself. Third Circuit permitted nonconsensual third-party releases in limited circumstances when the releases were fair and necessary to the reorganization. The Fourth, Sixth, and Eleventh Circuits approved third-party releases and applied a multifactor test[2] to decide the merits of third-party releases. The Fifth, Ninth and Tenth Circuits, however, held that nonconsensual third-party releases were not permitted by the Bankruptcy Code. The Bankruptcy Code does not include any explicit language that would permit third-party releases in most cases, but courts would approve them under §1123(b)(6) of the Bankruptcy Code, which allows bankruptcy courts to approve any “appropriate” provision in a chapter 11 plan that is “not inconsistent with the applicable provisions of this title.” Some courts also relied on §105(a) of the Bankruptcy Code which allows the bankruptcy court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. The Supreme Court’s Purdue Pharma decision eliminated nonconsensual third-party releases. However, Purdue Pharma did not dispose of consensual third-party release and left open the question what would be considered consensual releases and what is going to be the fate of efforts to stay litigation against non debtor parties. In Purdue Pharma, the majority of the creditors voted for the final iteration of the plan which provided for a release of all opioid-related claims against the Sacklers in exchange for a several billion-dollar contribution to the bankruptcy estate. Under the terms of the plan, Purdue would reorganize as a benefit corporation with the purpose of ameliorating the opioid crisis. The United States Trustee objected to the third-party releases arguing that the Bankruptcy Code does not permit the nonconsensual release of claims against non debtors and raising concerns about the victims’ due process rights. In a five-to-four majority opinion written by Justice Neil Gorsuch, the court held that the Code did not permit nonconsensual third-party releases. The Court reasoning was premised on the text of Sections 1123(b) and 524 of the Bankruptcy Code. Section 1123(b)(6) specifically states that a debtor may include in its plan “any other appropriate provision not inconsistent with the applicable provisions of this title.” The Court reasoned that because “[p]aragraph (6) is a catchall phrase at the end of a long and detailed list of specific directions,” it must be interpreted within the context of the rest of the subsection. Thus, because paragraph (6) follows a list of provisions relating to the rights, relationships, and responsibilities of the debtor to its creditors, the majority interpreted § 1123(b)(6) to only permit the bankruptcy court to grant orders concerning the relationships between the debtor and its creditors, and not any relationships between non debtors and the creditors. In addition, the Supreme Court reasoned that the discharge provisions under § 524 limited discharge to the debtor and did not permit the discharge of third parties. The Court noted that § 524(g) already provides an exception to the discharge provisions by authorizing nonconsensual releases of third-party claims under limited circumstances in asbestos-related cases. Accordingly, if Congress intended to broadly authorize nonconsensual third-party releases, it could have included language to that effect. The full impact of Purdue remains to be seen but several bankruptcy courts grappled with what constitutes a consensual release. In the first opinion on the topic since the Supreme Court’s Purdue decision in late June, Bankruptcy Judge Christopher M. Lopez of Houston confirmed an opt-out chapter 11 plan with non debtor, third-party releases. The U.S. Trustee objected to the opt-out plan and argued that the releases were coercive and that the releases should be given only by creditors who opt in. Any creditor who voted in favor of the plan could not opt out, and creditors who did not vote would be bound by the releases. In addition, creditors who opted out could not sue unless the bankruptcy court were to determine that the claims were colorable. Judge Lopez started his analysis by emphasizing that Purdue explicitly dealt with non-consensual third – party releases only and did not change the law in Fifth Circuit. What constituted consent, including opt-out features and deemed consent for not opting out, had long been settled in this District and hundreds of chapter 11 cases have been confirmed with consensual third-party releases with an opt-out. The debtor gave extensive notice about the opt-out provisions in the plan. About 100 creditors opted out, Judge Lopez said in his opinion. Judge Lopez overruled the U.S. Trustee’s objection and confirmed the plan because “the third-party releases are consensual and narrowly tailored.” A New York judge in the Bankruptcy Court for the Western District of New York, Chief Bankruptcy Judge Carl L. Bucki of Buffalo, N.Y. denied confirmation of an opt out plan in a case where the corporate debtor offered $300,000 for distribution among creditors with more than $282 million in unsecured claims. The proposed plan called for releasing not only the debtor but also the debtor’s officers, directors, shareholders and agents. Non debtor releases were also earmarked for the debtor’s and the committee’s professionals, among others. Unless a creditor affirmatively opted out, they would be deemed releasing claims. In re Tonawanda Coke Corp., ___ B.R. ___,. No. BK 18-12156 CLB, 2024 WL 4024385, at *2 (Bankr. W.D.N.Y. Aug. 27, 2024.) Unlike Purdue, the released non debtors were not making financial contributions toward the payment of creditors’ claims. Applying section 5-1103 of the New York General Obligations Law, Judge Bogucki held that an opt out plan does not satisfy the requirements for consent under New York law because an agreement to “discharge” an “obligation” had to be in writing and signed by the party against whom it would be enforced. Judge Craig T. Goldblatt of Delaware held that an opt-out provision is permissible only if the creditor was on notice that it would be subject to a third-party release and the creditor took an affirmative act, such as voting on the plan, but failed to exercise the opt-out right. A review of cases even pre-dating Purdue on what constitutes a consensual release shows that there is a case to support every view. Some cases apply state law contract principles (usually to deny approval of opt-out releases), and others apply federal bankruptcy principles (usually to approve them). “[C]ourts are markedly split on the issue, with some categorically finding that a release cannot be consensual absent an affirmative act to opt in, and others finding that opt-out mechanisms that (as is the case here) provide adequate notice and a simple opt-out process can result in a consensual release. In re: LAVIE CARE CENTERS, LLC, et al., Debtors., No. 24-55507- PMB, 2024 WL 4988600, at *12 (Bankr. N.D. Ga. Dec. 5, 2024). The consensual third-party releases will continue to be the main focus next year and the issue will continue to percolate in the bankruptcy and higher courts. [1] The Sackler family owned and controlled Purdue Pharma, the maker of oxycontin, which contributed to the opioid crisis. Empire of Pain, written by investigative journalist Patrick Keefe recounts the story of Purdue and the investigations and legal proceedings into the marketing practices of oxycontin. There are numerous criminal and civil proceedings initiated by the federal and state governments, foreign authorities and individual victims. Hulu’s Dopesick and Netflic’s Painkiller illustrate the impact of oxy in a more easily digestible format. [2] The Courts in these circuits take into consideration the following factors: (1) There is an identity of interests between the debtor and the third party, usually an indemnity relationship, such that a suit against the non debtor is, in essence, a suit against the debtor or will deplete the assets of the estate; (2) the non debtor has contributed substantial assets to the reorganization; (3) the injunction is essential to reorganization, namely, the reorganization hinges on the debtor being free from indirect suits against parties who would have indemnity or contribution claims against the debtor; (4) the impacted class, or classes, has overwhelmingly voted to accept the plan; (5)the plan provides a mechanism to pay for all, or substantially all, of the class or classes affected by the injunction; (6)the plan provides an opportunity for those claimants who choose not to settle to recover in full ;and (7) the bankruptcy court made a record of specific factual findings that support its conclusions.
December 18, 2024
Family Law
Dividing Christmas Ornaments and Other Personal Property in a Divorce Case
Divorce is a challenging process, and dividing personal property often adds emotional complexity. While big-ticket items like homes and retirement accounts might take center stage, sentimental belongings—such as Christmas ornaments, family heirlooms, and collectibles—can be just as contentious. Understanding the legal framework and adopting practical strategies can help ensure a fair and amicable resolution. Legal Considerations Marital vs. Separate Property: Generally, items acquired during the marriage are considered marital property and subject to division. Property inherited by or gifted to one spouse during the marriage typically remains separate property, as long as it has not been commingled with marital assets. If Christmas ornaments were acquired before the marriage or gifted individually, they might be classified as separate property. State Laws on Property Division:Community Property States: In these states, marital property is divided equally. Equitable Distribution States: Property is divided based on fairness, which may not always result in a 50/50 split. Sentimental vs. Monetary Value:Courts may not assign monetary value to sentimental items, but they may recognize their importance to both parties. If the parties cannot agree, a judge may make the final decision. Practical Strategies for Dividing Sentimental Items Create an Inventory: Begin by making a detailed list of all personal property, including Christmas ornaments, holiday décor, and other sentimental items. Include photographs or descriptions to avoid disputes over the condition or identity of specific items. Identify High-Priority Items:Each spouse should separately identify items that hold the most sentimental value to them. This process can help pinpoint areas of potential compromise. Negotiate and Trade:Consider trading items of comparable value. For example, one spouse might take the Christmas ornaments while the other keeps another collection of sentimental value, such as photo albums. Use larger assets, like furniture or electronics, to balance out inequities in sentimental property division. Collaborate During the Holidays:If children are involved, consider creating a shared holiday tradition, such as alternating who uses certain ornaments or decorations each year. Split ornaments into meaningful categories (e.g., “childhood,” “collected during marriage”) to ensure an equitable distribution. Use a Neutral Mediator:Mediation can be a helpful tool for resolving disputes over sentimental items. A neutral third party can provide guidance and help diffuse emotionally charged discussions. Tips for Minimizing Conflict Focus on the Big Picture: Remember that sentimental items, while important, are part of a larger process. Keeping the focus on achieving a fair overall settlement can reduce tension. Consider Duplication:In some cases, items like photographs or digital holiday keepsakes can be duplicated, allowing both parties to retain a copy. Consult an Attorney:An experienced family law attorney can provide insight into how local courts handle personal property disputes and guide negotiations. Conclusion Dividing Christmas ornaments and other personal property in a divorce requires a balance of legal knowledge, emotional intelligence, and practicality. While these items may not have significant monetary value, their emotional worth can be immense. By approaching the process with fairness, flexibility, and empathy, divorcing spouses can navigate this delicate aspect of property division with dignity and respect.
December 18, 2024
Family Law
Hanukkah and Parenting Time: Balancing Tradition and Family Dynamics
Hanukkah, also known as the Festival of Lights, celebrates the miracle of the oil that lasted for eight days in the Holy Temple in Jerusalem. During Hanukkah, many families gather to light the menorah, exchange gifts and enjoy latkes and sufganiyot. For divorced families, Hanukkah can present unique challenges when it comes to parenting time and holiday schedules. Balancing the celebration with the needs and expectations of all parties involved requires thoughtful planning, flexibility, and understanding. Some elements to consider include: Open Communication, Flexibility and Compromise: Open and clear communication between parents is essential for planning a holiday schedule that addresses where the children will stay, which traditions will be celebrated and ensures everyone feels included. Flexibility ensures both parents can share in the festivities, allowing children to connect with both sides of the family. Creating New Traditions: If one parent cannot be present for certain nights of Hanukkah, it’s a great opportunity to start new family traditions that blend the needs of both households. This could include pre-recorded video calls to participate in the menorah lighting or sending gifts in advance to ensure children feel that both parents are present, even if physically apart. Respecting Religious and Cultural Sensitivities: In families where different parents or stepparents come from various religious backgrounds, it’s important to be sensitive to any religious observances or practices. Finding ways to include both religious and secular elements in the celebrations may provide a path toward mutual respect and understanding. Children’s Needs: The needs and emotions of the children are central to any co-parenting plan. For younger children, maintaining familiar rituals is important for security and consistency. If children are older, their involvement and input in holiday arrangements may play a significant role in the decision-making process, particularly if they have developed strong connections to specific traditions or people. Holiday Gift Giving: The exchange of gifts is common during Hanukkah and ensuring that both parents can contribute to the gift-giving experience is important. Some families opt to give all gifts on one particular night, while others may stagger the presents over the course of the eight days. In a co-parenting situation, planning gift-giving ahead of time avoids overlap or competition while ensuring the children feel equally valued. Consider the Impact on Extended Family: Hanukkah often brings extended family together, including grandparents, aunts, uncles, and cousins. Making special arrangements to include one side of the family while ensuring the other is not left out may require flexibility, understanding, and some negotiation. Amidst the logistical challenges of co-parenting during Hanukkah, it’s important to focus on creating a positive and meaningful experience for the children. While the children may not fully understand the complexities of the co-parenting arrangement, they will remember the joy of celebrating the holiday with their loved ones. Ultimately, Hanukkah offers an opportunity for families to come together and reflect on the values of light, joy, and resilience—values that can be celebrated by all, regardless of the circumstances.
December 17, 2024
Labor and Employment
Better Call Sarah: Inappropriate Behavior at Office Parties - What You Need to Know
Mistletoe and Missteps: Ensuring a Safe and Fun Holiday Party Dear Sarah, I’m looking to keep our company’s annual holiday party lighthearted and fun and make sure it doesn't turn into a legal disaster (nobody wants a sexual harassment lawsuit under the mistletoe, right?). So, what's the best way to ensure our holiday festivities stay friendly and fun, without crossing any lines? And, just in case things do get out of hand, how should we handle any complaints or potential allegations of misconduct that may arise after the party? Cheers to no awkward lawsuits, The Mistletoe Monitor Inappropriate Behavior at Office Parties: What You Need to Know Dear Mistletoe Monitor, As much as the holiday party is a time for celebration, it's also a time when employer liability can become a concern. When alcohol is involved, workplace boundaries can become blurred, increasing the risk of inappropriate behavior—whether under the mistletoe or at the office party in general—which could lead to serious legal consequences. So, what should you do if something goes awry? Here are a few steps to mitigate liability and protect your business if an issue arises. 1. Respond Promptly to the Complainant. If an employee comes forward with a complaint, act quickly. Start by talking to the employee and assuring them that the complaint will be investigated thoroughly. Document all conversations and begin your investigation right away. This demonstrates that you take such matters seriously and are committed to creating a safe workplace. 2. Consider Having an Attorney Direct the Investigation. One option is to bring in legal counsel—either in-house or external—to guide the investigation. Having an attorney involved ensures that the process is handled appropriately and can help protect communications under attorney-client privilege. This is particularly important when dealing with sensitive situations that could lead to legal exposure. If you're unsure about the process or legal ramifications, consulting with an attorney early on is always a good idea. 3. Consider Protective Measures Pending the Investigation. Depending on the nature of the complaint and the circumstances, you may need to take interim actions. This could include modifying work assignments, adjusting schedules, or even placing the alleged harasser on leave. The goal is to maintain a safe environment while the investigation is ongoing. For example, if the situation involves two employees from different departments, you could temporarily change their work assignments to prevent further interaction until the investigation is completed. 4. Tailor the Response to the Situation. Remember that each case is unique, and your response should be proportional to the situation at hand. For serious allegations, you may need to take more immediate action, including suspensions or temporary leave for the accused party. Always consult with legal counsel to determine the most appropriate course of action based on the facts. 5. Keep the Event Safe and Enjoyable. Of course, the goal is to prevent these situations from occurring in the first place. You can minimize the risk of harassment claims by being proactive, setting clear expectations, and monitoring the party. Have policies in place to promote respectful behavior and remind employees that although they are at a social event, they still represent the company. If someone gets out of hand, don't hesitate to step in to prevent further issues. Your office holiday party should be a time for celebration, but it’s important to be prepared in case something goes wrong. By following these best practices, setting clear expectations, and consulting legal counsel, when necessary, you can reduce the chances of a party mishap turning into a legal nightmare. Happy holidays (with boundaries!).
December 17, 2024
Estates and Trusts
The Impact of California Assembly Bill 2016 (AB2016) on the Probate Process
In April 2025, California bill AB2016 will take effect, significantly impacting the state’s probate process. Currently, probate is required if a decedent’s property exceeds a certain value, and AB2016 will raise this threshold considerably. AB2016 amends six sections of California’s Probate Code and repeals one. Starting on April 1, 2025, and lasting through March 31, 2028, the threshold for a real property to qualify for disposition without a full probate administration will increase to $750,000. As a result, more estates will be subject to probate, and the obligation to notify all heirs and devisees could lead to a rise in estate disputes. In the wake of AB 2016, it's crucial to understand the California probate process and consider planning strategies to avoid it. All too often the reasons provided to clients are probate avoidance or circumventing the Medi-CAL recovery. With the imposition of the new law set to take effect on April 1, 2025, the value for probate avoidance for real properties per Probate Code section 13151 will rise to $750,000 for a primary residence and then the additional small estate of personal property at $166,250. Of note, the law provides that the “primary residence” is not limited to the decedent’s residence at the time of their death. This provides a total exclusion anticipated for April 1, 2025, to be $916,250. However, Probate Code section 13100 is set to be adjusted for inflation every three years and based on the date of the enactment of this law, it is likely that the value will need to be adjusted upward with planners estimating a value of one million ($1,000,000.00) can be excluded aside from jointly held assets or payable on death accounts. This is a significant change in the basis previously required court involvement. Now, if not otherwise designated in an estate planning instrument, the assets below the threshold in the Probate Code can go through a shorter form procedure with the Probate Court in the determination of a real property of small value. Although this will still expose family assets to the public, it prevents many of the expensive aspects of probate. For starters, the statutory fees associated with probate will no longer apply. This means that neither a personal representative nor any counsel would receive compensation based on the values of the statutory estate. Instead, the work performed could be calculated at an hourly rate or other agreed upon compensation. While the law is meant to extend the notice to all potential heirs and beneficiaries, it does not address the notice requirements to governmental agencies such as the Department of Victims Compensation Board, the Franchise Tax Board, and the Department of Healthcare Services. or instance, under the Welfare and Institutions Code section 14009.5, the Department of Healthcare Services is only notified for a Medi-CAL recovery claim when there is a decedent’s estate as set forth in Title 42 of the United States Code. Pursuant to Section 1396p(b)(4)(A) of Title 42 of the United States Code, estate “shall include all real and personal property and other assets included within the individual’s estate, as defined for purposes of State probate law[.]” These techniques, as set forth in the Probate Code, provide an exclusion for the formal Probate Estate Administration procedures in California. This will eliminate a large sector from the reporting requirements for Medi-CAL recovery claims. While AB 2016 brings about significant changes to estate planning and probate law that could affect how estates are managed in California, the fundamental reasons for estate planning remain unchanged. Instead, it is a stark reminder of why practitioners advise in planning early. While AB 2016 provides a partial fix for transference of wealth after passing, it does not eliminate the concerns during a client’s lifetime. A properly executed estate plan can mitigate the need for court involvement during any period of incapacity. Further, it can provide for a mitigation of risk for abuse by others taking advantage of you as an elder with a truster contact named as a successor representative.
December 13, 2024
Immigration Law
Exploring Proposed Policies for Mass Deportations and Ending Birthright Citizenship
In a far-ranging interview with “Meet the Press,” President-elect Donald Trump confirmed his intention to begin mass deportations of individuals in the county without status and repeatedly stated a desire to end so-called “birthright citizenship.” Mass Deportations and Efforts to Combat Undocumented Immigrants Undertaking a mass deportation effort would be an enormous challenge, with approximately 13 million individuals living in the United States without lawful immigration status. The American Immigration Lawyers Association submitted a statement to the Senate Judiciary Committee regarding “mass deportations” that highlighted the staggering economic impacts such an initiative would entail: "From an economic perspective, immigrants sustain American businesses through their work in every industry and economic sector. In particular, undocumented individuals represent 4.8 percent of the overall U.S. workforce; in the agricultural industry, 13.7 percent of the workforce; in construction, 12.1 percent; and in hospitality, 7.1 percent. The majority pay taxes that, in turn, fund the local education systems and social services in the communities in which they live. A report by the American Immigration Council concluded that deportation of approximately 13 million people who are likely to be targeted by the incoming administration would result in massive labor shortages and a dramatic reduction in the U.S. gross domestic product by over $1.1 trillion. Furthermore, such widespread enforcement actions would dramatically reduce U.S. tax revenue: In 2022, undocumented individuals paid $46.8 billion in federal taxes and $29.3 billion in state and local taxes." See Statement of the American Immigration Lawyers Association Submitted to the Senate Judiciary Committee for the December 10, 2024 hearing “How Mass Deportations Will Separate American Families, Harm Our Armed Forces, and Devastate Our Economy” December 10, 2024 The economic impact of a mass deportation would also be felt at home. Many individuals, families, and communities rely on jobs and industries sustained by undocumented workers. Removing these workers would disrupt industries critical to the nation's economy and leave countless households and communities facing financial instability and uncertainty – not to mention the human cost. If a full mass deportation plan is extremely difficult—both economically and logistically—what concrete actions can we expect in 2025? An increase in enforcement actions by the Immigration and Customs Enforcement (ICE) service is likely. ICE has broad authority to search for and detain individuals in violation of status, and all indications point to increased enforcement efforts both in homes and workplaces. Can President-elect Trump deport U.S. citizens who have undocumented family members? In short, it would be extremely challenging for President-elect Trump to deport U.S. citizens with undocumented family members. United States citizens cannot be deported; they would first have to have their citizenship taken from them via a court process known as “denaturalization.” The prior Trump administration tried to start denaturalization cases (with limited success) but had larger aims to target over 700,000 individuals. Historically, denaturalization was reserved for individuals who lied about their past to obtain United States citizenship, such as criminals, war criminals, etc. The question is could that power be expanded? In theory, yes, but in practical terms denaturalization remains a limited-in-scope federal judicial proceeding, and it is not currently unlawful to have an undocumented individual living with you. As with all judicial actions, however, individuals without access to counsel would be at greater risk. Birthright Citizenship in the United States Turning to the issue of birthright citizenship, an effort to end birthright citizenship would see the Republican party undermine one of their greatest accomplishments: the passage of the 14th Amendment to the Constitution after the conclusion of the Civil War. Adopted in 1868, the 14th amendment is a critical part of United States civil rights laws that ensures due process and equal protection under the law to all persons. The Citizenship Clause of the 14th Amendment states the following: “All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.” This provides for all children born in the United States to be U.S. citizens. President-elect Trump’s focus on so called ‘birthright citizenship” has developed from recent narratives of so-called “anchor babies” and “chain immigration.” The various reasoning used to decry the citizenship clause of the 14th amendment fails to consider the reality of the United States immigration system. There is no demonstrable link between birthright citizenship and unlawful immigration. Further, all individuals born to foreign parents on United States soil cannot start the process of sponsoring their parents for legal permanent residence and ultimately citizenship until they turn 21. That is an extremely long time, and under the current law, the United States citizen child must also demonstrate their own income to sponsor their immediate relatives. President-elect Trump also repeatedly stated that the United States is the only country with birthright citizenship. That is incorrect. Among the dozens of countries that provide birthright citizenship are our immediate neighbors: Canada and Mexico. But what can the President-elect do to end birthright citizenship? A President cannot unilaterally amend the Constitution. Further, any attempt to use executive action or orders to restrict the 14th Amendment would likely be struck down by the courts. The 14th amendment does provide some exceptions to the citizenship clause, but the existing exceptions apply specifically to the children of foreign diplomats and could not easily be expanded. By its nature, the 14th amendment is a cornerstone of civil rights in the United States, and any federal court would be at odds with precedent to change it. If the political will continues in this area and repeated challenges are made, it is possible some erosion of the amendment could occur. But any such challenge would take years and would be a political issue the Supreme Court may not want to get involved with. Amendments to the constitution require a two thirds majority vote in the United States House and the Senate. This kind of majority is extremely unlikely to exist given the current very tight balance in the legislature. Amendments also require state legislature support as well. Turning to the States, an unused but possible option is for the states to request a Constitutional Convention in which an amendment could be passed. There has never been a Constitutional Convention, and it requires two thirds of the states to agree. What about stopping pregnant mothers from entering the countries? United States Customs and Border Protection oversees the border and has the discretion to review or deny entry for travelers into the country. We could see increased enforcement in this area and directives for visa issuance for pregnant women. However, in practical terms, nearly all airlines restrict heavily pregnant travelers from flying to the country. The impacts on the immigration system remain to be seen from the above stated political aims. It is likely that actions will be taken to limit and slow legal migration through policy, regulation, and enforcement action. It is imperative to fully understand one’s immigration status and be proactive in protecting it.
December 12, 2024
Estates and Trusts
The Ultimate Gift: Estate Planning for Your Loved Ones
When we think of holiday gift-giving, we are dazzled with images of homes adorned with holiday decor, beautifully wrapped packages tied with ribbons under an equally beautiful tree, and even cars draped with giant bows waiting in the driveway for the most appreciative recipients. Yet one of the most profound gifts you can give your loved ones is not parked in your driveway nor does it fit under a tree; it is the gift of estate planning. Ensuring your estate planning is complete, I would argue, is the most thoughtful, intentional, and responsible act that provides clarity, security, and peace of mind for those you care about most. Why Estate Planning is a True Gift: 1. Eases Emotional Burdens Losing a loved one is one of the most difficult experiences of one of life. Without a clear plan in place, grieving family members are left to navigate complicated legal and financial decisions while coping with their heartache. Estate planning removes the undue stress of figuring out your wishes, allowing your beloveds to focus on healing and celebrating your life. 2. Prevents Family Conflict Unclear or contested estates are among the leading causes of family disputes. Clearly outlining your wishes in a carefully constructed estate plan, minimizes the potential for misunderstandings, disagreements, and legal battles. This proactive step can preserve family harmony during an emotionally challenging time. 3. Protects Your Legacy You have worked hard to build your life and accumulate assets. Estate planning ensures that your legacy reflects your values—whether that means leaving an inheritance, supporting a favorite charity, or safeguarding family traditions, your wishes must be documented. More importantly, the documents must comply with your state’s requirements that govern last wills and testaments, and trusts. 4. Provides Financial Security For families with young children, estate planning provides financial stability by appointing guardians and setting up trusts for those minor children. If you do not properly document who should step in to care for your minor children in the event of a tragedy, a court proceeding is sure to follow. Additionally, it is essential you decide who the best person is to manage your minor children’s inheritance until they are old enough to handle it themselves. For adult children, a properly constructed plan ensures that your assets are distributed according to your wishes. You should also consider how, exactly, those funds should be left to your adult child to ensure that such an inheritance matches the ability of the recipient to manage those funds. 5. Empowers Your Voice Through advance healthcare directives and powers of attorney, you maintain control over medical and financial decisions, even if you are unable to articulate your wishes. Having proper documentation in place that nominates a person to speak for you and outlines the type of care you want spares your loved ones from guessing or making agonizing medical decisions on your behalf. The Five Easy Steps to Provide Your Estate Planning Gift 1. Take Stock of Your Assets Make a comprehensive list of your assets, including property, investments, savings, insurance policies, and sentimental items. 2. Choose Trusted Representatives Identify the people in your life who will carry out your wishes. It is imperative that you choose those in your life whom you trust most to make informed financial decisions in your best interest and health care decisions that are reflective of your wishes. 3. Consult Professionals An estate planning attorney can you help draft documents and navigate complex legal requirements. Financial advisors can assist you with maximizing the value of your estate to assist you in planning for your legacy. Accountants can assist you in determining the most tax efficient strategies that should be employed. 4. Communicate with Your Loved Ones Discuss your plans with family members or those closest to you to ensure they understand your wishes. Opening a dialogue about such important issues can often bring clarity to your wishes and communication is an integral part of ensuring your plan is effectuated. A carefully drawn plan that is communicated in advance can reduce confusion and set expectations for those around you. 5. Revisit Your Estate Plan Estate plans should be reviewed annually, especially when there are law changes, new presidential administrations, and updated tax policies. As I have shared before, in addition to those issues, the 5Ds apply, as well so in the event of Death (of a loved one or beneficiary), Distance when a loved one or trusted person moves away, the Divorce of a loved one (or your own divorce,) the Disability of a loved one (or your own disability), and upon the arrival of new Descendants such as the birth of a child or grandchild. The 5Ds can really impact your estate plan. A Lasting Gift for Generations Estate planning is not just about the practicalities of distributing assets; it’s a profound act of love. By taking the time to plan, you give your family and loved ones the ultimate gift: peace of mind, financial security, and a clear roadmap for navigating a difficult time. This holiday season, or any time of year, consider sitting down to create or update your estate plan. It’s a gift that will resonate far beyond the moment, ensuring that your love and care continue to guide your family and loved ones for generations to come.
December 11, 2024
Commercial Litigation
Why Is Estate Planning So Important?
‘Tis the season! It’s that time when we look back on everything we accomplished or failed to accomplish over the past year and, at least for some of us, resolve to do better. Lose weight, get in shape, declutter, get organized, and plan for our own death or loss of sufficient mental or physical capacity to make decisions or care for ourselves. Admittedly, this last one, “estate planning,” as some lawyers no doubt euphemistically dubbed this general category, is a perennial dark horse in the “most likely to top the list of year-end resolutions” category. Excuses range from “I don’t have enough to need an estate plan” to “I’m never gonna die” to “I’ll be dead, so it won’t be my problem.” Not much, if anything, can be done for the ones with delusions of infallibility or those truly relishing the idea of looking back from beyond the grave, eating popcorn and enjoying the misery left in their wake. Undecided? Unconvinced? You’ve got questions, and I have some answers… Q: Why should I care about estate planning? A: Estate planning is essential for ensuring that your assets and personal wishes are properly carried out after you’re gone. Creating and regularly updating a personalized plan unique to your life circumstances is not just about redistributing wealth after you pass away—it’s about protecting your family, minimizing tax burdens (!), and avoiding legal confusion. Without a clear plan, the state decides what happens to your property, which often results in costly, but otherwise avoidable, legal disputes, delays, and unintended results. Q: What’s the biggest mistake people make with estate planning? A: The biggest mistake is simply not planning at all. Last year, I shared my list of the top five estate planning mistakes that I see in my litigation practice (when my clients are routinely forced to dispute and/or litigate over an unintended and unforeseen aftermath). The number one takeaway remains as obvious today as it was last year (and the year before that!) -- failing to plan is the most costly mistake you can make. Failing to plan (or to update an existing plan) leaves your family and loved ones vulnerable and can complicate things emotionally and financially during an already difficult time. Q: Do I really need an estate plan if I’m young and healthy? A: Absolutely! Estate planning isn’t just for the elderly or those with significant wealth—it’s for anyone who wants to make sure their wishes are carried out after they’re gone. We may want to believe we’re infallible and will live forever. Unfortunately, life is unpredictable, and having a plan in place provides peace of mind, ensuring that your family is taken care of no matter what happens. My first boss after college taught me to plan for tomorrow as if the person upon which you are depending tragically gets hit by a bus tonight. It was admittedly a dark life lesson (thank his lifetime of military service!), but he wasn’t wrong to suggest we never know what “bus” might be looming around the next corner. Q: Is estate planning a one-time thing? A: Estate planning should be an ongoing process. Life changes—marriage, having kids, career changes, etc.—are all good reasons to review and update your estate plan regularly. A plan that’s right for you now may be completely unsuitable for you when life changes happen . . . and they do happen! So it’s important to revisit your plan regularly as your life evolves. Q: How does one get started with estate planning? A: Start by consulting with an experienced estate planning attorney who can guide you through the process. I’m not an estate planner myself, but I am fortunate to work with some incredibly talented individuals (in whom my wife and I have entrusted our own planning needs!). I’ll be happy to provide a threshold assessment and introduce you to a colleague with whom I believe you’d be a good match. From there, you will work to outline your goals, create a will, set up a trust, and/or designate “attorneys in fact” to protect your interests and exercise authority as you deem appropriate under powers of attorney. Proper estate planning benefits your loved ones and you both now and after your gone. The key is not to wait—resolve to take action today to protect your future and your loved ones. I have a client who travels a fair amount, and for years now has joked how I’m the last person he thinks of as his plane is about to takeoff as he is again reminded that he hasn’t done his estate plan. Trust me when I say the money you spend (and don’t short-shrift the old adage “you get what you pay for!”) will repay itself multiple times over for your family when the time comes. Do yourself and your loved ones a favor. Give yourself and them some added peace of mind. Don’t just resolve to plan…just do it.
December 10, 2024
Labor and Employment
Better Call Sarah: Reducing Liability While Hosting a Holiday Event
Dear Sarah, Planning our holiday party and I’m a little ‘shaken’ with concern—what are my liabilities if employees overindulge? Am I responsible if someone gets hurt, causes a scene, or drinks and drives? Should I be worried about potential legal fallout, or is it on them to know when to stop? How can I keep the fun flowing without the liability risk? Cheers (responsibly), HR in a Holidaze Dear HR in a Holidaze, While employees are generally responsible for their own actions, as an employer, you still have a duty to provide a safe environment and take reasonable steps to manage risks. Even without alcohol, social gatherings can lead to issues such as bullying, sexual harassment, other misconduct, and accidents and injuries. If alcohol is provided at your holiday party, however, you could be held liable if an employee’s intoxication leads to injury, damage, or misconduct, particularly if it occurs during or shortly after the event. For example, an impaired employee causing a workplace accident or an incident of harassment could result in legal exposure for the company. Additionally, employers need to be aware that providing alcohol brings with it legal liability—similar to what your local tavern owner faces. Courts have frequently held event sponsors responsible for tragedies involving impaired individuals, particularly when those individuals are involved in accidents. The entity providing the alcohol takes on some risk for the individual’s actions while intoxicated, including the possibility that alcohol may end up in the hands of minors. While it’s impossible to eliminate all risk, there are best practices employers can follow to reduce liability at holiday events. These aren’t meant to be a buzzkill but are steps to ensure that your event is safe and fun while limiting legal exposure. Consider Not Providing Alcohol at All: One viable risk management option is to simply avoid alcohol at company functions. While some employees might miss out on the drinks, offering gifts or prizes instead can offset this. Especially in events where children are present, excluding alcohol can prevent minors from gaining access and create a more relaxed, enjoyable atmosphere for everyone. Provide Plenty of Non-Alcoholic Options: straightforward and effective way to manage risk is by providing a variety of non-alcoholic beverages. Avoid putting your employees in a situation where their only options are alcoholic drinks. Offer a selection of sodas, iced tea, lemonade, sparkling water, and even a signature mocktail to encourage moderation and create an inclusive atmosphere for everyone. Use a Professional Caterer or Bartender: For more formal or elaborate events, consider using a third-party vendor to manage alcohol service. Professional servers are trained to identify intoxicated individuals and can limit consumption. If you go this route, make sure to carefully review the vendor contract, request liability insurance, and consider a “hold harmless” agreement to protect your business. Plan for Safe Transportation: One of the most important considerations is ensuring safe transportation home for employees who may overindulge. Consider arranging taxis, ride-sharing, or designated drivers to help those who may not be in condition to drive. It’s also helpful to have key members of management refrain from drinking and monitor the event to spot potential problems early. Set Clear Expectations for Behavior: Let employees know that, although alcohol is provided, they’re expected to act professionally. Remind everyone that they are still representatives of the company at the event, and inappropriate behavior won’t be tolerated. Make it clear that if someone’s actions put others at risk (such as driving while intoxicated), the company will take steps to ensure their safety—including potentially involving law enforcement if necessary. Limit Alcohol Consumption: Consider implementing a drink ticket system to limit the amount of alcohol each attendee can consume. A couple of drinks per person are generally sufficient for a fun evening. This can help prevent overindulgence and manage the alcohol flow in a controlled manner. By implementing these precautions, you can significantly reduce the chances of liability while hosting a fun and safe holiday event. Consulting with legal counsel to ensure your event policies are solid and well-documented is also a smart move. Ultimately, the goal is to create an enjoyable and memorable event without putting the company at risk. So, to answer your question: yes, employers can be held responsible for incidents that occur during or as a result of company-sponsored events. However, with proper planning, clear communication, and safety measures in place, HR can minimize the risks while still fostering a festive and inclusive environment.
December 10, 2024
Family Law
Will the Denial of Gender Affirming Care for Transgender Youth Become the Law of the Land?
On December 4, 2024, the U.S. Supreme Court is scheduled to hear U.S. v. Skrmettii, perhaps the most important trans rights case the justices have ever heard. The landmark case asks whether discrimination against people based on their gender identityii violates the Constitution, a question the Court has never answered. A decision against the trans plaintiffs in Skrmetti could potentially upend the entire legal framework protecting Americans from gender discrimination of all kinds and have a widespread impact on the availability of care for all youth, regardless of sex, nationwide.iii Last year, on March 22, 2023, the Tennessee House of Representatives passed HB1, a law amending the Tennessee Code banning gender-affirming care for transgender minors with a diagnosis of gender dysphoriaiv. The law also criminalizes healthcare providers who administer treatment for transgender youth. More than half of the United States – 26 states, in fact – have passed such bans in recent years.v Tennessee’s Law prohibits all medical treatments that allow a minor to identify with, or live as an individual inconsistent with their assigned sex, and treat the discomfort or distress from a discordance between their biological sex and asserted identity.vi Tennessee’s ban does permit these same hormone medications when they are provided in a way that Tennessee considers “consistent” with a person’s sex designated at birth. Tennessee’s ban has now forced transgender youth who were being treated with puberty blockers and hormone therapy to halt all such care. Transgender teens are now forced to detransition and experience the unwelcome physical effects of puberty that may be mentally and physically debilitating and ultimately destructive, not to mention arduous to later change. Skrmetti comes to the Supreme Court five years after the Court decided a case entitled Bostock v Clayton County, Georgiavii. The Court in Bostock ruled that the 14th Amendment to the U.S. Constitutionviii (the “Equal Protection Clause”) bars discrimination in employment based upon an individual’s “sex,” interpreting the word “sex” to include one’s sexual orientation and gender identity. In its decision, the Court declared that “it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex.”ix The Skrmetti plaintiffs’ argument opposing the ban created by Tennessee is based on already existing constitutional law; namely that Tennessee’s ban restricting gender-affirming care for transgender adolescents is a clear example of discrimination on the basis of sex, making it a violation of the Equal Protection Clause of the 14th Amendment of the Constitution. Tennessee’s argument in support of the ban is based on the continuation of historical legal and moral traditions.x The state argues that the Court should ignore their own precedent in Bostock and pay no attention to the Equal Protection Clause; that the Court should expand on its ruling in Dobbs v. Jackson Women's Health Organization, which overturned Roe v. Wade and permitted states to ban abortion. Skrmetti will be a major test for the Court; are they willing to stretch Dobbs to allow states to ban other health care? The court’s ruling could serve as a stepping stone toward further limiting access to abortion, IVF, and birth control.xi Although the decision that is ultimately issued by the Supreme Court in Skrmetti will be confined to Tennessee,xii it will have ramifications country-wide. Potential Outcomes There are a range of different outcomes that are foreseeable in a final ruling.xiii A ruling in favor of the Skrmetti plaintiffs could return the case to the lower courts to apply the appropriate standard of review for improper sex-based classifications. A ruling in favor of the Skrmetti plaintiffs that determines that the Bostock definition of “sex” applies, and that the Tennessee ban discriminates on the basis of sex (which violates the Equal Protection Clause), would result in the law being found to be unconstitutional and the Court would strike it down. If the Court upholds the ban, the Tennessee law would remain in effect, depriving trans minors from receiving hormone therapy, greenlighting similar bans already enacted in other states, and potentially emboldening even more states to pass similarly restrictive laws and perhaps even more draconian bans.xiv If the Court agrees that there is discrimination based on transgender status but that that does not fit within the definition of discrimination based on sex, there would be significant damage to any future case regarding transgender rights. However the case is decided, it is likely to have a significant impact on how much deference courts give to bans on medical care to treat gender dysphoria. Conclusion Twenty-six (26) of the fifty (50) states in our union have banned youths from receiving essential medical care for gender dysphoria, throwing the lives of the young people in those states into shambles. What will happen in the months following the December 4th oral argument resulting in the Court’s decision in Skrmetti we must all wait anxiously and expectantly. In the meantime, it is useful to ponder the following facts: Every major medical association including the American Academy of Pediatrics, the American Medical Association (the “AMA”), and leading world health authorities have supported gender affirming care as evidence-based care that transgender people should be able to access (i.e., medically necessary health care), and a best practice. The AMA itself has undertaken a myriad of studies indicating that the failure to provide gender-affirming care can lead to (among other things) dramatic increases in suicide attempts, as well as increased rates of depression and anxiety. While the Supreme Court will specifically address whether transgender youth can be banned from accessing hormone therapy, puberty blockers, and similar medications, the case does not address surgery for transgender youth, which is rarely performedxv. The Court will only determine the challenge to Tennessee’s transgender health care ban under the Equal Protection Clause of the Constitution. It will not decide that portion of the case that argues it is the due process right of parents to make health care decisions for and with their children without governmental hindrance. The Supreme Court’s determination to hear Skrmetti comes after a number of states have enacted restrictions on school sports participation for transgender people, bathroom usage and drag shows. At least 24 states now have laws barring transgender girls and women from competing in certain women’s or girls’ sports competitions. At least 11 states have adopted laws barring transgender girls and women from girls’ and women’s bathrooms at public schools and, in some cases, other government facilitiesxvi. If the Supreme Court agrees with Tennessee’s ban, there is nothing stopping states from banning or restricting other kinds of health care – like what gets covered under Medicaid. A Supreme Court ruling endorsing Tennessee’s ban just because it disagrees with who that treatment is being given to — would enable the government to control people’s health decisions and enact other blatantly discriminatory policies.xvii i Awaiting U.S. Supreme Court citation. Underlying proceedings (i) preliminary injunction granted in part and denied in part, L.W. v. Skrmetti, 679 F. Supp. 3d 668 (M.D. Tenn. 2023); and (ii) preliminary injunction stayed, L.W. v. Skrmetti, 83 F.4th 460 (6th Cir. 2023). ii Transgender, is defined as “[a]n internal sense of being male, female or something else." American Psychological Association, 49 Monitor on Psychology, at 32. iii https://www.vox.com/scotus/385198/supreme-court-transgender-united-states-skrmetti iv As defined by the Mayo Clinic “gender dysphoria is different from simply not conforming to stereotypical gender role behavior. It involves feelings of distress due to a strong, pervasive desire to be another gender.” https://www.mayoclinic.org/diseases-conditions/gender-dysphoria/diagnosis-treatment/drc-20475262 v Over the past two years, the number of states with laws/policies denying gender affirming care has increased from four (4) to twenty-six (26) states (AL, AR, AZ, FL, GA, IA, ID, IN, KY, LA, MO, MS, MT, NC, ND, NE, NH, OH, OK, SC, SD, TN, TX, UT, WV, WY ). vi Tennessee-2023-HB0001-Chaptered.pdf vii 140 S. Ct. 1731 (2020) viii No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. ix See Bostock. x That Tennessee has a duty to protect the bodily integrity and health of its residents, especially vulnerable individuals, particularly children, which duty includes the protection of such individuals from harmful and avant- garde medical impositions. And that Tennessee also has a responsibility to its residents to “hold steady, the law’s proper and vital recognition of an objective sexed human nature . . . that male and female are not interchangeable constructs, but divinely ordained realities. See, https://tennesseestands.org/commentary/preserving-the-created-order-reflections-on-usa-v-skrmetti.” xi https://www.aclu-nj.org/en/news/supreme-court-case-trans-health-care-explained xii The State of Kentucky is also a party to the case, so the Court’s decision will effect Kentucky residents as well. xiii https://yaledailynews.com/blog/2024/11/18/law-school-hosts-panel-on-how-united-states-v-skrmetti-puts-transgender-healthcare-on-the-line/ xiv https://lambdalegal.org/lw-v-skrmetti-faq/ xv A recent Journal of the American Medical Association showed 3,600 procedures for transgender patients ages 12 to 18 over the past decade; by contrast, 229,000 U.S. teens had surgical procedures to affirm their cisgender identities in a single year, including breast reductions for boys, or breast augmentation for girls. xvi https://www.lgbtmap.org/equality-maps/youth/sports_participation_bans xvii Comments from Michael Ulrich, associate professor of health law, ethics and human rights at Boston University’s School of Public Health and School of Law at https://19thnews.org/2024/10/how-the-supreme-court-case-on-trans-youth-could-affect-health-care-for-all-americans.
November 25, 2024
Labor and Employment
State of the Union – Artificial Intelligence
On June 28, 2024, the Supreme Court issued its decision in Loper Bright v. Raimondo, overruling the Chevron doctrine[1] which required courts to observe regulatory agency interpretation of statutory law. In Loper Bright, the Court ruled that judges cannot defer to an agency’s interpretation of the law merely because it is deemed “reasonable.” The decision cautioned courts against relying on agencies' claims of authority based on their “subject matter expertise” or their role in political “policymaking.” Instead, federal judges are required to exercise “independent judgment” and interpret statutes based on their "best meaning." This standard makes judges more skeptical of agency interpretations, particularly when those interpretations are inconsistent. While judges may consider agency guidance if it is persuasive, longstanding, and consistent, such guidance is not legally binding. In the dissent of Loper Bright, Justice Elena Kagan noted that artificial intelligence (AI) is likely to be “the next big piece of legislation on the horizon.” She emphasized the challenges Congress faces in regulating the technical area of AI, stating that “Congress can hardly see a week in the future with respect to this subject, let alone a year or a decade.” As Congress endeavors to legislate AI in the wake of Loper Bright, it will have to be specific in what power will belong to agencies to regulate AI. In turn, agencies will have less flexibility in creating and enforcing AI regulations unless power is specifically delegated to them in AI legislation. The rapidly expanding landscape of federal and state legislation and regulation in the AI space is already creating compliance challenges for employers. Given the fast-paced evolution of AI technology, regulatory flexibility is essential. In the wake of Loper Bright, while legal compliance remains a priority, employers will find it easier to challenge agency rules—especially if those rules deviate from the statutory text or shift unpredictably with changes in administration. Akin to the recent legislation passed by the state of Colorado,[2] before Congress enacts comprehensive AI federal legislation, local and state governments will have the opportunity to pass AI regulation specific to for their constituents. However, without a greater federal regulatory scheme expressing a goal of uniformity, this could lead to divergent AI judicial decisions. In recent years, and in the absence of congressional legislation on artificial intelligence (AI) in the workplace, the U.S. Equal Employment Opportunity Commission (EEOC), National Labor Relations Board (NLRB), and the U.S. Department of Labor (DOL) have announced various initiatives to restrict the use of AI in the workplace. The possibility of differing interpretations between state and federal courts raises significant concerns about the future of AI regulation in the United States. Employers operating across multiple states may encounter conflicting requirements, adding complexity to an already challenging compliance landscape. Additionally, employers could face varying legal standards when individuals seek redress for alleged AI-related harms, depending on whether the case is heard in state or federal court. Consequently, the legal landscape for AI is poised to become fragmented and complex. The wheels of justice may also turn too slow to keep up with AI’s fast evolving pace. Greater reliance on courts to determine the appropriate usage of AI could place users of AI at an increased risk for litigation. To minimize potential liability, AI users should implement an AI governance system. Such a system will determine how the AI used, its limitations, risks and provide guidance on best practices. Having advanced knowledge of an AI system's potential pitfalls will provide a business with a tactical advantage to avoid unnecessary litigation while still leveraging the benefits of the AI technology. Legal strategies will need to be tailored to the specific jurisdiction in question, and companies may need to implement more robust compliance measures to account for the varying standards that will emerge. [1] Chevron established a two-step analysis for judicial review of statutory interpretation. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc, 467 U.S. 837 (1984). Under Chevron, if a court concluded that a statute was silent or ambiguous, it had to defer to an agency’s permissible construction of the statute. The Loper Bright decision is premised on what the majority believes is a plain text reading of the Administrative Procedure Act (APA), which governs judicial challenges to agency actions. The Court specifically determined that the APA, which was not considered in Chevron, reflects the traditional understanding of the judiciary's role. This role requires courts to independently interpret the meaning of laws. [2] Colorado’s newly enacted AI law aims to establish comprehensive regulations governing AI use, with a focus on transparency, accountability, and fairness. The law requires companies to conduct impact assessments and implement safeguards to mitigate bias and discrimination in AI systems, with compliance required by February 1, 2026.
November 22, 2024
Labor and Employment
Better Call Sarah: Workplace DEI
Dear Sarah, I’ve been reflecting on how best to promote diversity and inclusion in my workplace. With year-end reviews and the holidays around the corner, I want to make sure that our DEI (diversity, equity, and inclusion) initiatives are truly making a difference. There’s also the looming concern of the potential rollback of education-based affirmative action policies and DEI programs under the upcoming Trump administration. With these shifts on the horizon, many in corporate America are wondering how to adapt and continue fostering inclusivity in their organizations. What strategies can I implement to ensure my team remains inclusive, diverse, and equitable in an evolving political and corporate landscape? - Inclusive Innovator Dear Inclusive Innovator, Thank you for your insightful question! November is a great time for you to focus on diversity, equity, and inclusion (DEI), especially as the holiday season approaches and often highlights cultural diversity. Fostering an inclusive workplace can enhance employee morale while driving innovation and productivity. Corporate DEI policies are facing increased scrutiny and legal challenges, even as the U.S. workforce becomes more diverse. As diversity continues to grow in both familiar and unexpected ways, DEI programs will be crucial for organizations looking to thrive in this evolving environment. While DEI programs will vary based on each organization’s unique goals, effective programs often share key elements: Make Anti-Discrimination Central to Your DEI Policy: Title VII of the Civil Rights Act of 1964 prohibits employment discrimination based on race, color, religion, sex, or national origin. Challenges to DEI programs frequently arise from claims of discrimination against protected groups. To prevent misinterpretations that could create perceptions of favoritism—and thus undermine your program’s effectiveness—ensure that strong non-discrimination principles are integral to your DEI policies. Legally, employers cannot favor specific races, genders, or religions in hiring and promotion. Evaluate whether your DEI initiatives truly foster an inclusive culture that values all employees and promotes an equitable playing field. A compliant DEI program can expand the talent pool for jobs and promotions by proactively engaging with diverse communities. Align DEI Goals with Your Organizational Mission and Culture: Before developing a DEI program, consider your organization’s identity. Understanding your mission, audience, operational methods, and regulatory context will help frame how DEI supports broader goals rather than appearing as an afterthought. Analyze Your Current and Future Workforce Composition: Root your DEI program in your current workforce. Understand individual and team dynamics to make informed decisions about future enhancements. While demographic statistics can offer insights, approach them carefully to avoid oversimplification. Instead of giving "preference" to specific groups, adopt identity-neutral DEI strategies that eliminate bias. These strategies can include structured recruitment and promotion processes with clear, transparent, merit-based criteria; removing biased language from evaluations; and applying employee benefits equitably. Clearly Define “Diversity”: Specify the aspects of diversity your DEI policy aims to address and why. In a compliant DEI program, a true commitment to non-discrimination in a diverse workforce should naturally lead to greater diversity within your organization. Clarify “Equity” and “Inclusion” Definitions: These terms can be broad and sometimes contradictory. Equity doesn’t mean identical outcomes for everyone but rather tailored support that enhances each employee’s chances for success. Inclusion means ensuring that all employees can thrive, fostering teamwork that appreciates diversity. Build a DEI program that encourages a more inclusive workplace culture without directly affecting individual employment benefits. Review Training Materials for Alignment with Your Organizational Values: DEI training materials vary widely in quality. Be cautious about training that could conflict with state laws, particularly in states where DEI-related legislation is being challenged. Given the current climate surrounding DEI, some organizations may hesitate to pursue these programs. However, as society and the workforce continue to diversify, it’s essential to adapt. Rather than retreat, consider this an opportunity to develop DEI programs that resonate with the needs of an evolving society.
November 21, 2024
Labor and Employment
Here We Go Again: The DOL’s Proposed Overtime Rule with its Accompanying New Salary Test is Struck Down by a Texas Federal Court
On November 15, 2024, in the case of State of Texas v. United States Department of Labor, Texas federal court judge Sean Jordan struck down what had been scheduled to be a mandatory adjustment in the so-called “white collar” overtime exemption classifications taking effect on January 1, 2025. The “white collar exemptions” included those employees classified as “executive”, “administrative” or “professional” employees who met both a “duties” test and a “salary” test under the Fair Labor Standards Act. Under a 2019 rule, the salary level needed to be met by an exempt employee was $684/week or $35,568 per year. The Department of Labor under the Biden administration promulgated a rule which mandated two adjustments to the exempt salary requirement for executive, administrative and professional employees. Those adjustments called for an increase on July 1, 2024 to $844/week or $43,888/year; and a further adjustment scheduled for 2025 of $1,128/week or $58,656/year. In his decision Judge Jordan, in vacating the DOL’s proposed rule, concluded that the DOL had impermissibly elevated the new salary requirement in a manner which, in essence, negated or drastically reduced the importance of an exempt employee’s bona fide job duties and thus exceeded its Congressionally delegated authority to determine the elements of a legitimate exempt employee under the FLSA. While it is certainly possible that Judge Jordan’s decision could be appealed to the Fifth Circuit, given the results of the recent presidential election and the predicted more conservative and employer-friendly trends that will most likely follow in agencies such as the DOL, EEOC and NLRB, it is more probable that for the time being the decision striking down the proposed new salary level will remain in effect. The implication of the decision is that the former salary level of $684/week for exempt employees will remain in effect now pending any further adjustment sometime in the future. From a business perspective, companies that adjusted their exempt salary levels back in July will have to decide whether it is more prudent and acceptable to keep those salary levels intact rather than reverting to the then-mandated July 1 adjustment.
November 21, 2024
Family Law
Domestic Violence During the Holidays: Family Law Protections and Legal Options for Victims
The holiday season, typically marked by celebrations, gatherings, and time spent with loved ones, can be a source of joy and relaxation. However, for some families, this period can also exacerbate underlying tensions, often leading to incidents of domestic violence. In family law, cases of domestic violence can have a significant impact on ongoing or pending legal matters, particularly concerning custody, visitation, and protective orders. Understanding the link between holidays and domestic violence and knowing the legal options available can help protect victims and ensure the safety of children and other family members involved in these cases. Several factors contribute to the rise in domestic violence incidents over the holidays: Financial Stress: The holidays often bring increased financial burdens due to gift-buying, travel expenses, and event costs. For families already facing financial challenges, these added expenses can heighten stress levels, sometimes leading to arguments and, in some cases, violence. Alcohol and Substance Use: Social gatherings during the holidays frequently involve alcohol consumption. Increased substance use can lead to impaired judgment and self-control, potentially escalating conflicts into violent incidents. Family Expectations and Pressures: The holidays may bring unrealistic expectations of family unity and joy. When family gatherings do not meet these expectations, individuals prone to violence may lash out. Isolation: For some, the holidays bring a sense of loneliness and isolation, especially for those estranged from family or friends. This emotional distress can create an environment where tensions rise, sometimes culminating in domestic abuse. Exposure to Past Trauma: The holiday season can bring back memories of past traumas or abusive family relationships, which may trigger conflicts in relationships that have an existing history of violence. In family law, instances of domestic violence, particularly those that arise during the holiday season, can play a significant role in shaping court decisions on issues such as: Custody and Visitation: Courts consider the safety and well-being of children as paramount. Allegations of domestic violence can lead to changes in custody arrangements or visitation schedules. For instance, a parent accused of violence may face supervised visitation or temporary custody restrictions to ensure the children’s safety. Protective Orders: Victims of domestic violence may seek protective or restraining orders to prevent the abuser from coming into contact with them. During the holiday season, judges are typically on heightened alert for domestic violence cases and may act swiftly to issue orders, particularly if children are involved. Divorce and Separation Proceedings: Evidence of domestic violence can also influence decisions regarding property division, spousal support, and other financial matters in divorce cases. In some states, a history of abuse may impact a court’s decision on asset distribution or alimony. Victims of domestic violence during the holiday season have several legal options to protect themselves and their families: Emergency Protective Orders: These court orders can be issued on short notice, offering immediate protection. They can include restrictions on contact, temporary custody arrangements, and no-contact provisions. Modifications to Custody and Visitation: For families with existing custody or visitation arrangements, courts may allow temporary modifications to protect the safety of children and any victims of violence. Safety Planning: Victims may work with attorneys or advocates to develop a comprehensive safety plan. This plan may include secure transportation, financial resources, and emergency contacts to help victims leave an abusive situation safely. Shelters and Resources: Many communities have shelters and advocacy organizations that provide temporary housing, counseling, and legal support to victims of domestic violence, often ramping up services during the holidays. For those facing domestic violence, reaching out for support is crucial. Attorneys, counselors, and advocates specializing in domestic violence can help victims navigate the legal system and protect themselves and their children. In family law cases, judges and attorneys understand that domestic violence poses unique challenges during the holiday season and may expedite protective measures to secure the well-being of all involved. Domestic violence cases during the holidays can have profound effects on family dynamics, especially in the context of family law. While the holiday season can be particularly challenging, it is essential for victims to know that legal protections and resources are available. By seeking support, taking appropriate legal actions, and working with trusted professionals, individuals can navigate this difficult period more safely, ultimately laying the groundwork for a more secure future.
November 18, 2024
Family Law
Should You Race to Get Divorced Before the End of the Year for Tax Filing Status and Financial Planning?
Deciding when to finalize a divorce can be influenced by many factors—financial, emotional, and legal. One key consideration is the impact your filing date will have on your tax filing status. Since the IRS determines marital status as of December 31, the date of your divorce could affect how much you owe or the refund you receive. Here’s what to consider as you weigh the timing of your divorce. For tax purposes, the IRS considers your marital status on the last day of the year. If your divorce is finalized on or before December 31, you will file as either "Single" or "Head of Household" (if you meet specific criteria). If you’re still legally married on that date, you’ll have to file as "Married Filing Jointly" or "Married Filing Separately." Married Filing Jointly: Typically provides the lowest tax rates and highest standard deductions. However, it can expose you to "joint and several liability," meaning you’re both responsible for any tax debt or penalties. Married Filing Separately: This might be a good option if you want to avoid joint liability or if your spouse has significant tax issues, but it generally leads to higher tax rates and limited deductions. Head of Household: Is available if you are unmarried by the end of the year, have paid more than half of the household expenses, and have a qualifying dependent. This status provides a lower tax rate and a higher standard deduction than "Single." The main financial difference between finalizing your divorce before or after December 31 hinges on tax brackets, deductions, and credits. Married Filing Jointly vs. Single/Head of Household: For many, filing jointly can lead to a lower tax burden, especially if there is a significant income difference between spouses. However, if your incomes are relatively similar, filing jointly may push you into a higher bracket. Additionally, if you file jointly, you may be eligible for tax credits like the Earned Income Tax Credit (EITC) and Child Tax Credit at higher income thresholds than if you file separately. Head of Household: If you qualify for Head of Household status, it may offer significant tax savings compared to filing as Single. This status is especially advantageous for those with dependent children and can be a compelling reason to finalize your divorce by year-end. If alimony payments are involved, their tax implications depend on when your divorce is finalized. Alimony payments are only deductible to the payer and taxable to the recipient if the divorce agreement was finalized before December 31, 2018. If your divorce is finalized after this date, alimony is neither deductible for the payer nor taxable for the recipient under the Tax Cuts and Jobs Act. Therefore, your divorce timing may have no immediate tax impact if alimony is a factor. Sometimes, finalizing a divorce quickly can result in the loss of other financial benefits, like health insurance coverage. Many spouses rely on their partner’s employer-sponsored health insurance, which generally ends upon divorce. Before rushing to finalize, assess whether you’re financially prepared to cover your own health insurance. Racing to finalize a divorce can lead to rushed decisions that could have lasting financial impacts. Consider whether you have time to prepare for separate tax filings, adjust your financial plans, and navigate any immediate needs, like adjusting retirement contributions, updating beneficiary designations, or refinancing jointly owned assets. The decision to finalize a divorce by year-end is highly personal and should be made with careful consideration. Here are a few key takeaways: Consult a Financial Advisor or Tax Professional: A professional can help you assess the potential tax implications based on your specific financial situation. Evaluate Your Household and Dependents: If you qualify for Head of Household, it might be financially beneficial to finalize by year-end. Think Beyond Taxes: Consider factors like health insurance, alimony, and asset division to understand the full scope of how the timing of your divorce could impact you. In short, racing to finalize a divorce by December 31 might be beneficial in some cases, but it depends on your unique financial situation. Ultimately, prioritizing a well-thought-out financial plan that aligns with your long-term goals may be more beneficial than a last-minute rush to lock in a different tax filing status.
November 18, 2024
Estates and Trusts
Inheritance Rights of Domestic Partners: A Comparison Between New York and New Jersey Laws
Domestic partnerships are legal arrangements between two individuals that grant some of the same rights and benefits as marriage. While domestic partnerships are recognized in many states, inheritance rights can differ greatly depending on the jurisdiction. This article explores the critical differences in inheritance rights for domestic partners under the laws of New York and New Jersey. Qualifying for Domestic Partnerships The qualifications for entering into a domestic partnership in New York and New Jersey are largely similar. Generally, both partners must: Be residents of the county or city where they are applying. Be at least 18 years old. Be unmarried and unrelated by blood. Be in a close, committed personal relationship for at least six months. Not have been in another domestic partnership within the six months prior to applying. Inheritance Rights in New Jersey In New Jersey, domestic partners are granted specific inheritance rights if their partner dies intestate (without a valid will). The surviving partner’s share of the estate depends on several factors: If the deceased partner has no children or parents, the surviving partner inherits 100% of the estate. If the deceased partner is survived by children who are also the children of the surviving partner, the surviving partner inherits 100% of the estate. If the deceased partner has a surviving parent, the surviving partner is entitled to the first 25% of the estate (with a minimum of $50,000 and a maximum of $200,000) plus 75% of the remaining estate. If either the deceased partner or the surviving partner has a child from another relationship, the surviving partner is entitled to the first 25% of the estate (with the same minimum and maximum) plus 50% of the remaining estate. Additionally, New Jersey law grants the surviving domestic partner priority to serve as the legal representative (administrator) of the deceased partner’s estate. Inheritance Rights in New York In contrast, New York does not grant inheritance rights to surviving domestic partners if their partner dies intestate. Without a will, the deceased partner’s assets will be distributed as follows: The deceased partner’s assets will go to their children, not their partner. If there are no children, the assets go to the deceased’s partner’s surviving parents. If they are not survived by children or parents, the assets pass to the deceased partner’s siblings. In the absence of children, parents, or siblings, the deceased partner’s assets may pass to distant relatives, such as nephews or cousins, leaving the surviving partner no share of the estate. Moreover, a surviving partner in New York does not have the right to serve as the legal representative (administrator) of the deceased partner’s estate. For couples in domestic partnerships in New York, comprehensive estate planning is essential. Without a will or other legal instruments, the surviving partner has no legal claim to the deceased partner’s assets and no right to act on behalf of the estate. The Federal Landscape: Domestic Partnerships and Estate Taxes It is also important to note that the federal government does not recognize domestic partnerships. Unlike married couples, domestic partners do not benefit from the federal estate tax exemption for spouses. As a result, a surviving partner may face estate taxes on any assets they inherit from their deceased partner. Additionally, if a partner inherits a qualified retirement account (such as a 401(k) or IRA), they cannot roll over the account into their own retirement account. This limitation can result in significant additional income tax liabilities on inherited retirement funds. Conclusion The inheritance rights and legal benefits for domestic partners vary significantly from state to state. In New Jersey, domestic partners are granted certain inheritance rights and legal privileges, including the ability to serve as the estate representative. In contrast, New York provides no automatic inheritance rights or authority over a deceased partner’s estate for surviving domestic partners. Due to these significant differences, domestic partners—especially those in states like New York—should prioritize estate planning. Careful planning ensures that a domestic partner’s wishes are clearly outlined, and their surviving partner is appropriately protected. Consulting with an attorney experienced in estate planning and domestic partnerships is essential for navigating these complex legal issues.
November 13, 2024
Estates and Trusts
Race to the Sunset: Critical Insights for Clients on Estate Tax Exemptions ending in 2025
As we approach 2025, it is important to stay informed about the upcoming changes to federal estate and gift tax exemptions. Under the Tax Cuts and Jobs Act (TCJA) of 2017, the estate and gift tax exemptions were temporarily increased and are currently $13.61 million per individual in 2024 (adjusted annually for inflation) and will go up to $13.9 million in 2025. However, this law will expire at the end of 2025, potentially reverting the exemption to pre-TCJA levels. Understanding the impact of these changes and seeking guidance on tax mitigation and estate planning is crucial. What is the Sunset Provision? The TCJA's temporary increase in the federal estate tax exemption allows individuals to pass on up to $13.61 million (adjusted for inflation) at death without incurring federal estate taxes and make up to $13.61 million in lifetime gifts. Without further intervention from Congress, after December 31, 2025, this exemption is expected to revert to approximately $5.49 million per individual, adjusted for inflation. Projections adjusted for inflation indicate this will amount to around $6.5 million at the beginning of 2026. This will be a significant decrease from the $13.9 million exemption amount allowed in 2025. Implications for Estate Tax Liability The reduced estate tax exemption could significantly impact estates valued above the lowered threshold. Estates exceeding the new exemption will be subject to higher federal estate taxes at a rate of up to 40%, reducing the inheritance that beneficiaries receive. This underscores the need for proactive estate planning to minimize future tax liabilities. Strategic Estate Planning Ahead of 2025 With the sunset provision approaching, it's crucial for individuals to review and adjust their estate planning strategies. Key steps to consider include: Gifting Strategies: Clients may want to take advantage of the higher exemption by making significant gifts to heirs or charitable organizations before 2025. This can reduce the size of their taxable estate and help avoid higher taxes later. Utilizing Irrevocable Trusts: Establishing trusts is a powerful way to manage and protect assets while reducing estate taxes. Trusts offer flexibility in ensuring that assets are passed on in accordance with the wishes of a client and can help mitigate estate taxes. Updating Estate Plans: Regularly reviewing and updating wills, trusts, and other estate planning documents is essential as tax laws evolve. Ensuring your estate plan is up to date with current laws and well-positioned to address the upcoming changes in 2025 is critical. Consulting Professionals: Working with estate planning professionals, including attorneys and financial advisors, provides valuable guidance on navigating these complex changes and strategies. Their expertise in tailoring estate plans to individual circumstances is key to successful tax and planning management. Action Steps for Estate Planning in 2025 To prepare for the upcoming changes, consider taking these steps: Schedule a Consultation: Meet with your estate planning attorney, financial advisor, and accountants to discuss how the 2025 changes could impact your estate plan and assets. Review and Update Estate Documents: Ensure your will, trusts, and other documents align with current goals, and consult with your trusted advisors to ensure that your plan is compliant and efficient. Explore Gifting Options: Consider making substantial gifts before the estate and gift tax exemptions decrease to maximize tax benefits and minimize future liabilities. As the 2025 sunset of estate and gift tax exemptions approaches, understanding the potential impact on your estate plan is crucial. By taking proactive steps to review your plan, explore gifting opportunities, and consult professionals, you can better navigate the complexities of estate tax planning and safeguard your assets for future generations. The sooner you consult with your estate planning attorney and financial advisors, the sooner you will be able to determine whether the sunset will impact you and get guidance on how to navigate the correct planning necessary for you to timely and adequately address the TCJA. Post-2024 Election Considerations During Donald Trump’s initial term as president, the TJCA was introduced and passed. In light of the recent election results, we can expect that there will be a push to renew and extend the TCJA. If the TCJA is extended, it could allow the estate and gifting annual and lifetime exemptions to remain in place and to further increase annually by adjustment for inflation provisions. This would continue the greatest transfer of wealth in history, allowing individuals to pass larger gifts to their loved ones or establish more complex plans to take advantage of gifting techniques as part of the transfer of wealth. Clients should continue to speak with their financial advisors and estate planning attorneys to remain updated on the TCJA and the potential sunset.
November 13, 2024
Family Law
Essential Legal Protections for LGBTQ+ Families in a Shifting Political Climate
In recent years, LGBTQ+ rights have made significant progress, providing many LGBTQ+ families with stronger legal protections, including marriage equality and anti-discrimination laws. However, shifts in the political landscape can bring uncertainty, making it critical for LGBTQ+ families to proactively protect their rights and ensure the stability of their family structure within the legal system. As legal challenges to established rights increase and state-level protections fluctuate, LGBTQ+ families face a pressing need to safeguard their rights with extra care, vigilance, and planning. Below are some legal strategies to help LGBTQ+ families secure protection and stability, regardless of changes in the political climate. Wills and Estate Planning Documents Wills and estate plans are essential for all families, but they hold particular importance for LGBTQ+ families, who may face unique legal challenges influenced by the political climate. A well-drafted will ensures that your wishes are clear and your assets are distributed according to your intentions. Without a will, intestacy laws in your state could determine the division of your assets, which may not align with your wishes or reflect your family structure. Advanced Directives Advanced directives, including documents such as a living will and durable power of attorney for healthcare, are vital for LGBTQ+ families. These documents empower you to designate a partner or spouse as your decision-maker in medical situations where you’re unable to make decisions yourself. Without these documents, other family members—who may not support your relationship—could potentially gain legal standing to make decisions on your behalf. Second-Parent Adoptions For LGBTQ+ couples raising children, second-parent adoption offers an added layer of legal security, especially when one parent is the biological or adoptive parent. This process allows the non-biological parent to legally adopt their partner’s child without the biological parent losing any parental rights. It ensures that both parents have full legal rights to the child, regardless of marital status or potential changes in the law, providing stability and protection for the family structure. Family Planning For LGBTQ families, family planning needs may include adoption, surrogacy, fertility treatments, and other reproductive services. Access to these services can be impacted by laws that regulate reproductive healthcare or place restrictions based on sexual orientation or gender identity. Legal professionals can help safeguard parental rights by drafting clear agreements, ensuring all legal parental statuses are properly documented, and staying informed on shifting policies. Estate Planning for Non-Biological Parents Estate planning is especially crucial for non-biological parents in LGBTQ+ families. Without proper legal protections, these parents may encounter challenges in securing custody or inheritance rights for the children they have raised. Comprehensive estate planning can help protect these relationships and ensure the family’s intentions are honored. Given the potential for changes in state and federal policies, LGBTQ+ families can benefit immensely from working with a knowledgeable attorney to address their unique legal needs. A skilled attorney will not only ensure that all documents are legally sound but will also help anticipate potential changes in laws that could impact your family. By working with an attorney experienced in these areas, you can proactively address any legal gaps and feel confident that your rights will be protected, regardless of the political landscape.
November 8, 2024
Estates and Trusts
Defensive Estate Planning For the LGBTQ+ Community
The political landscape has shifted, and those of us in the LGBTQ+ community are worried about what the future may hold. There is a lot to lose, and the new administration promises to be decidedly anti-gay. The rights of same-sex couples, adoptive parents, transgender individuals, and queer youth could well be in jeopardy. Among these is the simple right to get married. In Dobbs v. Jackson, the Supreme Court decision that overturned Roe v. Wade, one justice suggested revisiting Obergefell v. Hodges, the landmark ruling that legalized same-sex marriage nationwide. The right to marry was a milestone victory for the LGBTQ+ community. With the arrival of a new administration and conservative majorities in both houses of Congress, an emboldened Supreme Court could strike down marriage equality. With so much at stake, it is more important than ever to harness the protections the law currently provides. The Benefits of Marriage For couples in committed relationships, the best protection may well be marriage itself. Marriage not only provides a wide range of federal and state legal benefits; it also ensures that in a crisis, your spouse has essential rights regarding inheritance, health care decisions, and other critical matters. Taking advantage of the right to marry now—while it is still secure—could be a prudent move. Before tying the knot, talk to a lawyer to ensure that you understand the state and federal benefits, as well as the tax obligations. For example, being married means having to file your annual tax returns as a married couple, and some couples will pay more in income taxes under the “marriage penalty.” But most couples pay less in taxes, and they enjoy a sense of security that simply being partners may not provide. If the Supreme Court decided to overturn Obergefell, it would mean that marriage equality would no longer be federally protected, leaving it up to individual states to determine whether to allow same-sex marriages. This could lead to a patchwork of state laws, some continuing to permit same-sex marriage and others outlawing it. Already having a marriage license will help guard against such uncertainty. The Importance of Estate Planning Marriage confers significant legal benefits, but a marriage license alone isn’t enough. No matter what the future holds for same-sex unions, an estate plan will help protect your relationship from some of life’s most significant uncertainties. 1. Will The backbone of most estate plans, a will specifies how your assets should be distributed upon your death, who will care for any minor children, and who will be responsible for settling your estate. For same-sex couples, wills are particularly important to ensure that each partner is legally recognized as an heir. Without a valid will, your partner may not inherit your property automatically, and your assets could go to family members who do not have your best interests at heart. 2. Powers of Attorney If you should ever become incapacitated, someone would need to pay your bills, file your taxes, and possibly even sell your home if the incapacity appears to be permanent. A power of attorney will authorize a partner, spouse, or other trusted individual to take on this role. If you have no power of attorney, it could be necessary for someone to become your legal guardian. This is an expensive and time-consuming process, and it involves a court hearing. At just a few pages, a power of attorney can prevent the need for a guardianship and save your loved ones a lot of stress. In Maryland, it’s helpful to have the state’s statutory power of attorney, which banks and other entities are obligated to accept. You can even include special instructions in the document, such as authorizing your attorney in fact to make gifts on your behalf. 3. Advance Medical Directives An advance directive enables you to name a “health care agent”—someone you trust who will manage your health care if you ever become incapacitated. It also says what kind of care you want to receive in an end-of-life situation, like a terminal illness. If you have a partner, naming them as your agent helps ensure that they have the legal right to make critical medical decisions on your behalf. Without such a document, hospitals or medical staff may default to family members who may not recognize or support your relationship. Being married means your spouse automatically has the legal right to make medical decisions for you. But an advance directive is an important backup. It ensures that your spouse is in charge even if your marriage is not recognized, and it names a backup agent in case your spouse is not available. For trans individuals, an advance medical directive can also help make their care as dignified as possible. For example, the document can instruct your healthcare providers to address you by your preferred name and pronouns, regardless of your legal name or the gender marker on your driver’s license. This simple provision can prevent the distress of being called by the wrong name at an especially vulnerable time. To help prevent being misgendered, you can also request that your appearance be maintained to align as much as possible with your stated gender. Including this instruction in an advance directive will alert your healthcare providers as to your wishes and also help your healthcare agent ensure that they are followed. 4. Trusts In addition to a will, many people choose to set up a trust to manage their assets during their lifetime and distribute them efficiently upon their death. A trust allows you to specify how your assets will be used for the benefit of your loved ones, and it can enable them to bypass the lengthy probate process. A trust is also more private than a will. In a hostile political environment, having a trust can protect your privacy as a member of the LGBTQ+ community. Second-Parent Adoptions Less certain than the right to marry is the future of adoptions by same-sex couples. If one parent has a legal connection to a child, such as through birth, it’s smart to have the other parent file for a “second-parent adoption” to create a clear legal relationship. (This will require the consent of the child’s other biological parent.) A court order giving the second parent full legal rights will prevent problems when enrolling the child in school or accessing their medical records. Trans Individuals The incoming administration has directed some of its harshest rhetoric at the transgender community. Because the laws may shift in ways that limit protections for trans individuals, it’s a good idea to take steps now to safeguard your rights. For someone who is transgender or in transition, these might involve legally changing their name to reflect their gender identity or choosing a gender-neutral name that aligns with their preferences. It’s also important to update the gender marker on their birth certificate. In many states, a new birth certificate will be issued—rather than an amended version—showing the updated name and gender marker. A legal name change can occur at any time, regardless of the stage of the person’s transition. Once the change is final, they should notify Social Security and the Motor Vehicles Administration of the new name. Having a driver’s license and Social Security card bearing the new name will make it easier for other agencies and businesses to update their records as well. And, of course, your will, power of attorney, and advance directive should be updated to reflect your new name as well. Conclusion These are challenging times. The good news is that the legal rights of the LGBTQ+ community are still largely intact, even with the future uncertain. By acting now, you can enjoy some peace of mind, knowing that you have taken important steps to protect yourself and those you care about. This article appeared in the May 2025 edition of Maryland OUTLoud.
November 8, 2024
Mergers and Acquisitions
Sell-Side M&A: Navigating Continuing Entanglements After the Deal Closes
Sell-side mergers and acquisitions (M&A) can be transformative events for companies, shareholders, and stakeholders alike. For the seller, this often means a significant payout and the culmination of years or even decades of hard work. However, post-closing sellers often remain connected to the business in various ways through what are known as "continuing entanglements." These post-transaction obligations can have legal, financial, and operational implications for the seller. Earnouts and Contingent Payments An earnout is a mechanism where the seller receives additional compensation based on the post-closing performance of the business. Earnouts are common in deals where the buyer and seller cannot agree on the valuation or where future business growth is uncertain. However, earnouts can be complex and can be areas of dispute post-closing. Sellers should negotiate clear terms that are tied to objective financial indicators, especially as Sellers may have little control over the business post-sale. Escrow and Holdback Provisions Buyers often require a portion of the sale price to be held in escrow or retained as a "holdback" for a period after closing as means to cover post-closing items such as undisclosed liabilities and indemnifications. Sellers need to negotiate protections and structure into these escrows including the terms of release and limitations against escrow claims. Representations, Warranties, and Indemnifications In M&A transactions, Sellers provide representations and warranties about the state of the business at the time of sale. If these representations turn out to be inaccurate or incomplete, the buyer may seek indemnification. Sellers should limit the duration and scope of their representations and warranties. At times, representation and warranty insurance may be an option to protect sellers from such claims. Non-Compete and Non-Solicitation Agreements Buyers often require sellers to sign non-compete and non-solicitation agreements as part of the M&A transaction. Sellers should also evaluate how these restrictions will affect their future business ventures and negotiate reasonable carve-outs when possible. Consulting or Employment Agreements In many cases, the buyer may require the seller to stay involved with a consulting or employment agreement, especially for transition and integration. Sellers should be careful about clarifying their role and expectations post-closing, including a seller’s ability to terminate the arrangement. Tax Implications Taxes drive transactions and M&A transactions can trigger significant tax liabilities for sellers. Sellers should work closely with tax advisors to structure the deal in the most tax-efficient way as well as be mindful of tax treatment for contingent payments like earnouts. Operational Matters Sellers should be careful to account for day-to-day potential entanglements with buyers post-closing. Such items include bank account transfers, leases, licenses, etc. Having a clear understanding with the buyer as to what will be the disposition of these items post-closing is important. Conclusion For sellers, it is important to be mindful of the continuing entanglements that can persist long after the deal is done. Legal, financial, and operational obligations may continue to bind the seller to the business for years to come. Sellers should work closely with experienced legal counsel to navigate these complexities and minimize their post-closing risk.
November 7, 2024
Bankruptcy
How Can Rights to Future Payments Survive Bankruptcy? Lessons Learned from Pharma Bankruptcy Cases
In a decision published earlier this year, the Third Circuit gave creditors in the pharma space clear pointers on how to manage risk in advance and structure a transaction in a way that rights to future payments could survive a bankruptcy filing. In re Mallinckrodt PLC, 99 F.4th 617. Mallinckrodt and its affiliates operated a global specialty biopharmaceutical company that produces and sells both generic and branded pharmaceutical products including specialty products for the treatment of rare diseases and controlled substances. Prior to the Mallinckrodt’s bankruptcy filing Sanofi and Mallinckrodt entered into an Asset Purchase Agreement ("APA ") which transferred ownership of a drug called Acthar which treats chronic inflammation and auto immune disease, and related intellectual property to Mallinckrodt. It was an outright sale in which Mallinckrodt paid Sanofi $100,000 upfront and promised a perpetual royalty of 1% of all net sales over $10 million per year. Sanofi took a security interest in the up-front payment but not the royalty. By 2019, sales hit almost one billion dollars. With the confirmation of Mallinckrodt’s reorganization plan, the Sanofi’s claim for royalties was discharged and Mallinckrodt kept the drug and IP without the obligation to share revenue upon emergence from bankruptcy. Sanofi could have structured the deal differently. It could have licensed the rights to the drug, kept a security interest in the intellectual property, or set up a joint venture to keep part ownership. Instead Sanofi transferred its rights to Alchar Gel in an outright sale.
November 6, 2024
Bankruptcy
Gating Issues for Foreign Trustees Looking to Obtain Chapter 15 Recognition
There has been an uptick in chapter 15 cases, and they have raised various intriguing issues. Among them is the threshold question of who can actually file a Chapter 15. By design chapter 15 applies where assistance is sought in the United States by a foreign court or a foreign representative in connection with a foreign proceeding of a foreign debtor. The Bankruptcy Code itself proclaims that the purpose of this chapter is to incorporate the Model Law on Cross-Border Insolvency so as to provide effective mechanisms for dealing with cases of cross-border insolvency. A decision rendered by the Eleventh Circuit (including Florida, Georgia and Alabama) in the spring of 2024 created a circuit split on a threshold eligibility question, namely whether the foreign debtor must have domicile, business or property in the U.S. to obtain recognition. Section 109(a) of the Bankruptcy Code limits the scope of who may be a debtor, stating that “only a person that resides or has a domicile, a place of business, or property in the United States, or a municipality, may be a debtor” in a domestic bankruptcy proceeding. The Eleventh Circuit held that a duly qualified representative of a foreign debtor that is properly subject to a foreign proceeding is entitled to seek and obtain Chapter 15 recognition even if such foreign debtor has no property in the United States or otherwise does not qualify to be a debtor under section109(a) of the Bankruptcy Code. In re Al Zawawi, No. 22-11024, 2024 WL 1423871 (11th Cir. Apr. 3, 2024). This is directly contrary to the precedent established in the Second Circuit more than ten years ago, which requires courts in New York, Connecticut and Vermont to factor in Section 109(a) of the Code. In re Barnet, 737 F.3d 238 (2d Cir. 2013). It remains to be seen which approach will prevail and if the Eleventh Circuit courts will become the primary forum for foreign representatives when they want to investigate potential claims or conduct discovery in the United States, but the foreign debtor has no assets here.
November 6, 2024
Commercial Litigation
Virginia Court of Appeals Clarifies Impact of the CARES Act on Eviction Actions
In a recent decision, the Virginia Court of Appeals clarified the impact of the CARES Act on Virginia eviction proceedings. Read the full ruling here. The ruling is significant for Virginia landlords, property managers, and tenants, particularly those managing or residing in properties covered under the CARES Act. Background: The landlord filed an eviction action (unlawful detainer) against residential tenants after they allegedly failed to pay rent. Under Virginia law, the Landlord issued a five-day notice to pay rent or vacate the premises. However, the notice also stated the tenants had 30 days to vacate pursuant to the CARES Act. The trial court dismissed the eviction action, ruling it violated the CARES Act’s 30-day notice requirement because the action was filed before the 30-day vacate period expired. On appeal, the Court of Appeals reversed the trial court’s decision. Key Implications of Ruling: Filing an Eviction Action Does Not Require a Tenant to Move Out: Filing an eviction action is only the first step in the legal eviction process, and it does not require the tenant to leave the property. Therefore, a landlord who files an eviction action within the 30 days allowed by the CARES Act does not violate the CARES Act. Difference Between Summons and Execution of a Writ: The CARES Act prohibits landlords from taking action that would require a tenant to vacate the premises before the 30-day notice period has expired. However, it does not prevent landlords from initiating an eviction action. Only a physical eviction of a tenant, performed by a Sheriff, would violate this provision if done within the 30-day timeframe. Practically speaking, a physical eviction cannot occur this quickly. Preemption of State Law by Federal Law: When there is a conflict between federal and state law, federal law preempts state law. Thus, the CARES Act’s requirements, if applicable, provide tenants in covered properties with 30 days before they must vacate, superseding any contrary provision of Virginia law. Impact on Virginia Landlords and Tenants: Proceed with Filing: Landlords can file eviction actions within the 30-day notice period without violating the CARES Act. Understand Tenant Protections: The ruling reinforces the requirement for landlords, subject to the CARES Act, to allow the full 30-day period before proceeding with any action that would physically remove tenants from the property. Any attempt to execute a writ of eviction within that period could lead to legal consequences. Clarity on Lease Termination: Even if a lease is terminated under Virginia law, the tenant still has the right to remain on the premises for 30 days after receiving notice, in accordance with the CARES Act. Conclusion In sum, the Court of Appeals’ ruling balances the rights of landlords to initiate legal eviction actions while ensuring tenants receive protections guaranteed under the CARES Act, if applicable. The CARES Act and the Virginia Residential Landlord Tenant Act impose significant obligations on landlords and tenants regarding rental properties. Understanding applicable legal requirements and responsibilities is essential for fostering a harmonious landlord-tenant relationship and protecting the interests of both parties. Consulting with a trusted attorney in your area is critical if you or your organization have a landlord-tenant related claim. While outcomes cannot be guaranteed and past performance cannot assure future success, Offit Kurman real estate litigator Anders Sleight | Offit Kurman is available to evaluate your situation.
November 4, 2024
Estates and Trusts
The Key to Succession Planning: A Revocable Trust
How can you ensure your legacy endures and your loved ones are spared unnecessary heartache during a challenging time? Succession planning is one of the most crucial aspects for securing financial stability and ensuring a smooth transition of wealth across generations upon the death of a business owner. Proactive planning today can save loved ones future confusion, stress, and financial strain. Among the many tools available for succession planning, a revocable trust stands out as one of the most versatile and effective methods for securing one's legacy and preserving the value of a business. What is a Revocable Trust: A revocable trust, also known as an “inter vivos” or "living” trust, is a legal document that allows an individual, known as the grantor, to transfer ownership of their assets, including a business, into a trust for their own benefit during their lifetime. Simply put, a trust can be the proverbial bucket in which you “hold” your assets. The grantor can revise the document at any time, adding or removing assets or even revoking it entirely if circumstances change. Upon the grantor’s death, the trust becomes irrevocable, and the designated successor trustee—the person named by the grantor to manage the trust after their death—distributes the trust's assets according to the terms outlined in the trust document. Unlike a Last Will and Testament, which becomes effective only after death, a revocable trust functions during the grantor’s lifetime. It provides control over assets while simplifying asset distribution after death by avoiding the probate process required with a Last Will and Testament. Key Benefits of Using a Revocable Trust in Succession Planning: Avoiding Probate: One of the primary advantages of a revocable trust for a business owner is that assets held within the trust bypass the probate process. Probate is a public, court-supervised process that can be lengthy, costly, and stressful for heirs. During probate, the deceased’s assets, including business assets, can be frozen during the pendency of a probate proceeding. When a business is one that needs daily attention, services customers, runs a payroll, and has employees, even a short delay could mean financial ruin. With a revocable trust, the appropriate party can step in immediately to manage the business, allowing for uninterrupted operations and quick, private inheritance for beneficiaries. Maintaining Privacy: Probate is a public process, meaning the estate details—including the business assets owned by the decedent and their beneficiaries— become a matter of public record (as illustrated by the widely reported Last Will and Testament of actor James Gandolfini, published on the first page of the New York Post). A revocable trust, however, remains private, ensuring a discreet transfer of assets and protecting family members from unwanted attention, potential disputes, and estate contests. Flexibility and Control: The grantor of a revocable trust retains control over the assets placed in the trust, allowing for the addition or removal of assets as needed. Business interests, investments, and real property owned in different states can all be titled in the same trust, creating an organized structure for asset management. This flexibility allows for updates as family dynamics or financial situations evolve (consider the 5D’s), ensuring the trust remains adaptable and effective throughout changing circumstances. Protection for Beneficiaries: If you have young or financially inexperienced beneficiaries, a revocable trust can also protect their inheritance by establishing “sub-trusts” specifically for them. Simply put, the grantor’s trust can contain additional trusts to benefit the beneficiaries. These sub-trusts provide guidelines and stipulations for how and when distributions to the beneficiaries are made, providing structure and oversight. When business assets are left to inexperienced beneficiaries, these guidelines and stipulations are particularly helpful, and a trustee can be appointed who has familiarity and understanding of the business to ensure that those interests are protected. Sub-trusts are particularly useful for parents or grandparents looking to ensure that minors or financially vulnerable beneficiaries are cared for responsibly, preventing unrestricted access to valuable business assets. Incapacity Planning: In the event that the grantor becomes incapacitated, even temporarily, a revocable trust allows for seamless management of their affairs by a designated successor trustee. This trustee, selected by the grantor, can be someone well-versed in both the business operations and the grantor's family dynamics. Appointing a competent successor trustee in advance can effectively manage potential financial and administrative crises, helping to avoid the need for a court-appointed guardianship, which can be a lengthy and an emotionally taxing process. Avoidance of Disputes: A revocable trust clearly defines named beneficiaries, ensuring they receive their inheritance without being involved in the probate court process. In New York and many other states, next of kin, who may not even be beneficiaries named in the Last Will and Testament, are notified of their family member’s death and provided the opportunity to appear in court and dispute the terms of the Last Will and Testament. However, with a revocable trust, there is no probate court proceeding, eliminating the notification requirement for disinherited individuals. This absence of a court process makes it significantly more challenging to dispute the terms of a revocable trust. Securing Your Legacy Succession planning with a revocable trust provides control, flexibility, and protection for both the business owner and their beneficiaries. By securing financial stability and continuity in business operations, even after the death of the owner, a revocable trust can be a valuable component of a comprehensive estate plan. Whether you are in the process of building your business or preparing for sale or succession, or planning your legacy, consider the use of a revocable trust to protect your family’s future with confidence.
November 4, 2024
M&A Nuggets
M&A Nuggets: Working Capital Requirement: The Seller's Scourge?
One of the most befuddling concepts to a seller in a merger transaction is the working capital requirement. Buyers base their purchase price offers assuming that there will be a normal amount of working capital in the business at closing. To a seller, the concept of leaving any working capital in the business may seem illogical. As a result of these disparate views, an inordinate amount of time is devoted to negotiating the working capital requirement. However, the working capital process does not need to burden moving a deal forward, There are two key steps in the working capital process. The first step is to establish the target working capital that will be required at closing. The second step is to determine after closing whether the target amount of working capital was left. An important part of determining the target working capital is the definition of working capital itself. In its most basic form, working capital equals current assets less current liabilities. However, sellers are often surprised when buyers propose to include in working capital certain current assets and current liabilities that the sellers have not historically included. Here are two key takeaways to be mindful of when negotiating the definition of working capital: Purchasers prefer to base working capital on a strict GAAP (Generally Accepted Accounting Principles) standard. Sellers, however, often maintain books and records at least in part on a basis other than strict GAAP. Sellers should therefore negotiate for certain of their historical methods of accounting to be utilized to determine working capital, even if at variance from GAAP. Although certain historical accounting practices may not be in accordance with GAAP, it is unusual for a seller’s financial statements to be totally divergent from GAAP, that is, many accounting practices will be in accordance with GAAP. There are, however, different methods to account for certain items, all of which are consistent with GAAP. For example, GAAP recognizes several different methods to value inventory. For those items that it is agreed GAAP will apply to, sellers should insist that an agreement be made on which alternative allowed GAAP method is to be used. The purpose of negotiating the finer details of the working capital target is to have a meeting of the minds between the buyer and the seller, the result of which is no adjustment, or a small adjustment, to the purchase price when actual closing working capital is compared to the target.
November 4, 2024
Intellectual Property
OK Alert | Understanding the FTC’s New “Click-to-Cancel” Rule
Businesses that automatically charge their customers on a recurring basis may have to update their practices to comply with new consumer protection regulations. The Federal Trade Commission (FTC) has introduced a new “click-to-cancel” rule that places stricter requirements on negative option programs—business models that require customers to actively cancel or opt out to stop recurring charges. Common iterations of negative option programs include free trials that roll into paid subscriptions, recurring delivery services, automatic renewals, and similar continuous service agreements. While these programs offer convenience for consumers and predictable revenue for businesses, the new rule comes as a response to persistent consumer allegations of unfair and deceptive practices in some negative option programs. The FTC’s new “click-to-cancel” rule requires: Transparency: All program terms (billing frequency, total costs, how to cancel, etc.) must be disclosed clearly and conspicuously. Businesses cannot bury this information in fine print or hard-to-find sections of their websites or agreements. Consent: Businesses must obtain explicit, informed consent from consumers before collecting billing information and should retain these consent records for at least three years. Ease of cancellation: Canceling must be as easy as signing up, with no hidden barriers or cumbersome processes. In short, this rule aims to ensure consumers know what they are signing up for. Businesses must now clearly disclose the program terms, secure consumer consent before billing, and make it straightforward to cancel. When to comply: Exact dates for compliance have not been announced yet. The rule will begin to take effect 60 days after it is published in the Federal Register. Various provisions will also have staggered compliance dates, making the timeline more complex. Additionally, there are lawsuits challenging the rule that could lead to potential delays or pauses in implementation, adding further uncertainty. It may be advisable to consult with a lawyer on your specific compliance needs. Insights and best practices: Even if the rule is delayed or does not take effect, there are business advantages to proactive compliance. The practices defined in the “click-to-cancel” rule—clear terms, consent, and an easy cancellation process—address common consumer frustrations. Implementing transparent business practices can help you build consumer trust and goodwill, a quantifiable business asset. More information: The FTC announced the “click-to-cancel” rule in a press release on October 16, 2024. The full proposed text for the final “click-to-cancel” rule can be found here: Final Rule Concerning Recurring Subscriptions and Other Negative Option Programs, 16 CFR part 425. The following week, industry groups began challenging the FTC’s new “click-to-cancel” rule in the U.S. Courts of Appeals. On October 22, 2024, Electronic Security Association v. FTC (24-60542) was filed in the 5th Circuit and Michigan Press Association v. FTC (24-3912) was filed in the 6th Circuit. Offit Kurman will continue monitoring developments surrounding this new rule.
November 4, 2024
Labor and Employment
Employer Alert: Employees’ Right to Time-Off for Voting
With the first Tuesday in November around the corner and matters both big and small on the ballots – from local environmental issues to the right to choose and election measures on state ballots to the exalted presidential election – it is an appropriate time to reexamine employees’ rights and employers’ obligations to provide time off to vote. Strangely, there is no federal law that addresses the rights of employees to voting leave. Instead, there is a tapestry of state laws addressing the issue. Some states require paid voting leave, while others only provide for unpaid leave. And, of those that require leave – some have specific exceptions if an employee has enough time to vote before or after work while polls are open. Still, other states require employers to notify employees of their rights. This, no doubt, results in a complex web of laws that is difficult for employers to navigate. For example, (a) New York requires employers post notice of employees’ voting leave rights and provide employees with at least two hours of paid voting time, unless the employee has at least four non-working hours while the polls are open, (b) Maryland requires that employers provide registered voters with up to two hours of voting leave, unless the employee has at least two continuous hours off-duty time while the polls are open, and (c) California requires employers post notice of employees’ voting leave rights and to pay employees for up to two hours of voting time at the beginning or end of a work shift. Employers are reminded that it is best practice to consult their own internal policies which may well provide employees with rights that go beyond those required by the state in which their employees are working. As November 5th approaches, Offit Kurman’s Employment Law Group is always available to answer any questions you might have on voting leave or any related matter.
November 1, 2024
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