Family Law
How to Divide Time with Children Over the Holidays Recap
The holiday season is a time of tremendous joy, but it can also be a time of tremendous stress—especially for divorced parents who share custody of their children. Between splitting time, coordinating gifts, arranging travel, and communicating with relatives, you may face numerous demands that necessitate collaboration with your ex-spouse. This is particularly difficult for parents who have irreconcilable differences. Fortunately, your attorney can help. Over on his blog, our AAML colleague Michael A. Robbins offers five simple tips for parents looking for ways to divide time with their children over the holidays. Whatever you decide to do, he writes, make sure to use this time to plan ahead: “One way to create more stress and potential disagreements is to wait until the last minute to determine how time with children will be divided between you and your ex. When you wait until the last minute to make plans, each parent may have made the mistake of assuming that they would have the child, resulting in a conflict. This can also be confusing to a child, who may then feel as though they have to choose which parent to spend the time with.” You can read the full article here. Mr. Robbins’ guidance is helpful, but it only touches on the surface of a complex issue for children and parents. Your legal advisor can help you develop a comprehensive, sustainable custody arrangement for the holidays—and beyond. Get in touch with us today to start planning now.
December 6, 2023
Estates and Trusts
Caught Between Generations: A Roadmap for the Challenges and Strategies of the Sandwich Generation
In the ever-changing landscape of family dynamics and related demographics, a term has emerged in the last few years to describe a group of people who find themselves literally squeezed between the demands of caring for and planning for aging parents and supporting their own children: “The Sandwich Generation.” Personally, finding myself in this unique group, alongside many of my friends, we face numerous challenges and responsibilities, requiring us to balance our caregiving roles for our aging parents and our children while maintaining our own well-being. In this article, we will delve into what the Sandwich Generation entails and offer insight into strategies for effectively managing these often-overwhelming responsibilities that characterize this unique phase of life. What is the Sandwich Generation?: The term “Sandwich Generation” refers to individuals who find themselves entwined in the middle of a generational “sandwich,” positioned between aging parents on one side and dependent (or semi-independent adult) children on the other. Those of us in the sandwich are literally stuck in between, managing both sides. Typically, the individuals who make up the Sandwich Generation are in their 40s to 60s, grappling with the dual responsibility of managing both ends of the generational spectrum. Still, with expanded life expectancy, varied family make-ups, and childbearing years stretching into the 5th decade, age alone does not define membership. The crux of what characterizes the Sandwich Generation is the simultaneous responsibility of providing care and support to both older and younger family members. Challenges The Sandwich Generation Faces: Financial: Navigating the dual responsibilities of supporting both aging parents and children can impose a significant financial burden. From medical expenses and long-term care costs for aging parents to education and upbringing expenses for children, the financial strain can be overwhelming. The strain is exacerbated by the fact that many aging parents do not have the resources or the aforethought to plan for the cost of care properly. Consequently, the onus falls to their adult children, the Sandwich Generation, to solve via their own financial means or provide the required care for their aging parents personally. Time: Members of the Sandwich Generation often find themselves juggling multiple roles and responsibilities. The delicate balance between the demands of caregiving, coupled with professional commitments and personal obligations, can lead to an intense time crunch, resulting in stress and guaranteed burnout. There are simply not enough hours in the day to help everyone in the way they need help. Emotional: Navigating the simultaneous care of aging parents and raising children can be emotionally taxing. Witnessing the decline of one’s parents while safeguarding the well-being of one’s children can lead to a cascade of feelings, including guilt, anxiety, depression, and emotional exhaustion. Throw in the addition of complicated relationships with those aging parents and siblings who have differing opinions on how one’s aging parents should be cared for, and it can be a recipe for emotional disaster. Lack of Support: Individuals grappling with Sandwich Generation challenges often experience a lack of support and resources tailored to their unique circumstances. Family members do not always live geographically near others, which can lead to feelings of resentment for those who can’t be there physically to offer support. Even worse is when family members are within close geographical proximity and still do not offer support, burdening one family member with the overwhelming responsibility of “doing it all.” Strategies for the Sandwich Generation: Foster Open Communication: Talk about it! It is crucial that you foster open and honest communication with your family members. Discuss your caregiving responsibilities and the areas where you need assistance with your spouse or partner, your children, and your parents. Ensuring everyone is aware of the challenges you face in providing care can help set realistic expectations and build a support network within your family. Seek External Support: The time to reach out for help is now! Whether the support is found in your community resources, support groups, or organizations that cater to the needs of the Sandwich Generation, external support is vital. It might be helpful to keep in mind that the community and support groups are free. Connecting with others facing similar challenges in the Sandwich Generation can provide insight, solutions, advice, practical assistance, exchange of information, or just an old-fashioned vent session. Prioritize Self-Care: We all know the anecdote that plane passengers hear at the start of every flight: put on your own oxygen mask first, and only then can you help others. This old adage is something easier said than done. The bottom line is that caring for others begins with caring for yourself. As a member of the Sandwich Generation, make it a priority to engage in self-care activities such as exercise, pursuing your favorite hobbies, and even practicing relaxation techniques. Maintaining your physical and mental well-being is essential to effectively providing care to those around you. Remember, you cannot effectively care for others if you are running on empty. Holistic Financial and Elder Care Planning: Work with a financial advisor, an elder law attorney, and a geriatric care manager to develop a comprehensive plan that considers the financial, legal, and emotional needs of both your parents and children. Explore potential benefits, government programs, legal documents, and long-term care options to alleviate the financial and legal strain. The time to plan is now. Delegation is Key: You simply cannot do it all. Do your best to identify tasks that can be delegated or shared among family members, friends, or hired professionals like those mentioned in number 4 above. You can even involve your children in age-appropriate caregiving responsibilities to assist their grandparents or take away some of your burdens so that your attention can turn to your aging parents. Do not hesitate to seek assistance from your siblings or other relatives to distribute the workload more evenly. Embracing delegation is crucial for maintaining balance and effectiveness in your caregiving role. Embrace the Power of Technology: Utilize technology to streamline caregiving tasks. Explore online scheduling tools, medication reminders, and telehealth services. Embracing technology can help save time, reduce stress, and improve efficiency in managing both your aging parents’ and your child’s care. Leverage technology to empower those far-away family members to contribute to caregiving by paying bills remotely, scheduling doctor appointments, or even ordering groceries online. Embracing technology ensures a more streamlined and collaborative approach to managing the care of both your aging parents and your children. For those of us who know, being a member of the Sandwich Generation can present numerous challenges. Still, navigating these responsibilities successfully with the right strategies and support is possible. The key is finding a balance between caregiving roles and your own well-being. While the role remains challenging, no matter how many solutions are identified, it is possible to thrive while supporting both the older and younger generations in your family. Click here to listen to my podcast, The Sandwich Generation Survival Guide.
December 5, 2023
Estates and Trusts
23 and Me (and who?) and your Estate Plan
Originally posted on 12/10/2022, content updated on 11/27/2023 With the holidays just around the corner, the advertisements for the home DNA test kits are everywhere: For only $99, give the gift of your family tree! In fact, a local restaurateur told me recently that one night he had two separate tables of families “meeting” both for the first time, after receiving their DNA results from one of these kits. Suffice it to say, the direct-to-consumer DNA test kits are adding an element of surprise to many family gatherings. Finding out about a long-lost half-sibling can be great news (or startling news,) but it can also throw an estate plan into chaos. In New York, as in many jurisdictions, estate planning attorneys like myself draft estate planning documents such as Wills and Trusts with language referring to one’s “issue”. In the legal world, a person’s issue is defined as children, grandchildren, and their lineal descendants – in short, the genetic line. Using a term like “issue” is common in estate planning documents so that a person’s lineal heirs are covered in one’s estate plan, even in the event of an untimely death of a younger-generation family member. For example, I might draft a Will that states: “I leave my entire estate to my surviving issue” – which in laymen’s terms means: I leave everything to my children and lineal descendants. Now, suppose your father, who was married to your mother for his adult life, fathered a child unbeknownst to him with someone other than your mother. You are contacted by this child via one of these genetic testing sites and told that you have been identified as their sibling through your father’s bloodline. In the meantime, your father dies with a Will that leaves his estate to his “issue”. Does this newly discovered sibling factor into your father’s estate plan? You bet he might. The path to prove heirship to a decedent in New York is often complicated and rarely direct. If Dad knew about the child and openly acknowledged his relationship, then it would be much easier. In these cases, the New York Courts have accepted an “openly acknowledged” child outside of a marriage as an heir, even without genetic testing. In the example of an “unknown” heir or a child that was never acknowledged, the court most often requires DNA testing to prove heirship, along with other evidence to prove the relationship. So far in New York, the courts have not accepted a self-administered DNA test as independently sufficient to prove heirship. Further DNA testing is required by an approved DNA testing lab to meet the New York standard. However, what is important to note is that an unknown heir obtaining information from a DNA home test kit, might be enough to convince a court to take a harder look at who are the children of the decedent. Preliminarily the results from a home DNA test kit could provide that child enough standing to halt any distribution of the estate until the matter can be further investigated and the child is provided an opportunity to prove his relation. As sophisticated science becomes more available to the general public, the law will inevitably change to accommodate the accessibility of this information, particularly as it relates to estate planning. So, if you find a DNA testing kit under the tree this year resulting in a surprise branch of your family tree, it might be important for you to meet with an estate planning attorney.
November 27, 2023
Immigration Law
Securing the O-1 Visa: A Recipe for Unlocking the Culinary Dream
The O-1B visa is a golden ticket for foreign culinary professionals to bring their culinary skills to the US. The O-1B visa, which is for artists of extraordinary ability, also extends to skilled chefs and bakers. Yes, if you are a culinary professional exploring visa options for the US, the O-1B visa option might be the perfect recipe for you. Essential Ingredients Willing U.S. Petitioner A U.S. petitioner ready to sponsor and hire the culinary professional. Skilled Culinary Professional A highly skilled culinary professional who is “extraordinary” and has significant experience. The professional should be able to provide evidence of at least three out of six of the evidentiary criteria for the O-1B visa. Requisite Forms Gather necessary forms, including the G-28, I-129 with the O Supplement, to be filed with the U.S. Citizenship & Immigration Services (USCIS). Support Letter A letter from the U.S. petitioner in support of the culinary professional. Consultation Letter A consultation letter from the American Culinary Federation (ACF), even if the culinary professional is not a union member. Steps Consult with an Immigration Attorney for identification of the best options and guidance on navigating the process for both the US petitioner and the culinary professional. Collect the Evidence, including reference letters, industry awards, press coverage etc. The evidence should meet three out of six of the required evidentiary criteria that immigration looks for in an O-1B petition. Prepare Requisite Forms and Documents, including the support letter from the US petitioner in favor of the culinary professional and all the necessary government-issued forms. It is suggested to obtain the help of an immigration attorney to ensure proper filing of the O-1B petition. Obtain a Consultation Letter from the ACF highlighting the culinary achievements of the foreign professional and reasons why the professional’s skills are ideal for the position. To process the consultation letter, the ACF requires a copy of the O-1 petition of the foreign national accompanied by the requisite fee. File with USCIS once the O-1B petition is complete, including all the above-mentioned forms and documents. The immigration office will then process the petition and evidence to determine the culinary professional’s “extraordinary status.” If the office decides in favor of the culinary professional, it will issue an I-797 Approval Notice. If not, the office may either deny the petition or request additional evidence. Obtain Visa Stamp from the US Embassy/Consulate Abroad (excluding Canadians) after the I-797 Approval Notice has been issued. Please note that the visa stamp is necessary as the I-797 Approval Notice itself is not a visa. Arrive in the US and start cooking masterpieces with the US petitioner. *Please note that this is not an exhaustive list of requirements. Please consult an immigration attorney for a comprehensive list of requirements and processes.
November 27, 2023
Real Estate
When's A Property Settlement Agreement Not A Property Settlement Agreement? (Part Two)
Originally posted on 01/16/20, content updated on 11/23/23 In this second of a multi-part series (read part one here), I consider a second alternative “use” for a marital property settlement agreement, or PSA. With the help of Shakespeare’s Romeo and Juliet, I’ve previously noted that a document need not necessarily be defined solely by its name, and particularly, that a PSA can legally serve as more than merely an agreement settling property rights between spouses contemplating divorce. For instance, in my prior example, a legally enforceable PSA moonlit as a real property deed in the right circumstances. Like a multi-faceted Swiss Army Knife, that same PSA might also serve you further as a written “assignment” if and when no separate, stand-alone, self-titled “assignment” document exists. At least that’s among the possible outcomes I am currently seeking to convince the Virginia Supreme Court to adopt in Wood v. Martin, Record No. 190738! As with deeds in my prior example discussed in Part One, assignments need not be self-contained in a document so titled. Legally speaking, an “assignment” of a right or interest in property is an act by which one person transfers to another, or causes to vest in that other, all of the right or interest the person has in particular property. For instance, assuming no express contractual limitations on my doing so, I might assign an unencumbered interest I have as a tenant in an apartment lease to a new tenant (as opposed to a “sublease” arrangement where I maintain my original relationship and rights with the landlord). “Signing over” a check is another example of a simple assignment which occurs when the payee on the check (i.e. the one to whom the check is to be paid) transfers to an assignee by signing the back of the check as “payable to [assignee’s name]” the right to cash the check and to receive the full face value. In Virginia, any order, writing, or act “appropriating” a fund, amounts to an enforceable assignment of the fund, so long as it appears that the one transferring an interest intended to do so, and the one to whom the interest was being transferred understood as much and accepted it. Certain insurance-related, protectionist statutory provisions serve to prevent creditors from reaching the proceeds of a debtor’s life insurance policy, but certain categories of “creditors” of the insured debtor, including those with a written assignment of the policy proceeds, are expressly excluded from this limitation. So what befalls an ex-spouse anticipating proceeds of a life insurance policy when their former spouse dies without having honored the obligations of the couple’s PSA? Is such an individual protected by the court’s decree and the court-ordered relief to which they’d bargained? Or is the ex-spouse reduced to a mere “creditor” forced to line up with everyone else for a share of whatever else the deceased may have left behind? If a consensually court-ordered PSA serves to transfer from one spouse to another the former’s interest in life insurance policy proceeds (including the legal right to designate the beneficiary of same) and incorporates the latter’s acceptance of the transfer, nothing more is required to effect a written assignment under such circumstances. Having been granted such a right in the policy proceeds, the surviving ex-spouse, as assignee of the proceeds, is the rightful owner thereof, and not merely a “creditor” to whom the general exemption statute (Va. Code § 38.2-3122) applies (see Faulknier v. Shafer,264 Va. 210, 216 n.6 (2002), reserving on this issue). As such, both the potential statutory bar to recovery for divorcees as “creditors” of their ex-spouses and a possible malpractice trap for unwitting divorce lawyers are thereby mooted — at least insofar as proper notice of the assignment is provided to the insurer before another creditor perfects a priority claim to the proceeds and/or the insurer, without notice of the PSA assignment, pays out the proceeds to a differently named beneficiary. Much like a delivered but unrecorded real property deed, a PSA assignment is not invalidated or rendered unenforceable merely because the insurance provider wasn’t timely provided a copy, or because the provider’s assignment form wasn’t used. Again, like a deed, there are no “magic words” or specific forms required to create an assignment, and the document creating and embodying an assignment need not be called such. So when is a property settlement agreement not a property settlement agreement? When it’s a legally enforceable written assignment, of course. [Practitioner’s Note: One shouldn’t underestimate the potential significance of the insurer’s notice requirement(s)! Failing to meet the insurance provider’s notice requirements or other procedures for perfecting an assignment might, in limited circumstances, force a PSA doubling as an assignment to cede priority on equitable grounds to other would-be claims to the policy proceeds. For instance, while an unnoticed PSA assignee’s assignment remains no less valid and enforceable, the holder of such an assignment must anticipate taking an equitable back seat to either or both one who subsequently lends against the value of the assigned policy proceeds without knowledge or notice of the PSA obligation and/or another (subsequent spouse, perhaps?) who similarly bargained something of value in exchange for being named beneficiary of the proceeds and, unlike the unnoticed PSA assignee, timely took the necessary steps with the insurer to perfect their bargained-for interest.]
November 23, 2023
Real Estate
When's A Property Settlement Agreement Not A Property Settlement Agreement? (Part One)
Originally posted on 11/20/19, content updated on 11/20/23 In this first of a multi-part series, (read part two here) I address some of the multiple potential “uses” to which one can put a property settlement agreement, or PSA, to use when other options aren’t available. “How’s that?” you ask. For starters, to constitute a deed in Virginia at least, one thing not required of a document is that it be titled “deed” to be a deed. To be a valid Virginia deed, a document – regardless of its title — must reflect a “present intent to transfer” to an identifiable recipient and actually be signed by one transferring an interest insufficiently identified the real property. In the course of assisting a judgment-creditor client pursue a multi-million dollar, post-judgment collection, we sought to reach some real property of a debtor in partial satisfaction of the judgment amount. The crafty debtor had successfully avoided finalizing his divorce from his estranged wife such that, according to the land records at least, the couple’s real property appeared to remain subject to “tenancy by the entirety” (TBE) protection from creditor claims. However, a little third-party discovery from the debtor’s estranged spouse confirmed that she claimed no interest in the property pursuant to a legally enforceable PSA entered into by the estranged spouses (despite not having finalized their divorce). The PSA terms included an expression of her present intent to transfer to the debtor-spouse all of her interest in the couple’s real property, which was sufficiently identified for Virginia deed purposes. Our adversary sought pre-trial dismissal arguing (among other things) that a PSA could not be a deed and that even if one could, this PSA wasn’t one because it lacked any “present intention to transfer” language. Accepting the premise that the PSA itself could legally be a deed, the Circuit Court refused to dismiss the case, and instead, afforded the judgment-creditor the right to have a jury decide whether the PSA sufficiently expressed the non-debtor spouse’s “present intent to transfer” the real property. Voila! When is a property settlement agreement not a property settlement agreement? When it’s a deed! In my example, a little creative lawyering (and a receptive, open-minded judge!) afforded the judgment-creditor client newfound negotiating leverage from a seemingly unassailable TBE property interest of a “married” judgment-debtor. At least on that occasion, called upon to serve the judgment-creditor’s need as “deed,” the estranged couple’s PSA unwittingly “doffed” its name, yet smelled every bit as sweet, indeed! (See what I deed there?)
November 20, 2023
Intellectual Property
Are You Properly Licensed to Sing “Happy Birthday”?
Originally posted on 02/20/20, content updated on 11/17/23 It can’t possibly be illegal to sing “Happy Birthday”… can it? We sing “Happy Birthday” about as often as we mow the lawn, fill up the car with gas, or go to the grocery store. Until recently, however, we may have been doing so illegally, depending on the circumstances. It’s easy to forget (if one ever was even aware in the first place!) that someone first wrote a tune and that intellectual property rights might extend to something as basic as “Happy Birthday.” Particularly egregious violations of such IP rights [note tongue firmly in cheek!] might include summer campfire renditions, or worse, heaven forbid (!), posting a YouTube video in blatant disregard for such legally protected rights. Fear not! (well, fearless, at least…) As a result of a major lawsuit involving the copyright’s claimed owner at the time, Warner/Chappell Music, the Happy Birthday tune, written in 1893 by Patty Smith Hill and her sister Mildred J. Hill (originally titled “Good Morning to All”) is now in the “public domain.” Additionally, after the American Society of Composers, Authors and Publishers (ASCAP) threatened years ago to sue the Girl Scouts, among others, the American Camp Association (ACA) and ASCAP reached an understanding costing the ACA thousands of dollars a year to assure legal campfire singing of copyrighted music – the ACA licenses all of ASCAP’s licensed music for all ACA-accredited camps! [Legal disclaimer: Posting a video of your little campfire girl performing even an ACA/ASCAP-licensed tune requires its own special license (available through ASCAP’s Internet Licensing Dept – for a small fee, naturally!). Also, stage production music is licensed by MTI, an entirely separate entity (with no blanket camp licensing deal in place!).]
November 17, 2023
Estates and Trusts
Holiday Harmony (or Hubbub): Disinheriting with Finesse
Whether it is the result of a discussion about politics, a few too many after-dinner drinks, or a shift in a family relationship, after every major holiday, calls from clients increase requesting a change in their estate plan. Regardless if you wish to reconsider who shall serve as guardian for your minor children in the event of your death or to disinherit a family member, things change. The good news is that an estate plan is fluid, and if drafted properly, removing someone from your estate plan is not as complicated as one might assume. Where to start? First things first, you should not make this change to your Last Will and Testament on your own. In New York, defacing a Last Will and Testament, writing notes in the margin, or crossing out someone’s name is generally insufficient to change a Will. In the worst-case scenario, markings on a Will, or defacing it, could even revoke the entire Last Will and Testament, not just the portion you wish to change. Can you make a change? In a word, yes. Wills are revocable and amendable at any time before you die, as long as you have the requisite mental capacity to make this change. In fact, a Will is not an enforceable legal document until your death. And generally speaking, you can leave your assets to anyone you choose, whether they are related or not. Likewise, aside from certain protections for your spouse, you can disinherit almost any family member from your Will. In fact, other than the State of Louisiana, no state even requires that you leave assets to your adult children (minor children are entitled to support from your estate). The protections in place that will not allow you to disinherit your spouse entirely due to public policy reasons will be addressed in a future article. Similarly, with a change to a named guardian for your minor children, you may remove the named guardian from your Will at any time and replace them with someone you believe is more suited for the job. For single parents, it is important to note that naming someone other than the child’s surviving parent as guardian of the minor child is generally insufficient unless there are extenuating circumstances that would render the surviving parent an inappropriate guardian for your minor child. Why make a change? The most obvious reason people make changes to the beneficiaries of their Will is due to family conflict or estrangement. However, there are many other reasons that one may wish to consider making a change. It may be that your beneficiary was recently diagnosed with an illness and, due to that illness, may need to apply for means-tested government benefits. If that is the case, assets that you may leave to that person may be attached by his creditors, like Medicaid, or worse, the inheritance could disqualify him from a much-needed public benefit. One of your beneficiaries, who may have had a greater financial need when you created your Will, may no longer be in a dire financial situation and simply may not need the financial support. Alternatively, one of your beneficiaries may have shown themselves to be financially irresponsible with her own assets, and you may wish to reconsider leaving funds to someone who does not have the ability to properly manage those assets or set up a trust instead to direct how those funds can be used. Suppose one of your beneficiaries is going through a protracted divorce proceeding or is in a marriage that is likely to dissolve. In that case, you may want to reconsider leaving assets directly to that loved one, as the inheritance could end up with your beneficiary’s former spouse. In the case of making a change to your minor child’s guardian, there are all sorts of reasons to replace a guardian. The named guardian may not be as connected to your family or your child as she once was when the Will was first established. Perhaps the named guardian does not live geographically close to your family any longer, and you wish to consider a more local choice for your child to remain in the event of your death. Similarly, if the guardians you chose were married at the time you signed your Will but are married no longer or have had a significant change to their own lifestyle, they may not be the right choice as guardians of your minor children now. There may be a change in the guardian’s religious or political beliefs that are now quite different from your own and could influence how you would otherwise wish your children to be raised. Regardless of the reason for the change of heart, it is important that a change in guardianship be articulated in a properly executed Will; otherwise, such an appointment could be unenforceable, and a court would determine the best guardian for your child. How to make the change? It is important for you to contact an estate planning lawyer to make the above changes to ensure that they are effective. In addition, when making a change that could alter your entire estate plan, it is important that you communicate to the attorney drafting the change your reasons why the change is being made. In the event that one of the disinherited beneficiaries challenges your Will upon your death, the more information the lawyer has to support this change, the less likely a challenge by a disgruntled beneficiary would be successful in his challenge. For practical purposes, it is best practice to mention the related beneficiary who would otherwise inherit specifically in your Will. For example, when disinheriting an adult child or sibling, it is recommended that you include their name and state that “for reasons known to them” or “not for lack of love and affection,” they are not a beneficiary of the Will. This mention does two things. First, if the disinheritance is not for conflict or any other reason, it is a kind gesture to say so to ensure there are no misunderstandings about why you chose to disinherit them. The second reason why a mention of this person is important is so that the disinherited beneficiary cannot make a case to challenge the Will by saying there was a drafting error or they were unintentionally omitted. By the same token, if a person would not be otherwise entitled to inherit from you, in the example of a more distant family member, an in-law, or a friend, there is no reason to mention that they have been excluded from your Will. In conclusion. If your Thanksgiving holiday was full of more conflict than stuffing, contact our office, and we can provide you with the proper guidance to make a change. Similarly, if you are concerned that your current Will that already disinherits a family member could be challenged by him, you may wish to consider a trust that is harder for a disinherited family member to challenge. Either way, your estate plan is your own, and you have a right to ensure that those who inherit from you and those who serve as guardians for your minor children are the individuals that you choose.
November 17, 2023
Bankruptcy
The “Omnibus Order” - “Mutually Beneficial ‘Kitchen-sinking’” | Part Two
Originally posted on 05/06/20, content updated on 11/16/23. Read Part One here » If I’ve learned anything over my many years of legal practice, it’s not to under-estimate how much can be achieved in a single Final Order. Having had my eyes opened to the “mutually beneficial kitchen-sinking” concept, I have taken the challenge personally to test the limits of this time-saving, client-cost-saving practice. For instance, in conjunction with a negotiated global settlement on behalf of a multi-million dollar judgment-creditor involving third-party rights in real property in which the judgment-debtor held an interest (and a host of other pending and potential forthcoming creditor’s rights enforcement proceedings), counsel and unrepresented parties managed in a single order to take a pending Circuit Court case from and through a threshold pre-trial stage of amending the Complaint to allow and add an arguably necessary party (and resolving service issues consequent thereto) all the way to a final order of dismissal. With the cooperation of all but the judgment-debtor, counsel for all parties were able to consolidate into a single comprehensive order presented at a short and simple Motions Day docket presentation for the Court, a multi-party settlement of a pending post-judgment creditor’s rights complaint to sell the judgment-debtor’s real property asset. In the omnibus consent order, agreed to and jointly presented by all but the judgment-debtor, the parties managed to cobble together in a manner ultimately found acceptable to the Court, all of the following: (i) allowing intervention and adding parties; (ii) defaulting the judgment-debtor; (iii) amending claims; (iv) accepting/waiving formal service; (v) stipulating to facts; (vi) stipulating to legal and factual findings and conclusions of law (and doing so in the alternative); (vii) making asset value determinations; (viii) allowing and deeming a private sale had and held with credits/setoffs determined and applied (and done in a manner so as to moot the need for otherwise required proceedings); (ix) entering judgment; and (x) awarding fee simple title transferred to the judgment-creditor. There was no need for a sale, public or private; no commissioners needed to be appointed; no valuation hearings needed to be held. In this manner, the time and expense of proceeds allocation arguments or accountings were all avoided along with the potentially substantial expert and legal fees attendant to such procedural requirements. Rather than presume some or all of the foregoing would be necessary hoops through which the parties were required to jump, even if consensually, counsel cooperatively approached the global resolution with a collective eye towards minimizing time and expense for all involved while assuring that procedural corners were cut in such a way that no rights were prejudiced. Faced with having to choose form or substance, sometimes “all of the above” works best!
November 16, 2023
Family Law
Traveling with Babies Recap
Originally posted 12/18/18, no content changes. Does anyone enjoy flying with a baby? Infants themselves certainly don’t like the experience, but neither do their parents and aisle-mates. Young children’s cries and frequent needs (for food, attention, and diaper changes) can cause significant irritation on the part of other passengers. As a result, parents may experience anything from angry glares to scolding and threats. It’s enough to convince some families to stay at home or restrict travel to locations within driving distance. A news story from the Washington Post may dissuade more parents from taking their children aboard. According to The Washington Post, a crew member allegedly told a United passenger her baby’s behavior was “absolutely unacceptable” and claimed the company’s rules prohibit infants from crying for more than five minutes. Although United apologized and issued a refund, this egregious story belies the fact that unprepared parents often do make mistakes during air travel, writes the Post’s Christopher Elliott: Crew members have mixed feelings about babies on board. They want to welcome all passengers and make them as comfortable as possible. And privately, they often tell me young children aren’t their biggest problem; it’s their adult travel companions, especially new parents who tend to make a lot of mistakes. The errors include being ridiculously unprepared, acting as if any advice they receive is “baby-hating” or “mom-shaming” — and not knowing what to do with diapers. You can read the full article, “The do’s and don’ts of flying with babies,” here. We may not be able to guarantee comfortable air travel, but Offit Kurman’s Family Law attorneys can assist with virtually any legal matter you or your children might face. While it can be a bumpy ride, so to speak, you don’t need to fly solo. See how we can help.
November 16, 2023
Family Law
Divorce-Planning: What You Need To Know Now
Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.i Originally posted on 09/15/2020, content updated on 11/15/2023. Tumultuous marriages often turn into tumultuous divorces. Yet many who find themselves in such marriages and resultant divorces are actually taken aback by their spouse’s decision to end their marriage. Even those who assumed their spouse was contemplating a divorce are often dumbfounded to learn their other-half had been planning the financial part of their split for months - even years before filing for divorce. The pre-planning of the financial facets of divorce is so common an occurrence today that it has a name -- divorce-planning. Divorce-planning is neither illegal nor immoral. It is unquestionably smart, and one who does not engage in such preparation will in all likelihood turn the painful process of divorce into a devastating one. The Five Signs Anyone claiming disbelief of their spouse’s divorce-planning either missed or ignored one or more of the indicators of financial pre-planning going on right before their eyes. Though every marriage has its own distinct approach to financial management, there are five indisputable indicators that transcend nuptial uniqueness, and signal that your spouse is engaged in divorce- planning. First: intensified irritability and/or noticeable evasion of questions concerning finances. Once divorce-planning is in motion there may be a noticeable reluctance to discuss the family budget, spending habits or the manner in which (and where) marital income or assets are invested or maintained. If your spouse has nothing to hide, then he/she should have nothing to fear in discussing your marital finances. Second: paper account statements no longer arrive at the marital residence, and other financial documents, especially income tax returns and back-up documentation, are no longer accessible or locatable in the home. Thanks to on-line access to banks, credit cards, brokerage accounts, and the like, a divorce-planning spouse has the ability to receive financial information by email, or by logging into the particular account, or through an “app.” A trusting spouse may not ask why, or even notice that paper statements are no longer being received in the mail, or that financial documents are no longer maintained in the marital residence. Online account access allows a divorce-planning spouse to hide a new bank account, credit line, or credit card from their spouse completely. Removing financial documents from the marital residence will delay the availability of such documents to the other spouse.ii Third: passwords /“PIN” numbers change. It is recommended that everyone change passwords and “PIN” numbers often so as to avoid “hacking.” There should be no reluctance to share new passwords and/or “PIN” numbers between spouses. Discovering changes in passwords and/or “PIN” numbers of which you were not informed may indicate a desire to hide activity. Fourth: requests to alter names on assets. New York and most states recognize a spouse’s marital interest in businesses, real estate, and other assets regardless of the title in which the asset is held. However, if one spouse’s name is removed from ownership of the asset, it will be significantly more difficult for the removed spouse to be apprised of transfers in ownership or the creation of liens against an asset, potentially decreasing the value of the asset in the divorce. If your spouse asks you to voluntarily remove your name from an asset -- or you discover that your name has fraudulently been removed from an asset -- divorce-planning is in progress. Fifth: threats of retaliation. Spouses may joke on occasion about what would happen, or what they would do if their spouse divorced them. However, if a spouse makes veiled references about leaving their spouse destitute or taking their child(ren) away from them, such remarks must be taken seriously. A spouse threatening or trying to control the other is probably stalling in order to complete their divorce planning. Further, remarks such as these are often intended to intimidate the other spouse from preparing themselves for divorce. The Game Plan Proactive planning -- divorce planning – should begin at the earliest sign that divorce is on the horizon. Do what needs to be done for your financial protection. Consider, and effectuate as many the following recommendations as possible: Finances, Privacy, and Asset Protection Stop using the family computer. Back up all computers/devices with all data and pictures on a portable hard drive (or use a cloud-based backup). Purchase your own computer, password protect it and keep your new computer away from your home, in a secure location. Change ALL of your passwords and “PIN” numbers. Open a new email account and use it exclusively for communication with your divorce attorney. Obtain a mailbox at a UPS Store or a P.O Box at a Post Office. Use that address for any and all personal mail/packages. Make copies of all account statements, bank, brokerage, credit card, IRA, 401(k), pension and profit-sharing plans, and tax returns for the last three years. Learn everything you can about your family's finances, your spouse's income, and the cost of running your household and collect the paperwork to support that knowledge. This will give you a head start on gathering those documents; you will need them during the divorce action. Put aside enough money for living expenses – approximately six months’ worth – and deposit the money into a separate account, in a bank where neither you nor your spouse has other accounts, and title the account in your name alone. Access and review the statements online only. Update your Will and exclude your spouseiii; amend your Power of Attorney, Medical Power of Attorney, and any other estate planning documents. Change beneficiaries on your life insurance, IRA, and retirement accounts.iv Open at least one credit card in your name only. As above, access and review the statements online only. Obtain a new/additional cell phone, with a new phone number, on a carrier different from the one you currently use. View/access the statements/bills for your new phone on-line only. Add your attorney to your contacts under a pseudonym. Consider what items in the marital residence have a particular meaning to you, perhaps a family heirloom, family photographs, or antiques. Determine which items you would be saddened to lose if your spouse removed them. Be prepared to remove these items when your attorney tells you. Take photographs and videos of the inside (and outside) of your home(s) clearly showing furniture, art, antiques, and your other belongings then in existence so that you can note in the event something “disappears.” If you have a safe deposit box, make an inventory of, and photograph its contents. Put your passport (and those of your child or children) in a secure place, away from your home. Managing Personal Expectations Divorce-planning is not solely a mechanical/financial process. It is also time to take stock in yourself emotionally (and physically) and find the best professionals to guide you through what will be a difficult period in your life. If you have not done so already, start seeing a psychologist to counsel you through your own transition issues. Join and attend appropriate support group meetings. If you do not have a therapist/psychologist or some other form of a counselor, start researching, and obtaining references for one for yourself and one for your children. Divorce often has a deep and lasting psychological effect on the children of the marriage, subtle though it may seem on the surface. As part of divorce- planning parents can and should take steps to reduce the psychological effects of divorce on their children. Start by seeing a counselor or therapist for yourself, and then lead into hiring a counselor/therapist for your children. Perhaps the most important part of divorce-planning is the selection of an attorney. Do your research again. Hire a highly experienced divorce attorney, fund the retainer, and follow your attorney’s advice. If your attorney advises it, meet with other leading divorce attorneys to conflict them out of the case.v Last, but not least, be mindful and wary of social media and other pictures, texts, and emails. Anything you post or publish can be used as evidence in Court. Do not post anything that you would be embarrassed to see on the front page of a newspaper. And, do not start searching for your next love interest during the divorce-planning period. Stay off of any dating website. Conclusion Divorce -planning is not about hiding, dissipating, or wasting marital assets. It is about protecting yourself and your assets and making shrewd choices when your mind is clear, long before you are caught up in the whirlwind of divorce. It requires logical preparation in the months leading up to a divorce. There is no blueprint for marriage, neither is there a blueprint for divorce. But diligent, pragmatic, and early preparation --- divorce-planning -- can start you off on a better footing, and ease the path ahead. i Sun Tzu: The Art of War Divorce laws of all states provide that both spouses have the right to “discover” (obtain) virtually any financial document or piece of information about the other spouse and the marriage going back to the day the parties married, However, a bird in the hand is worth two in the bush -- it is better to hold onto these documents, have them in your possession than to risk the time and effort in trying to get them back. iii See a Trust and Estate Attorney in your State. In some states excluding a spouse does not guarantee that he or she will not receive any monies from your estate. iv Sometimes you cannot do this until you are officially divorced, but try to do whatever you can now. In addition, upon commencement of a divorce, it is likely that you will be restrained from modifying assets including changing beneficiaries on a life insurance policy. So make the change now. v This is a highly controversial, and “hardball” move. It is an aggressive tactic. It is certainly part of the divorce-planning strategy but is often looked upon as sharp practice.
November 15, 2023
Franchise Law
How to Bring a Franchise Brand to the US
Originally posted 2/3/2015. No content changes. What’s the best way for a successful franchisor outside the U.S. to launch its brand within the U.S.? Here is one suggested approach: Start small. Begin with a test. See what works and what doesn’t work. What are the costs? What are the best sources of supply? Who are the competitors and what do they offer? What prices make sense? What local talent can join the venture and bring U.S. industry expertise? A test will allow the brand owner to modify the system to meet the challenges of the market and then to offer a proven concept when prospective franchisees come into the picture. Form a wholly owned subsidiary in the U.S. to run the test. This will not require franchise law compliance because the U.S. operation is not a franchise. A wholly-owned subsidiary gives the brand owner full control and limits taxes and other liabilities to the U.S. entity. Form the subsidiary as a corporation in the state in which the company’s U.S. headquarters will be located. There is little or no advantage to incorporating in Delaware when the company has no plans to raise capital or go public. Apply for federal trademark registration. The trademark can be owned either by the brand owner abroad or by the U.S. subsidiary. Of course, the mark itself must be available and must make sense in the U.S. market. The experience from the test will facilitate preparation of the operating manual and training program as well as the franchise agreement and franchise disclosure document. The franchise offering will be made by a company to be formed when the documents are close to completion. Just before launching franchise sales, form a new company to be the franchisor. This can be either a corporation or a limited liability company. This entity shields the operating company from the liabilities of the franchise business and usually avoids the need to disclose financial information about the parent company. Have your outside accounting firm prepare an audit of the opening balance sheet of the franchisor entity. This will be required for registration in New York and possibly one or more other states. If you avoid these states, you can phase in the audits over three years. Don’t grant master franchise rights. If you do, the brand owner abroad that grants master franchise rights in the U.S. may be obligated to comply with the federal and state franchise laws and may risk potential liability for violation of those laws by the master franchisee. You can read a more detailed explanation of this process in a paper I recently wrote for offshore franchisors considering U.S. expansion. A number of companies based in various countries that have successfully expanded their franchise brands into the U.S. Here are a few examples: Australia Action Coach – business coaching – www.actioncoachfranchise.com Bark Busters – home dog training – www.barkbusters.com Cartridge World – printer cartridges – www.cartridgeworld.com Canada Proshred – mobile shredding – www.proshred.com Yogen Fruz – frozen yogurt – www.yogenfruz.com Denmark BoConcept – furniture stores – www.boconcept.com England The Body Shop – beauty products – www.thebodyshop.com Germany Engel & Voelkers – real estate brokerage – www.evusa.com Japan Beard Pappa’s – cream puffs – www.muginohointl.com Kumon – after-school enrichment – www.kumonfranchise.com Tom Pitegoff, Tom.Pitegoff@offitkurman.com
November 15, 2023
One Minute of Overtime
Bona Fide Meal Break
Welcome to One Minute of Overtime, where I will share insights on Labor and Employment Law topics, mostly related to minimum wage and overtime compliance issues. Compliance in this area of law is nuanced and technical, so it is critical for employers to audit and adjust their practices to remain compliant, so stop by to stay up-to-date and in-the-know. An employer does not have to pay an employee for time spent on a bona fide meal break. However, to qualify as a bona fide meal break, the employee must be completely relieved from duty and should not be interrupted for thirty minutes or more.
November 15, 2023
Litigation
Legislative Update – What You Need to Be Aware of
During the 2023-2024 North Carolina General Assembly session, which convened in January 2023 and is set to conclude in December 2024, a number of bills were introduced that could greatly affect landlords if passed. In the May newsletter, I discussed House Bill 551 and what its passage could mean for both landlords and renters. In this edition, I will give a brief overview of some of those bills that, if passed, could possibly negatively affect landlords, provide greater clarity regarding existing laws, or reinforce already existing laws. First up is Senate Bill 724. Senate Bill 724. Hotel Safety Issues Related Matters – would help enforce Senate Bill 53 (Hotel Safety Issues), which became law on March 19, 2023. Senate Bill 53 defined transient occupancies as “the rental of an accommodation by an inn, hotel, motel, recreational vehicle park, campground, or similar lodging to the same guest or occupant for fewer than 90 consecutive days.” Senate Bill 724 further addresses transient occupancies by requiring guests to vacate after 90 consecutive days, permitting innkeepers to contact law enforcement to have guests removed, and making it clear that transient occupancies are governed by NCGS Chapter 72 and not 42. Additionally, the bill also permits innkeepers and guests to enter a lease agreement after the 90-day period. Any such agreement will be governed by NCGS Chapter 42. This bill has not yet become law and could possibly not be picked back up during this legislative session. What does that mean for Senate Bill 53 and innkeepers? Will issues arise with enforcing Senate Bill 53? Senate Bill 667. Regulation of Short-Term Rentals – primarily prohibits cities and counties from adopting ordinances, rules or regulations that prohibit the use of residential properties and accessory dwellings as short-term rentals. In the last couple of years, we have seen a drastic increase in the use of short-term rental sites such as Airbnb.com and VRBO.com. Could this be the reason for the introduction of this bill? Senate Bill 633. Mobile Home Park Act – outlines more stringent requirements for mobile home parks. As of right now, mobile home parks are governed by NCGS Chapter 42, just like all other residential rental properties. Passage of this act could possibly make being a mobile home park owner a little more difficult as it includes a number of additional requirements for mobile home parks. House Bill 595. Rental Inspections – prohibits local government from adopting and enforcing ordinances that would require any owner or manager of real property to obtain any permit or permission under Article 11 or Article 12 of NCGS Chapter 160D from the local government to lease or rent residential property or to register rental property with the local government except in limited cases. Senate Bill 553. Landlord-Tenant and HOA Changes – amends NCGS 42-14.1 bar on local rent control regulations and NCGS 42-46 to state that a late fee can only be charged if a rental payment is five or more calendar days late, the first day being the day after the rent was due. Senate Bill 244. Housing Extension – modifies NCGS 42-14 and will require landlords to give 60 days’ notice if they intend to terminate the tenancy regardless of the length of the term (i.e., week to week, month to month, etc.) unless the lease provides otherwise. This bill would also require landlords to give tenants 60 days’ notice of any rent increase. House Bill 208. Low-Income Housing Tax Credit – reenacts Article 3E, Low-Income Housing Tax Credits of NCGS Chapter 105, as it existed immediately before it was repealed in 2015. All these bills are at various stages, some still in the House having passed the 1st reading, others have been referred to the Committee on Rules and Operations in the Senate. All of the bills have seen little to no activity since April and May. The General Assembly (House and Senate) are set to convene on Wednesday, November 29, 2023. What bills do you believe will pass? What bill’s passage do you believe would be most beneficial?
November 14, 2023
Family Law
Understanding Relocation Custody Cases: Navigating Complex Family Legal Matters
Relocation custody cases, also known as move-away cases, arise when one parent desires to move with their child to a new location, typically a significant distance away from the other parent. These cases present complex legal and emotional challenges that affect the lives of all parties involved. Defining Relocation Custody Cases A relocation custody case is a legal matter that arises when a custodial parent, the one with primary physical custody of the child, wishes to relocate to a different geographic area. This can be within the same state or across state lines. The relocation might be due to various reasons, such as a new job opportunity, family circumstances, or personal reasons. These cases can be contentious because the move often results in a significant disruption of the child's life and the relationship with the non-relocating parent. The non-relocating parent, or the one without primary physical custody, may object to the relocation, fearing that it will limit their ability to spend time with the child. Relocation cases can stem from a variety of factors, including: Employment opportunities: The relocating parent may be offered a job or career advancement in a different location, compelling them to consider the move. Family support: A relocating parent may want to move closer to family members or a support network to help raise the child. Safety concerns: Relocation might be driven by concerns about safety, such as escaping an abusive relationship or moving to a safer neighborhood. Educational opportunities: A relocating parent may want to provide their child with better educational opportunities by moving to a region with superior schools or educational programs. Personal reasons: Sometimes, parents wish to relocate for personal reasons, such as wanting to live in a different environment or to start a new chapter in their lives. Legal Considerations Relocation custody cases are highly sensitive, and the courts take various factors into account to make decisions in the best interests of the child. Some legal considerations include: Best interests of the child: The court's primary concern is the well-being of the child. They consider the child's relationship with each parent, the impact of the move on the child's life, and their emotional and physical needs. Parenting plan modification: If the court approves the relocation, it may need to modify the existing parenting plan to accommodate the new circumstances. This could involve changes to visitation schedules and custody arrangements. Notice and consent: The relocating parent typically needs to provide adequate notice to the non-relocating parent and may require their consent to relocate. If the non-relocating parent objects, a court hearing is usually necessary. Burden of proof: In many cases, the burden of proof falls on the relocating parent to demonstrate that the move is in the child's best interests. They must provide evidence to support their reasons for the relocation. Mediation and negotiation: In some instances, parents can resolve relocation disputes through mediation or negotiation outside of court. This can be a less adversarial way to reach a solution. Relocation custody cases are challenging legal matters that require careful consideration of the child's best interests and the rights of both parents. The courts aim to make decisions that provide stability and well-being for the child, while respecting the rights of both relocating and non-relocating parents. It's essential for all parties involved to seek legal counsel and work towards a solution that prioritizes the child's welfare and emotional needs during these often difficult and emotionally charged situations.
November 14, 2023
Family Law
Protecting Your Business During Divorce: Strategies for Business Owners
Divorce is a challenging and emotional process, and it becomes even more complex when you own a business. Your business is not just a source of income but a significant asset that may be subject to division during divorce proceedings. There are some strategies and tips to help business owners navigate the divorce process while safeguarding their business interests. Prenuptial or Postnuptial Agreements If you're a business owner, one of the most effective ways to protect your business during a divorce is to have a prenuptial or postnuptial agreement in place. These legal documents outline how assets, including your business, will be divided in the event of divorce. By establishing clear terms and agreements in advance, you can minimize disputes and protect your business interests. Keep Business and Personal Finances Separate Maintaining a clear separation between your business and personal finances is vital for protecting your business during a divorce. Make sure your business has its own bank accounts, financial records, and tax documentation. Commingling personal and business finances can make it challenging to prove the business's true value. Accurate Business Valuation Accurate valuation of your business is critical during divorce proceedings. It's advisable to hire a professional business appraiser or a certified public accountant (CPA) with experience in business valuation to determine the fair market value of your business. A well-documented and substantiated valuation can help ensure a fair division of assets. Explore Buy-Sell Agreements A buy-sell agreement is a legal contract that outlines what happens to a business if one of the owners goes through a life-changing event, such as divorce. Having a well-drafted buy-sell agreement in place can allow your business partner or co-owners to buy out your spouse's share, helping to keep the business within the hands of those actively involved. Offer Compensation in Exchange for Business Ownership To protect your business, you might consider offering your spouse other assets or compensation in exchange for relinquishing their claim to the business. This can be a complex negotiation, but it can help keep your business intact and mitigate the need for a forced sale or liquidation. Mediation or Collaborative Divorce Consider alternative dispute resolution methods such as mediation or collaborative divorce, where both parties work together with a neutral mediator or collaboratively trained attorneys to find solutions. These processes often lead to more amicable settlements and can be less disruptive to your business. Protect Intellectual Property If your business involves intellectual property, such as patents, trademarks, or copyrights, make sure it's protected. Clearly delineate ownership of these assets in your business agreements and maintain strong records. This can prevent disputes over intellectual property during divorce. Consult with Legal and Financial Experts Seek the guidance of experienced divorce attorneys and financial advisors who specialize in handling divorce cases involving business owners. They can provide tailored advice and ensure you are aware of all legal options and potential financial implications. Protecting your business during a divorce requires careful planning and a proactive approach. By implementing these strategies and seeking professional guidance, you can navigate the divorce process while safeguarding your business interests. Remember that every divorce case is unique, and it's essential to work with legal and financial experts to create a customized plan that suits your specific situation.
November 14, 2023
Franchise Law
SBA-Backed Franchise Lending
Originally posted on October 24, 2018 content updated on November 13, 2023 This blog post may contain information that was accurate at the time of publication but could become outdated over time. We strive to provide relevant and timely content, but circumstances, facts, and data can change. Users are encouraged to verify the current status of any information presented and seek updated guidance where necessary. The U.S. Small Business Association’s loan guaranty program has undergone several changes over the years. The January 1, 2018,rule supersedes changes described in my past blog postings in December 2014 and 2016. A franchisor that wants its franchisees to be able to obtain SBA-backed loans to finance their franchised businesses must be listed on the SBA Franchise Directory.The directory, which is maintained on the SBA’s website, shows to franchisees and lending banks the franchise systems that qualify for SBA-backed lending. To be listed on the SBA Franchise Directory, a franchisor must submit to the SBA its franchise agreement, its franchise disclosure document (FDD), and any other documents the franchisor requires the franchisee to sign. The SBA then undertakes an affiliation review (explained below) and an eligibility determination. If the franchisor uses the SBA Addendum (SBA Form 2462), the SBA will only undertake an eligibility review and will not conduct an affiliation review. For each listed franchise system, the SBA Franchise Directory indicates whether an addendum is needed, and whether that will be the SBA Addendum or an SBA Negotiated Addendum. Franchisors that are already listed on the SBA Franchise Directory and are not using the standard SBA Addendum must recertify with the SBA each year. As used by the SBA, the term “affiliation” relates to the question of whether the borrower is an independent small business. A lack of affiliation is a condition to being eligible for SBA-backed loans. If affiliation exists, the franchisee is not an independent small business as defined in the SBA’s regulations. Affiliation exists when the franchise agreement gives the franchisor excessive control. In order to qualify for the SBA loan program, the applicant must have the right to profit from its efforts and must bear a risk of loss commensurate with the concept of ownership of an independent business. The SBA Addendum establishes the lack of affiliation by stating the following: Change of Ownership The franchisor may exercise an option or right of first refusal to purchase a partial interest in the franchisee’s business only if the proposed transferee is not one of the current owners of the business or a family member of a current owner. If the franchisor’s consent is required for any transfer (full or partial), the franchisor will not unreasonably withhold its consent. Once a transfer takes place, the transferor cannot be liable for the actions of the transferee. Forced Sale of Assets If the franchisor has an option to purchase the assets of the franchised business upon the franchisee’s default or termination of the franchise agreement and the parties are unable to agree on the value of the assets, the value will be determined by an appraiser agreed upon by the parties. If the franchisee owns the real estate where the franchised business operates, the franchisee will not be required to sell the real estate upon default or termination, but the franchisee may be required to lease the real estate for the remainder of the term of the franchise agreement (excluding additional renewals) for fair market value. Covenants If the franchisee owns the real estate where the franchised business operates, the franchisor must not record against the real estate any restrictions on the use of the property. If any such restrictions are recorded against the franchisee’s real estate, they must be removed in order for the franchisee to obtain SBA-assisted financing. Employment The franchisor will not hire, fire or schedule the franchisee’s employees. For temporary personnel franchises, the temporary employees will be employed by the franchisee, not the franchisor. The SBA Addendum is a form that calls for blanks to be filled in. The text of the addendum may not be altered. Franchisors listed on the SBA Directory that do not use the standard SBA Addendum or who are using an SBA Negotiated Addendum and who do not want to begin using the SBA Addendum, must submit to the SBA each year the “Annual Franchisor Certification” stating that the terms of the franchise agreement have not substantively changed and that no changes have been made to the SBA Negotiated Addendum. If there has been a change, the franchisor must resubmit its franchise documents to the SBA for review. The annual certification requirement ends only if the franchisor begins using the standard SBA Addendum. The opportunity to avoid an annual SBA affiliation review is one reason, then, for a franchisor to use the standard SBA Addendum even if the franchisor’s standard franchise agreement already contains the provisions of the SBA Addendum. If a franchisor is willing to use the standard SBA Addendum, it might actually make sense for the franchisor to change its standard terms to include the provisions of the SBA Addendum. For one thing, some franchisees may be unhappy with the fact that only those franchisees who seek SBA-backed loans receive the benefits of the SBA Addendum. Other franchisees will certainly learn about franchise agreement terms offered to some but not all franchisees, and this difference might cause discord. In addition, including the terms of the SBA Addendum in a franchisor’s standard franchise agreement can reinforce a franchisor’s position that the franchisor is not a joint employer of the franchisee’s employees and that the franchisor is not liable for the franchisee’s negligence or wrongdoing. After all, as the SBA sees it, these provisions prove that the franchisee bears a risk of loss commensurate with the concept of ownership of an independent business. Before the SBA established the SBA Franchise Directory, a company called FRANdata maintained the Franchise Registry, the forerunner to the SBA Franchise Directory. FRANdata continues to maintain its Franchise Registry. While being listed on FRANdata’s Franchise Registry is not required in order for a franchise brand to be eligible for SBA financing, FRANdata does offer assistance to franchisors and more information to prospective lenders than a listing on the SBA Franchise Directory. As a private company, FRANdata charges a fee to franchisors for its services. Tom Pitegoff, Tom.Pitegoff@offitkurman.com
November 13, 2023
Estates and Trusts
Discretionary Trust Distributions – When “Because I said so!” May Be Legally Sufficient
Not too long prior to Senator Diane Feinstein’s recent passing, her daughter, exercising a durable power of attorney (POA) for the ailing Senator, filed suit seeking to force payments by the trustee of what is described as a very generously endowed trust fund (by the Senator’s late billionaire husband) reported to include provisions to cover expenses related to the Senator’s health and welfare. So many directions to take this one! This single-sentence summary presents so many potentially valuable legal nuggets to mine! . . . from “What’s a durable POA?” to “What possible good-faith basis could the trustee have for refusing to pay/reimburse for medical/healthcare expenses with funds entrusted to his/her oversight for this very purpose?” I’ll leave the durability question to Siri and Google, noting that with the adoption in states such as Virginia of what is known as the Uniform Power of Attorney Act (or “UPOAA”), powers of attorney are now presumptively durable unless expressly indicated otherwise in the document itself. Before moving on, I’ll also add that a POA need not require the incapacity of its principal/maker to empower the agent/attorney-in-fact to act on the principal’s behalf. Many people mistakenly presume that a POA is intended only to take effect upon the incapacity or incapability of the principal to act on one’s own behalf. POAs can be immediately effective or “spring” into effect if and only when specifically defined events occur, which define the circumstances when the agent’s authority springs to life on behalf of the principal. Without conducting any sort of formal study on the subject, I am confident when I say that springing POAs are by far the exception to the norm. For now, at least, I address myself to the meatier issues stemming from the late Senator’s trustee’s alleged breach of fiduciary duties and general malfeasance. Asked for my opinion about this “obviously-in-the-wrong” trustee after news of the legal action broke (because no one would go to the trouble of filing suit if the allegations weren’t true, right!), I instinctively provided my standard go-to, why-everyone-hates-lawyers response: “It depends!” With little more than the headline as fodder for a good cocktail party debate, any substantial opinion must necessarily depend on so many variables that any other conclusion about the merits of such a case should be presumed fiction (with similar presumptions regarding anyone who would be willing to draw any definitive conclusions about the impropriety of the trustee’s actions, motives, etc. on such scant information). For starters, the outcome of any such case and claim(s) totally depends on the precise language of the trust document governing the specific situation and the scope and extent of the authority such language extends to the trustee. Because the “correct answer” is so driven by the fact-specific trust language, it is truly pointless to speculate on whether the trustee should or should not have paid the particular expenses in the Feinstein situation. It is also precisely why two or more seemingly identical cases can produce seemingly equally contrary results. It is not necessarily true that one judge or jury gets it exactly right while another gets it completely wrong. Nearly identical facts can produce widely disparate legally correct results for a myriad of reasons. [For a separate case study on this issue, check out my co-authored piece on two seemingly identical cases resolving disputed beneficiary designations in the context of divorce-related life insurance obligations: “Same facts . . . opposite results!”] All that having been said, it is not uncommon for such trusts to build in not only a certain level of discretion for the trustee to decide when it might be appropriate to pay and when a particular expense might be unreasonably “over the top” or simply unnecessary. With such built-in discretion, the trustee has effectively been entrusted by the maker of the trust to act in a manner as to reach the closest equivalent to what the maker himself or herself might have decided. Under these circumstances, the trustee is essentially in the right simply because they said so. A court will generally not seek to impose its discretion over that of the individual the now deceased trust maker trusted in the first instance to make what the trustee determines to be the best decision. With this outcome in mind, I commonly encounter provisions bestowing on trustees the ability, or even the requirement, that before releasing any funds from the trust for expenses seemingly word-for-word covered by the trust, the trustee consider and/or “take into account” other resources available to the beneficiary. In this way, the trustee is forced to exercise fiduciary responsibility not only to the current trust beneficiary but also to those who would stand to benefit from the trust after the current beneficiary has passed. Then again, it might very well be that the scope of such authority is less than clearly defined in the trust document or that a trustee with an axe to grind and/or a personal agenda contrary to that of the beneficiary (perhaps favoring future beneficiaries over the current beneficiary, for instance) is, indeed, acting in a manner inconsistent with the trustor’s original intent. In either case, a court order might be needed to provide appropriate “aid and direction” to the trustee or forcing the trustee to act in a manner not otherwise abusing the discretion afforded to the trustee. One simply cannot presume to conclude as much from a news report, nor should one draw conclusions regarding either the trustee or the one bringing such an action against a trustee without knowing all the relevant facts – or at least substantially more of them than might be reportable in a 60-second, news soundbite. In one rather extreme example, I encountered an example recently where a trustee was empowered to provide for the health and welfare of the beneficiary, but only out of trust income (no principal) and if and only if the beneficiary passed a monthly drug test, the cost of which could be paid out of the trust income, but consequently serve to reduce the amount to be paid to the beneficiary. Whether to bring and/or how to defend such an action requires appropriate legal experience, understanding, and, consequently, investigation and analysis of as much relevant information as can be gleaned both from what might be readily available and that which might take some digging to uncover. In my experience, whether one or more valid claims exist in such situations requires significant investigative and analytical time and should not be presumed either a simple or inexpensive process nor one which is likely to lead to an unimpeachable, singular conclusion. I have observed, advised, and/or been involved to varying degrees in numerous such disputes representing various perspectives with differing agendas (consider, for instance, how a second or third-generation, non-profit charitable organization set up as a contingent beneficiary might view as a wasteful fiduciary breach of duty any payouts by a trustee to current beneficiaries with substantial independent wealth and the means to pay their own expenses). I would welcome the opportunity to evaluate the possibility of assisting should you find yourself on one or the other side of such a situation (or perhaps as a drafting attorney seeking to minimize the chances of such a dispute down the road).
November 13, 2023
Litigation
Same Material Facts . . . Opposite Results?
The Western District of Virginia's Hartford Life v. Herring case outcome doesn’t track with the Virginia Supreme Court’s Wood v. Martin decision . . . or does it? In a recent decision by the Roanoke Division of the United States District Court for the Western District of Virginia, Hartford Life and Accident Insurance Co. v. Herring, the parties disputed the rightful recipient of insurance policy proceeds but were at least able to agree that the separation and property settlement agreement at issue was governed by North Carolina law. In seemingly all material respects, the facts of the Herring case mirrored those of the Virginia Supreme Court’s 2020 decision in Wood v. Martin. Yet, with the Court’s application of North Carolina law, the outcome of the case is in direct conflict with the Wood v. Martin results. Or is it? In Wood v. Martin, the Court held that by operation of Virginia law, Ms. Martin, as the ex-wife, was the rightful 50% beneficiary of her ex-husband’s life insurance policy. The ex-husband’s beneficiary re-designation days before taking his own life, by which he removed her from the policy, was in direct conflict with his contractual and consensually court-ordered obligation to her. The Court agreed with Ms. Martin that under Virginia law, the terms of the divorced couple’s agreement (as incorporated into their consensual divorce decree) requiring that he designate her as the life insurance policy beneficiary effected a written assignment of his contractual right with the life insurance company to change his beneficiary designation, and, consequently, he remained bound to maintain Ms. Martin as the 50% beneficiary of the policy. In Hartford Life v. Herring, the Western District applied North Carolina law to strikingly similar facts to reach the opposite result. The Roanoke federal court faced the situation in Herring where a divorced couple’s post-nuptial agreement had stated that the ex-husband was to retain ownership of his life insurance policy, free and clear from any claim by his ex-wife, presumably bargained for to afford him carte blanche to designate anyone he wanted as his policy beneficiary. When the ex-husband died a few years later, it was discovered that he had never removed his ex-wife as the primary beneficiary of the policy. The Western District acknowledged that under North Carolina law, the failure of a spouse to change the beneficiary ordinarily indicates that he or she did not intend to effect such a change. The Court found that the separation agreement did not sufficiently clearly express the policy owner’s intention to alter beneficiary status (notwithstanding the language about the policy being consensually free and clear from any claim of ownership by his ex) and, therefore, did not constitute an assignment of such interest. Consequently, the Court refused to “blue pencil” the policy’s beneficiary designation to match the stated intentions of the divorced couple’s post-nuptial agreement. With directly opposing outcomes, in such strikingly similar cases, one might simply presume the results were dictated by differing state assignment laws. On closer inspection, one or more other factors might have led to such seemingly contrary findings and conclusions. One possibility is that, perhaps, both courts simply applied an “ends justifies the means” approach to decision-making to fashion a remedy and result favoring an otherwise aggrieved ex-spouse. While attractive at first, with both cases resulting in arguably otherwise aggrieved ex-spouses awarded the life insurance proceeds, this justification seems unlikely. From all outward appearances at least, the Herring policy designee stood to receive an apparent windfall contrary to the outcome for which she’d bargained in the couple’s post-nuptial agreement. Instead, perhaps the facts of the cases differ materially in a non-obvious way? Perhaps the results were driven by specific language in each of the agreements, highlighting more than an innocuous distinction. As it turns out, ownership of a policy is not synonymous with the right to dictate who receives the proceeds thereof. It is true that legally speaking, one with ownership of a policy generally maintains the right to designate beneficiaries of that policy. The Woods v. Martin court recognized an exception to this general rule when one contractually obligates oneself to maintain a particular designee. The Hartford Life v. Herring court was not asked to consider the same contractual obligation, but rather, the apparently unequivocal waiver by the would-be designee to claim an ownership interest in the policy. Considered from these differing perspectives, ownership of the policies in each case went unchallenged, whereas the obligation to designate a particular someone in the former case contrasted materially from the unfettered right of the owner in the latter case to designate anyone he wanted. Then again, perhaps the differing outcomes can be explained factually but less legalistically. After all, simply stated, in the former case, Ms. Martin was awarded with what her deceased former husband had contractually promised to do for her. In the latter situation in Herring, the court’s decision let stand the decedent’s beneficiary designation, which, despite having negotiated for himself the exclusive right to designate anyone he wanted as his beneficiary -- which right he then could have exercised any time he wanted! -- for reasons he apparently took to his grave, he never did. Perhaps it was merely an oversight by the deceased policy owner, or perhaps it was a conscious decision on his part. We’ll clearly never know. We do know, however, that merely because he could change the policy beneficiary did not legally dictate that he must do so. Without language in the post-nuptial agreement expressly directing him to take particular action regarding the beneficiary designation, as in Woods v. Martin, perhaps this is a sufficiently material factual distinction justifying an opposite result without regard to the law of assignments in either North Carolina or Virginia. Seen in this light, the Woods v. Martin and Hartford Life v. Herring decisions make perfect sense! So, when does it make sense that the same material facts lead to opposite results? Certainly, one option is that the law differs from state to state. In this situation, however, another option appears to be that no matter how strikingly similar the facts of the two cases, they differ materially in more ways than one – sufficiently so much as to dictate opposite results and, consequently, leaving unresolved the issue as to the extent to which the law of assignments in this context actually differs between the two states. Thoughts?
November 9, 2023
Business
Newly Enacted Requirements for Disclosure of Beneficial Ownership of US Business Entities
Originally posted on 02/21/2021, content updated 11/08/23. Congress has passed legislation over the veto of former President Trump to require the disclosure of the direct or indirect beneficial ownership of US business entities at the time of formation. This legislation was included as part of the annual National Defense Appropriations Act, which took effect on January 1, 2021. Under this Act, upon the issuance by the Department of Treasury of regulations providing more detail on the specific requirements of the Act, all corporations, limited liability companies and other types of business entities will be required to disclose the details of their direct and indirect beneficial owners at the time the business is formed unless the business falls within a group of exempt industries. These exempt industries include banking, insurance, and other financial institutions, where the disclosure of beneficial ownership of such businesses is generally already required. In addition, within 2 years of the issuance of the regulations, the same disclosure requirements will apply to all existing non-exempt industry business entities, except those which are publicly traded or have more than 20 full-time employees, have annual revenues of more than $5 million, and have an operating presence at a physical office within the United States. The Treasury regulations must be published within one year of the effective date of the Act or by January 1, 2022, but are expected to be published sooner. The Act requires such reporting companies to submit the disclosure information to the Department of Treasury, which is required to create a beneficial ownership registry within its Financial Crimes Enforcement Network (FinCEN). The purpose of the registry is to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists and criminals.” The information will not be made available to the public in general but will be available to US federal law enforcement agencies and, with the consent of the reporting company, financial institutions in order to meet their customer due diligence requirements. The Act defines a beneficial owner as an individual who owns a 25% equity interest in or exercises “substantial control” over the reporting company. The definition of substantial control is not stated in the Act, and there are many other questions regarding the scope of the disclosure requirements, including how to measure a 25% equity stake in a tiered group of entities or in an entity which has shifting percentage interests of its members. Presumably, these and other issues arising under the Act will be clarified in the regulations. The information that must be reported to the registry includes the following with respect to any beneficial owner, as well as any “applicant” for the entity (which includes incorporators and other formation agents): (i) full legal name, (ii) date of birth, (iii) residential or business street address, and (iv) a unique identifying number from an acceptable identification document, including a driver’s license, US passport, or other US state-issued identification document. Further, any changes to the beneficial ownership of a business entity or any change to any of the foregoing information must be reported to the registry within one year of the change. The Act imposes penalties on companies that fail to report the required information or submit a report containing false or fraudulent beneficial ownership information of $500 per day up to a maximum of $10,000 and imprisonment of up to 2 years. The Act represents a sea change in the US requirements for beneficial ownership disclosure of business entities. Similar or even more restrictive ownership disclosure requirements have been in place for several years in Europe and other developed nations throughout the world. We will be monitoring the issuance of the Treasury regulations and other developments in this area. Please feel free to contact us with any questions. Final regulations under the Corporate Transparency Act were issued on September 30, 2022, which provide for the implementation of the Act commencing January 1, 2024. See separate blog post – “FinCEN Issues Final Rule for Beneficial Ownership Reporting under the Corporate Transparency Act.”
November 8, 2023
The Practice of Law
Jury Duty (Part Three): From Voir Dire to Deliberations to . . .
Originally posted on 03/05/20, content updated on 11/07/23 “Ladies and Gentlemen of the jury, please stand and raise your right hand to be sworn. Do you solemnly swear to be fair and impartial to uphold the Constitution and laws of The Commonwealth of Virginia to the best of your ability?” And with a resounding chorus of “I do’s,” we — the chosen few! – are asked to be seated and prepare for what is to be a several-day journey through dramatic opening statements, myriad facts and witnesses, emphatic legal “Objections!” (sustained and overruled), rousing closing arguments, and methodical instructions from the judge, before heading off to what was to become our own special home-away-from-home for the next several days for our “deliberations” as we were to decide the fate of the accused – alleged to have embezzled an insane amount of money from a former employer’s operating account (apparently not as uncommon as you might think! Note to self – review A/P payment approval process!). I had been called to serve – my first time ever! – called for jury duty in Fairfax County Circuit Court. Unlike many of those I’d joined in the jury assembly room that fateful Monday morning, I was excited and hopeful of being selected to serve on a jury. Seeing and experiencing first-hand a juror’s perspective of what it is I do for a living in the courtroom as a trial attorney from the other side of counsel’s table and behind the rostrum is something very few litigators ever get a chance to experience. (I’ve only met two over my career that have shared the experience.) There are any number of big screen and small screen representations of what goes on behind closed doors but, as I’ve previously noted and explained, it is a relative rarity for a litigator to experience the actual inner workings of the jury room. So this was, indeed, an exciting day! “Voir dire,” the part of the pre-trial process where the judge and the attorneys ask potential jurors a bunch of seemingly random unrelated questions designed to help the attorneys decide who the best jurors will be (or at least who they most definitely don’t want on the jury, if they can help it) was surprisingly and disappointingly uneventful. The only real surprise was that neither side felt compelled to dismiss or “strike” me as a juror (each apparently believing that having a civil litigator on the panel would be somehow beneficial to their cause). If you’ve seen the CBS TV show “Bull” for instance, you know there is a whole science (art?) to this evaluative process. There is a large “cottage industry” of jury consultants out there willing to take desperate people’s money to avoid conviction. This, however, was definitely not one of those cases. Opening statements were matter-of-factual and methodical (classic “tell ‘em what your gonna tell ‘em” lead-in’s). Witnesses were relatively “vanilla” providing, mostly at least, “just the facts, ma’am!” There was a big flourish of an “OBJECTION!” at one point after some seemingly irrelevant but salacious testimony, but a quick “Sustained!” from the judge mooted the need for the Commonwealth’s Attorney (the state’s prosecutor) to respond, and she simply continued as if nothing had even happened. Witness after witness, mundane direct exams followed by somewhat more spirited cross-examinations, frequent breaks and lunches (many more than I generally take in a week!), judicial admonitions not to talk to anybody about the case, all culminating in relatively flamboyant, definitely more emotional, closing arguments including the defense attorney’s impassioned insistence that the Commonwealth had failed to prove its case beyond a reasonable doubt and, somewhat surprisingly actually, of his client’s having done nothing wrong, etc. before the judge turned to us to read carefully crafted instructions and sent us out with reminders of our oaths and duty to our fellow citizens and community. We pick a foreman (or forewoman, in this case), take a single unanimous vote; watch the “guilty” verdict get read in open court, watch further as the defendant – clearly shocked by the result – get cuffed and lead by Sheriff’s Deputies (a couple of Fairfax County’s finest!) through a special side door in the courtroom (leading to the special prisoner elevator and back hallway system in the courthouse most people never get to see; receive an appreciative “thank you” from the trial judge; collect all our belongings, shake hands, exchange pleasantries (and a couple business cards!) with fellow jurors, and unceremoniously head back to our respective lives. At least that’s what I had hoped would be my first juror experience. If you remember back to Jury Duty 2, I left off waiting for the Sheriff’s Deputy to come back to bring my group of jurors to our assigned courtroom with me looking forward in anxious and excited anticipation to my first “voir dire” as a prospective juror. In fact, when the Deputy eventually did return, after we were forced to sit and wait in the jury assembly room for nearly another hour or so, he thanked us for our service and summarily dismissed us. That was it. We were done. There would be nothing further required of us. Thanks for playing; there will be no parting gifts, and you won’t be getting a copy of the “home game” (a la television game shows of the ’80s). The Deputy couldn’t tell us how “our” case had been resolved or even the type of case to which we had been assigned – either because he truly didn’t know or simply knew better than to engage us down that path of inquiry. Regardless, there would be no voir dire, not for me . . . not that day. There would be no empaneling, no opening nor closing, no objecting nor sustaining, no deliberating nor convicting. Jurisdictions handle jury service differently with some having continuing obligations in the event one is dismissed as I was that day — not Fairfax County, however. In Fairfax County one fulfills one’s jury duty service by timely presenting at the courthouse and making oneself available to serve just as equally as those fortunate enough to be selected and empaneled on a jury. If you’ve been fortunate enough to have served on a jury, I thank and envy you for your service. You help the legal system function, and it is better because of you. Drop me a line . . . I’d love to hear your story. For me, I fear, it is like the elusive hole-in-one I may never achieve.
November 7, 2023
Litigation
The “Omnibus Order” - “Mutually Beneficial ‘Kitchen-sinking’” | Part One
Originally posted on 04/23/20, content updated on 11/07/23 “MBKS” or Mutually beneficial “kitchen-sinking.” It’s a thing. . . . No, seriously, it is totally a thing! Well, it should be! I credit opposing counsel in a substantial life insurance claim litigation for having suggested that in a single order we might have the court nonsuit (voluntarily dismiss) some claims; nonsuit some arguably interested parties; allow and approve both interpleading of funds and partial payouts of non-interpleaded funds; conditionally dismiss the interpleading party; and generally streamline the pending case to the core factual/legal issue(s)/matters about which the remaining principal parties would be left to dispute. “Not possible,” I was confident. “No way a judge signs off on all that in a single order.” I was willing to try it, of course,–this “omnibus order” approach, as I had dubbed it, where we would toss in everything but the “kitchen sink”–in hopes of achieving all of the above in inconceivably record time. “Doubting Thomas” that I am, however, I had little expectation of this actually working and was confident it would only end up serving to add costs and delay unnecessarily to all of the procedural and substantive agreements we’d negotiated. I waited for the inevitable call to come from the law clerk informing counsel that there were certain rules and procedures to be followed for these sorts of things, and asking (but not really asking) if I would we be so kind as to file the appropriate multitude of motions to be heard at the proper times on succeeding Fridays, etc. . . . etc. But, as you’ve no doubt already discerned, the call never came. The omnibus order was entered, and, as if having just scored an unexpected “Fast Pass” at Disneyworld, we shot to the front of the litigation roller-coaster line short-circuiting much of the anticipated pre-trial delays. Attorneys, litigators in particular, are typically paid really well to know the law (or at least how to figure it out when and as necessary in a given situation!), and compensated even better if able to apply it effectively to their clients’ advantage. Mutually beneficial “kitchen-sinking” is about saving clients’ time and money. Adversaries willing to resolve multiple substantive and procedural matters in a single omnibus order well-serve their clients and, concomitantly, the legal system (by helping keep dockets unclogged and access unfettered) and themselves, “…to the extent one’s reputation among both future adversaries and potential future clients is immeasurably impacted by one’s own choices.” The best litigators know and apply the law to their clients’ substantive advantage with a time and cost efficiency that avoids results where “only the lawyers win,” because these lawyers understand that a pyrrhic victory is no victory at all. One would be wise to remember that, to one’s client, “winning at all costs”–whether or not one’s client appreciates it at the time!–is typically tantamount to a loss. #MBKS!
November 7, 2023
Franchise Law
Structuring a Multi-unit Franchise
Originally posted 7/25/2017, no content changes. A multi-unit franchise owner can structure its operations in a number of ways, but one approach in particular often makes a lot of sense: a developer entity that acts as the parent company for the individual franchise locations. First some background. Many franchisors seek out franchisees who want to open three or more units. One approach is to sign a development agreement in which the developer commits to open an agreed-upon number of franchise units in a defined territory over a specified period. In exchange, the franchisor agrees not to open a company-owned unit or to grant a franchise to anyone else in that territory while the development agreement remains in effect. In most franchise systems, the developer opens each franchise under a separate franchise agreement. The multi-unit developer typically signs the development agreement and the first franchise agreement at the same time. Each subsequent franchise is then opened pursuant to a separate franchise agreement. The development agreement typically ends when the developer signs the franchise agreement for the last franchised unit promised in the development schedule. Territorial exclusivity in the development agreement ends, but the more limited territorial protection in the individual franchise agreements remains in effect. One approach: form a developer entity One approach that can work well for a typical multi-unit franchisee is to form a limited liability company (“LLC”) to sign the development agreement and act as the parent company for each individual unit entity. For illustration purposes, let’s call this parent company the “Developer LLC.” Each franchise would be owned and operated by a separate “Franchisee LLC” under its own franchise agreement, and the Developer LLC would be the sole member of each Franchisee LLC. From a tax point of view, each LLC would be a pass-through entity so the profits or losses of each Franchisee LLC would become the profits or losses of the Developer LLC and, in turn, of its member or members. This structure has several advantages over using a single franchisee entity. Benefits for the Developer LLC include the following: It limits the Developer LLC’s liability with respect to each franchised unit to the amount invested in that unit. The Developer LLC’s operating agreement can facilitate investment in the Developer LLC by new members. The operating agreement of each Franchisee LLC can facilitate investment into that particular franchise by new members. For example, a Franchisee LLC might want to give its operations manager for that specific unit an ownership interest in that entity in order to reward and motivate the manager. The Developer LLC can employ people to provide common services to all or some of the unit franchises, so that they are not bound to a specific unit. The Developer LLC can more easily sell off or close down one or more of the Franchisee LLC units. Each Franchisee LLC can more easily report its revenues separately and accurately. This structure also has benefits for the franchisor: The franchisor can easily track the performance of each franchise unit individually, as financials and tax records are prepared separately for each Franchisee LLC business. It simplifies the franchisor’s right of first refusal on the sale of a Franchisee LLC business. It facilitates the termination or nonrenewal of one franchise agreement without terminating others. Variations and related considerations To facilitate the use of individual franchisee entities, franchise agreements commonly contain provisions that require the franchisee entity to state in its organizational documents that its activities are confined solely to owning and operating the franchised business. Franchisors commonly require the owners of a franchisee entity to sign personal guarantees of the franchisee’s obligations. If the owner is a Development LLC, the franchisor may want guarantees both from the Development LLC and from its owners. Variations are common. For example, if the developer is an individual who plans to open just three units without bringing in other investors, the simplest approach would be for that person to sign the development agreement individually rather than forming an entity to be the developer. He or she could be the sole member of each Franchisee LLC. The developer would have rights and obligations vis-à-vis the franchisor, but with little legal risk to third parties such as a landlord, suppliers or customers. Unlike a franchised unit, the developer in this case has no operating business. Of course, many multi-unit owners acquire their locations over time without signing a development agreement. The structural suggestions presented here apply equally well to a multi-unit franchisee who lacks a development agreement. Franchisors should also keep the entity issue in mind when signing up new franchisees, regardless of whether they are part of a development group or operated by a single-unit owner. Before each new agreement is signed, the franchisor should verify that the entity has actually been formed and that its name is correct. Entity searches are easily done on state websites. If the search yields no result, the franchisor should ask the prospective franchisee for evidence that the entity was formed. Franchisors should also be sure that no franchisee entity uses the franchisor’s trademark as part of the entity’s name. Use of the trademark could make ownership confusing to third parties, even to the extent that the franchisor might be sued or investigated together with the franchisee for the franchisee’s wrongful acts. A franchisee’s use of the franchisor’s trademark in the franchisee’s company name would also require the franchisor to go to the trouble of ensuring that the franchisee changes its company name upon a termination or nonrenewal. To avoid this, most franchise agreements prohibit the franchisee from using the franchisor’s trademark as part of the franchisee entity’s name. Structuring a multi-unit franchise takes thought and planning. Doing so is worthwhile. A well-structured system allocates risks appropriately and facilitates growth and system change over time. An earlier version of this piece was published in Modern Restaurant Management. Read it here. Tom Pitegoff, Tom.Pitegoff@offitkurman.com
November 6, 2023
Labor and Employment
SBA To Require PPP Borrowers of $2 Million or More to Provide Documentation to Support Certification of Necessity Due to Economic Uncertainty
This blog post may contain information that was accurate at the time of publication but could become outdated over time. We strive to provide relevant and timely content, but circumstances, facts, and data can change. Users are encouraged to verify the current status of any information presented and seek updated guidance where necessary. Originally posted on 11/6/2020, no content changes. The U.S. Small Business Administration (“SBA”) recently posted a notice seeking comment on draft Loan Necessity Questionnaire Form 3509 (For-Profit Borrowers) and Form 3510 (Non-Profit Borrowers) to be used by the SBA to review Paycheck Protection Program (“PPP”) forgiveness applications. The SBA claims that the purpose of the necessity questionnaire is to facilitate the collection of supplemental information used by SBA loan reviewers to evaluate the good-faith certification that borrowers made on their PPP Loan Application that economic uncertainty made the loan request necessary. The completed necessity questionnaire will be due to the PPP lender within ten business days of receipt from a borrower’s lender. These necessity questionnaires present serious concerns for the 29,000 non-profit and for-profit businesses that received PPP loans in excess of $2 Million. The necessity questionnaires contain many questions requiring disclosure of confidential financial and proprietary information. It is not clear whether responses to the questionnaire will be required disclosures with a loan forgiveness application or whether the responses will be required in advance of, or without, submission of a loan forgiveness application. The necessity questionnaire has two parts, a “Business Activity Assessment” and a “Liquidity Assessment.” Business Activity Assessment A comparison of the gross revenue for the first quarters of 2019 and 2020, including supporting documentation. Borrowers must provide information about how COVID-19 has temporarily shut down, caused a reduction in operations, or resulted in additional capital outlays of a borrower. Liquidity Assessment Borrowers are required to provide documentation regarding the amount of liquidity on hand when the PPP loan application was submitted. Borrowers are required to provide documentation regarding distributions and dividends paid to owners during the covered period. Borrowers are required to provide documentation regarding all debt prepayments and capital expenditures made during the covered period. Borrowers are required to provide documentation regarding the amounts paid to owners in excess of $250,000 annualized during the covered period. If privately held, the borrower is required to provide its book value on the last day of the quarter preceding its loan application. Borrowers are required to disclose whether they received any other CARES Act benefits, excluding tax benefits. The necessity questionnaire includes certifications regarding the accuracy of responses, and alarmingly warns that false statements will result in criminal penalties. If you are a borrower with a PPP loan in excess of $2 Million, you need to consult your legal counsel immediately. The information sought will be used by the SBA to determine whether PPP borrowers were initially eligible for the PPP loans they received due to the category of business, access to capital, or ownership by a foreign entity, among other reasons. For borrowers eligible for a PPP loan, aside from the necessity issue, using hindsight to review the actual impact on the PPP borrower after receipt of PPP funds due to business closures, losses in revenue, and effects on employees is patently unfair. Further, no formal SBA guidance was available on the PPP application date. The SBA urged all businesses to apply quickly to avoid losing out on the opportunity to receive PPP funds. Given the uncertainty with how the SBA will use this information, the confidential and proprietary nature of the information sought (which may be publicly available), PPP borrowers should consult with counsel immediately and before submission of a loan forgiveness application. Borrowers may be best served by waiting as long as possible before seeking loan forgiveness (if ever) to allow for SBA and lender guidance to be issued, legal challenges and resolution, and obtain information from lenders as to how the information will be used.
November 6, 2023
Labor and Employment
Noncompete Update: Bans, New Limitations and Restrictions
Employers should remain vigilant, adapt their practices, and explore alternative measures to protect their interests in the face of shifting legal frameworks and heightened scrutiny of non-compete agreements. The Legal Intelligencer By Sarah R. Goodman In today’s rapidly changing business environment, the utilization and enforcement of noncompete agreements and restrictive covenants have become central to maintaining a competitive edge. As businesses adapt to new economic, technological, and workforce dynamics, the legal frameworks surrounding these agreements are also evolving. Notably, two federal agencies are actively working to diminish the prevalence of noncompete agreements. An increasing number of states are joining the ranks of jurisdictions that either prohibit or place significant restrictions on noncompetes, including many nonsolicitation agreements, by enacting comprehensive bans or introducing new limitations. Meanwhile, certain states, while not entirely banning noncompetes, have introduced fresh restrictions. In addition, courts are recognizing novel legal theories for challenging these agreements. Nevertheless, there are still scenarios in which employers can utilize noncompete agreements to safeguard their proprietary information and defend against unfair competition. However, there are formidable new obstacles to overcome, and the regulatory landscape may change in the near future. Recent Key Regulatory Changes On Jan. 5, 2023, the Federal Trade Commission (FTC) introduced a proposed rule aimed at banning most noncompete agreements in the United States on the basis that they constitute unfair methods of competition. The FTC’s proposal attracted significant attention and the public comment period closed on March 20. The FTC has yet to issue a final rule or provide a timeline for doing so; observers closely following the proposed ban do not anticipate a final FTC rule until April 2024 at the earliest. When (and if) the FTC issues the final rule, it will be subject to numerous court challenges by a variety of private entities, including the U.S. Chamber of Commerce. It is unclear whether the final rule will survive attack. Basis for attack include the FTC Act’s own limitations on the FTC’s authority vis-à-vis the history of Section 6(g) and unfair competition; the U.S. Supreme Court’s aversion to upholding federal agency rules when scrutinized under the “major questions” doctrine; the rule itself being an improper delegation of legislative authority under the nondelegation doctrine; and the everchanging political landscape. Despite these challenges, federal agencies are increasingly utilizing new methods to challenge noncompete agreements. This includes an increasing number of antitrust claims targeting traditional noncompetes (and not just no-poach agreements), along with intra-agency cooperation between the FTC, the U.S. Department of Labor, and the National Labor Relations Board (NLRB) to help regulate noncompetes. The NLRB’s general counsel, Jennifer Abruzzo, has taken her own stand on noncompete agreements. On May 30, Abruzzo issued a memorandum expressing her view that most post-employment, noncompete and nonsolicitation agreements violate the National Labor Relations Act (NLRA). In the memorandum, addressed to all regional directors, officers-in-charge and resident officers, Abruzzo asserted that these agreements impede the exercise of Section 7 rights under the NLRA for nonsupervisory employees. She opined that, with few exceptions, the offering, maintenance, and enforcement of such agreements likely violate Section 8(a)(1) of the NLRA. While the NLRB itself had not yet ruled on Abruzzo’s position, it could issue a ruling soon that broadly prohibits non-competition (and nonsolicitation) agreements. Jurisdiction-Specific Challenges to Noncompetes The landscape has also been altered by new state laws. Five states, namely California, Colorado, Minnesota, North Dakota and Oklahoma, have instituted comprehensive bans on virtually all noncompetes with very limited exceptions, such as for certain business sales. California has strengthened its existing noncompete ban, granting employees the ability to obtain attorney fees for successful challenges. Several other states are considering similar laws. On June 20, the New York State Legislature passed a bill banning post-employment noncompetition agreements. While Gov. Kathy Hochul has yet to sign the bill, she has until the end of the year to do so. States that do permit noncompetes are enacting broader restrictions. Over 20 states prohibit various categories of noncompetes, including laws that ban all no-poach agreements and all traditional noncompetes for employees earning less than a specific salary threshold. A growing trend is legislation requiring that employers give individuals advance notice (or a “consideration period”) before the employee can sign a restrictive covenant agreement. Employers in all states, even those without specific laws, must satisfy a common law test for enforcing a noncompete, demonstrating that it is necessary and narrowly tailored to protect a legitimate business interest, typically in terms of geographic scope and duration. Employer Response: Stay Alert and Be Proactive Employers currently using noncompete agreements should assess their current approach and formulate contingency plans for a future where noncompetes might become illegal. While it may take time for a broad noncompete ban to take effect, existing agreements may not be “grandfathered” in or exempted, necessitating alternative safeguards for proprietary information and competitive defense. It is also time to consider other options for protecting business interests. This includes bolstering confidentiality agreements to address gaps left by noncompete bans. Well-drafted confidentiality agreements, coupled with remedies for violations, can offer effective protection for proprietary information. Existing laws like the federal Defend Trade Secrets Act and state laws can serve as alternatives to noncompetes in safeguarding trade secrets. Employers should ensure they treat key proprietary information as trade secrets and consider including arbitration clauses and other provisions for securing relief in their agreements. Modifying employee compensation structures may also discourage unfair competition. For example, introducing longevity bonuses and seniority-based pay raises may deter departures of senior employees who pose a competitive threat. Improving training can also help fill gaps left by noncompete bans. When pursuing mergers, acquisitions, or other deals, account for the evolving legal landscape. Ensure that agreements provide adequate protection in the event of noncompete bans or increased restrictions. Employers should also begin utilizing noncompetes strategically, rather than applying a one-size-fits-all approach to all employees. Overly broad usage may invite scrutiny and threaten the enforceability of truly important agreements for key employees. In other words: treat noncompetes as a precise tool, not a weapon of mass destruction. Employers should remain vigilant, adapt their practices, and explore alternative measures to protect their interests in the face of shifting legal frameworks and heightened scrutiny of noncompete agreements. Reprinted with permission from the October 23, 2023, edition of The Legal Intelligencer © 2023 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.
November 3, 2023
The Practice of Law
Jury Duty | Voir Dire: “To tell the truth?” - Part Two
Originally posted on 02/13/20, content updated on 11/02/23 Courtroom assigned! One after another, Sheriff’s Deputies come to call out a list of potential jurors to report to various courtrooms. I sit, comparing myself to the Schoolhouse Rock “Bill,” sitting on Capitol Hill, just waiting for the possibility of getting called, only to be “stuck in committee” for who knows how long. For now, it appears I am headed — along with 29 of my community “peers” — to a courtroom to face “voir dire,” which derives, as the Chief Judge so ably explained during the informative orientation video, from an old French term meaning “to tell the truth” – my French is rusty enough that I decide not to challenge the judge on this one! “Wait right here, and I’ll be back to take you to the courtroom,” the Deputy tells us after assuring we are all present and accounted for. One step closer, and my thoughts return to how unlikely it is that, as a trial lawyer myself, I will survive voir dire to make it to one of the comfy seats in the jury box. Telling the truth won’t be an issue, obviously. The threshold question is whether the lawyers on the case like my answers. In the video, Judge White cautioned that one or more of us might be subject to an attorney’s “strike” and not to take it personally or to take offense if that happens. Yeah, right! How else to interpret being stricken other than: “Juror X, you are exactly the kind of person we don’t want deciding the fate of our client. Buh-bye!” Still, we all have our biases, whether we recognize them or not. As trial attorneys, we are called upon to engineer trial scenarios most favorable for our client, including evaluating and striving for the most potentially favorably pre-disposed jury possible – or, in any event, one that is the least unfavorably pre-disposed! But, this day, I am not the one doing the engineering. This day, my own predispositions are subject to being exposed – or worse . . . presumed! . . . guessed at by those who will be forced to consider, as they must with each potential juror, whether having me, a trial attorney, on their jury panel is a pro or a con for their client’s case. When the attorneys “rest” their case and the jury leaves to deliberate the outcome, will my presence in the room help or hurt their chances of success? Essentially, the attorneys on the case must decide whether my professional experience is more or less likely to be a positive factor for them. Will I be open-minded and able to decide the case based only on the evidence presented? Will I influence others on the jury to consider things that perhaps only I observed during the trial because of my own trial experience (evidentiary shortcomings?) or be called upon to explain what something meant (a legal objection sustained or an instruction from the judge), or perhaps even resolve legal questions ordinarily brought to the judge’s attention? And, ultimately, will it be better or worse for their client if I am in the jury room with the possibility of any or all of the above. Whoa! Pump the brakes, big guy! Reality check. We’re still sitting in the jury assembly room, awaiting the Deputy’s return to take us to the courtroom. I wonder what kind of case we’ll be assigned . . . civil or criminal? Will it be an attorney I know? Here comes the Deputy now . . . . Juror 996642 ready for voir dire!
November 2, 2023
Business
The Current M&A Market: Three Questions & Three Pieces of Advice
In an Uncertain M&A Market, Is Now the Time to Sell Your Business? 3 Questions and 3 Pieces of Advice In the lower middle market, the mergers and acquisitions market is still hot (despite the larger economic challenges). This is largely due to a combination of issues, including “Covid hang-over” concerns, challenges with hiring and retaining employees, baby-boomers getting older and the large amounts of cash that still needs to be deployed. As a result, many business owners have a once-in-a-lifetime opportunity to retire wealthy. To take advantage of that opportunity, however, owners need to act fast. The market won’t stay hot forever. And with a potential further economic downturn ahead, the next window to maximize sales value may be five or 10 years out. As I have been telling my clients, now is the time to choose a path: get ready to sell your business as soon as possible, or prepare to keep running it until the next M&A window develops. To determine which path is right for you, consider the following questions: Do you feel emotionally ready to sell? The sale of a business is likely the most sophisticated and largest transaction a seller will encounter in the course of their career. There’s a reason most only go through with it once. Even with years of preparation, no owner can fully predict the myriad of issues and uncertainties in M&A until a buyer commences diligence. You need to be ready for ups and downs, back and forth negotiations, false starts and sudden surprises. Do you know what your business is really worth – and how much M&A may cost? Get a valuation – perhaps more than one. Owners are too close to their businesses to assess their worth objectively. Once you truly understand the value of your company, be prepared to set aside more than you think you’ll need to sell your business. Even if you achieve ideal terms, you will need to be ready to cover any trailing liabilities post-closing. How long will you have the energy to continue running your business? The older you get, the more critical the decision to sell your business becomes. Owners need to be realistic about their abilities and limitations, particularly if things were to go sour: e.g., contacts disappear, key employees leave, or industry disruption makes the business irrelevant. Even if a potential deal doesn’t seem perfect, an owner selling now would have a longer runway to retirement. Otherwise, the owner would need to spend the next few years working harder than ever to carve out better numbers. Whichever path you choose – selling now or waiting – there are three steps you can take to set yourself up for M&A success: Commit to your plan. Do not let others set the terms of your business’s outcome for you. Use the market to your advantage. If you’re thinking of selling now, don’t sign the first letter of intent that comes your way. If you’re waiting it out, don’t concede to a mediocre offer in a couple years; instead, turn into an opportunity to create competition over your business. Focus on creating conveyable value. This one is simple: maximize your earnings, minimize your risks and secure your greatest assets – be they contracts, intellectual property, real estate or skilled employees. Build the team. Whether selling now or later, consider hiring an M&A advisor – they tend to pay for themselves. At the very least, discuss your exit plan with your financial planner, CPA and attorney. Look within your organization for people you can trust to go to bat for the business during negotiations with a buyer: executives, board members and finance personnel are good candidates. Make no mistake: M&A is a challenging and costly prospect no matter what the market looks like. But by developing the right strategy, setting the right expectations, and finding the right allies early on, any business owner can begin their exit with confidence. © 2017 - 2023 Michael N. Mercurio. All Rights Reserved. Originally posted 9/23/2020, content updated 11/2/2023.
November 2, 2023
Tax
New Jersey Law Permits Pass Through Entities to Bypass the Federal Cap on State and Local Tax Deductions
Originally posted on 2/20/2020, no content changes New Jersey has passed legislation to limit the impact of the $10,000 cap on state and local tax (“S.A.L.T.”) deductions created by the 2017 federal implement Tax Cuts and Jobs Act. The bill creating the New Jersey law, known as The Pass-Through Business Alternative Income Tax Act (A-4807/S-3246) was signed by the governor of New Jersey on Jan. 13, 2020 and was previously passed by the New Jersey legislature on December 16, 2019 (“NJ Act”).[1] The NJ Act creates an optional entity-level tax on pass-through businesses. The NJ Act permits New Jersey pass-through entities, such as “S” corporations, partnerships and LLCs to elect to pay income taxes at the entity level as a business expense instead of at the personal income tax level. Paying the tax individually subjects the tax payer to the limitation for federal deductibility of state and local taxes of $10,000. By structuring as a deductible business expense/tax at the entity level, the pass-through entity’s taxable income is reduced by the amount of the tax and the flow through income to the owner is so reduced. Under the NJ Act the “pass-through entity” must have at least one member who is liable for tax on distributive proceeds pursuant to the “New Jersey Gross Income Tax Act” in a taxable year. The NJ Act defines “distributive proceeds” as the income, dividends, and gain of a pass-through entity, derived from or connected with sources within the State of New Jersey, and upon which tax is imposed and due on a member of the pass-through entity pursuant to the “New Jersey Gross Income Tax Act” in a taxable year. The New Jersey Society of Certified Public Accountants (“NJCPA”) welcomed the signing of the NJ Act: “We are grateful to the Governor, the Legislature and all those who supported the bill. Their dedication to assisting small businesses in New Jersey does not go unrecognized.” The NJCPA noted that the NJ Act is estimated it would save New Jersey business owners $200 to $400 million annually on their federal tax bills. The NJ Act was sponsored by Assemblymen Daniel Benson and Roy Freiman in response to federal changes to S.A.L.T that “have had a great impact on homeowners and businesses”, according to Benson. Benson further opined that “[t]his tax payment option could save business owners $450 million annually without costing the state any money in lost revenues. Protecting New Jersey businesses against sweeping federal changes ensures New Jersey’s economy stays on the right track and business owners continue to thrive.” Other states, such as New York, have also attempted to implement a state law to circumvent the federal S.A.L.T. limits through contributions to state-run charitable funds. However, the Internal Revenue Service (“IRS”) issued regulations that eliminate the benefits of the New York law. The New Jersey approach has not been expressly barred by the IRS as of the writing of this article. As such, the NJ Act is effective for pass through entities for tax years beginning after January 1, 2020. The option to pay the tax at the entity level is made for each tax year by an authorized person(s) for the entity. Moreover, the tax rates imposed at the entity level are different from those imposed on individuals. The practical import of the NJ Act is that tax advisors for businesses should advise their New Jersey flow through entity clients of the change in New Jersey law, risk/benefit tradeoff of making such an election, as well as careful consideration of taking advantage of this change in the law by paying estimated taxes at the entity level (i.e. reducing their draws/distributions) instead of at their individual level. Additional considerations should include that the option to pay the tax at the entity level is made annually by the entity and the tax rates imposed at the entity level differ from the rates imposed on individuals. Owners of pass through entities must consult their lawyers and tax advisors prior to making any decisions. [1] The NJ Act supplements Title 54A of the New Jersey Statutes and amends N.J.S.54A:4-1 and P.L.1993, c.173. The text of the NJ Act can be found at https://legiscan.com/NJ/text/S3246/id/1829428
November 1, 2023
The Practice of Law
Jury Duty – A Litigator’s Dream? Part One
Originally posted on 01/30/20, content updated on 10/31/23 Juror 996642 reporting for duty! There I was, responding to my first ever “SUMMONS FOR JURY DUTY.” I’d heard several stories over the years from legal colleagues and friends summoned, voir dire’d, and a couple who actually served on a jury. Not me. Decades of eligibility, but this was my virgin run! Perhaps I filled out the form differently this time? Had I been previously claiming an exemption? Honestly, I’ve no recollection of past years but have a vague recollection of making a conscious decision not to claim an exemption in hopes of serving. Voila! As members of the Bar, especially those of us who spend a substantial time at the courthouse, we appreciate all too well the substantial amount of effort and resources that are required to provide access to justice. Here in Virginia, and Fairfax County, in particular, we are fortunate to have the resources we do (though we could always do more with more!) and an unyielding commitment to timely resolution of cases. To be sure, there will always be opportunities for improvement in the judicial system, many of which we as members of the legal community are uniquely empowered to pursue. Being willing to answer the call to serve and to accept the responsibility of possibly being asked to help decide the guilt/innocence or civil liability of a “peer” is an opportunity too easy not to partake. Each state handles jury duty obligations differently. In fact, with both a federal and state court claiming jurisdiction over you no matter where you live, eligible jurors are at all times subject to multiple selection systems. In Virginia, the selection process differs from county to county. Fairfax County is the largest jurisdiction in the Commonwealth, with the most potential jurors. As a result, one answering the call to serve can anticipate it’s being at least several years before being summoned to serve again. Here in the “land of the free, because of the brave,” where one’s “day in court” comes as a right and privilege for which so many have sacrificed so much, jury duty is really no sacrifice at all. So . . . client obligations, pending deadlines, other work, and family commitments aside . . . along with maybe 100-150 or so fellow Fairfax County residents answering the call, I am Juror 996642 . . . reporting for duty! After the parade is over and all the fanfare and hoopla die down (not!) . . . my I.D. has been verified, and I have made myself comfortable in the assembly room. Polite smiles; quiet as expectations build; we wait. Next time . . . “voir dire.”
October 31, 2023
Estates and Trusts
A Gift from the IRS? A Holiday Miracle
The holidays are nearly upon us, and for many, this means holiday cheer, baking, and our endless gift lists. What should also come to mind is the “gift” that the IRS bestows upon all of us, which is the ability to make many gifts to our loved ones free of taxes, together with the benefits that accompany making those gifts. Below is a handy list of gifts that should be considered as we close out 2023. Annual exclusion gifts: In 2023, an individual can make annual gifts of up to $17,000 per recipient to an unlimited number of individuals free from any gift tax. Married couples can double this gift to $34,000 per recipient to an unlimited number of individuals. This benefit is called the “annual exclusion amount” because the gift is excluded from gift tax for the calendar year in which the gift is made. The annual exclusion is a “use it or lose it” benefit, meaning that your ability to gift for that year ends after the year has passed. Not only are annual exclusion gifts an effective way to pass wealth to family members and others, free from estate or gift taxes, but these gifts also have the added benefit of reducing the gift-giver’s taxable estate that would otherwise be subject to an estate tax upon his death. These annual exclusion gifts can be made “outright” and paid directly to the recipient to qualify for the annual exclusion. Certain gifts can even be made to the recipient in a trust if it is properly structured. Lifetime gifts: Gifts exceeding the annual exclusion amount are sometimes referred to as “lifetime gifts.” When “lifetime gifts” exceed the $17,000 or $34,000 annual exclusion amount in the case of a married couple, it reduces the federal estate tax exemption of the gift-giver. For example, the current federal estate tax exclusion is $12.9M for each person. This means that at the federal level, the gift-giver can either gift during their life or die with $12.9M. Therefore, if the gift-giver gifts $117,000 to a recipient in 2023, $17,000 of the gift will qualify for the annual exclusion amount for 2023. The remaining $100,000 gift will reduce the gift-giver’s lifetime estate tax exclusion by $100,000, thus reducing his available estate tax exclusion credit from $12.92M to $12.82M at death. The other benefit of making more significant lifetime gifts that exceed the annual exclusion amount is that it removes the value of the gifted assets from the gift-giver’s estate. Removing assets from the gift giver’s estate can be particularly useful when the gifted asset is expected to appreciate in the future. By gifting those highly appreciable assets out of the gift-giver’s estate now, the gift-giver’s estate will pay a reduced estate tax at their death. Lifetime gifts should be strongly considered at the present time as the federal estate tax exclusion of $12.92M is set to “sunset” at the end of 2025. This means the amount of assets you can die with that will not be subject to an estate tax will plummet from $12.92M free of estate tax to only approximately $6.8M free of estate tax. Therefore, making gifts now to take advantage of the current $12.92M estate tax exemption is something to consider. Charitable Giving: Most appreciate the many benefits of gift-giving to a favorite charity: it feels good to make a positive impact while simultaneously supporting a cause that is meaningful to the gift-giver. Many are unaware, however, that there are trusts that can be established to provide the gift-giver with an income stream, a tax break during the gift-giver’s life, and a gift to one’s favorite charity at death. A charitable remainder trust does just that: it allows the gift-giver to make a contribution to the trust for the charity while simultaneously providing a partial tax deduction for the gift and an income stream to the gift-giver or her loved ones. The tax deduction the gift-giver receives from funding a charitable remainder trust is based on the type of charitable remainder trust created. The deductions, depending on the type of charitable remainder trust, are then calculated by several factors, including the present value of the charity’s interest, the assets “donated” to the trust, how long the trust will likely remain and/or the annual “payout” rate to the income beneficiary. In addition to the present tax benefit enjoyed by the gift-giver, the gift-giver can also name herself or a loved one as the beneficiary of the present income stream from the assets donated to the trust. Based on how the trust is set up, the gift-giver (or nominated income beneficiary) can receive income annually, semi-annually, quarterly, or monthly. The IRS requires that the annual income stream must be at least 5% but no more than 50% of the trust’s assets. After the specified term of the trust or upon the death of the last income beneficiary, the remaining trust assets are then distributed to the designated charitable beneficiaries. The charitable beneficiary (or beneficiaries) can be public charities or private foundations. Moreover, the trustee can be provided the power to change the trust’s charitable beneficiary (or beneficiaries) during the lifetime of the trust, if necessary. Gifting can be an integral part of one’s estate plan. Gift planning, especially involving trusts, can be complex and highly individualized. It is crucial to consult a knowledgeable estate planning attorney to ensure that the gifts made are properly structured and comply with tax laws at the state and federal levels, especially as the tax laws change over time. Please get in touch with me directly to discuss these or other gift-giving options before the end of 2023.
October 30, 2023
Page 21 of 35
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