Business
Before You Sell – Have an Accurate, Realistic Understanding of What You Actually Own
This statement seems obvious, right? From experience, I can tell you that while obvious, some sellers find out during the diligence and sale process that they do not own what they thought they owned. Take intellectual property and software rights as an example. Ownership of the software and the underlying source code can be complicated especially if the software went through a number of iterations. It can be fatal to a transaction to find out a key piece of software is not owned by the seller, or the seller has not secured the proper underlying licenses granting it the authority to do what it is doing. A best practice for all business owners is to regularly inventory their assets and confirm the ownership sourcing. Hard assets are easy to source, but finding titles and releasing liens during a transaction can add unnecessary stress. Soft assets can be tricky. A businesses’ name, logo and tag lines can be issues if the business never took the proper steps to register and confirm there were no conflicts. There is nothing worse than determining a business’ name has a conflict with another business and having to then rebrand the business and take a new course. In sum, the time to determine asset ownership and the status of any clean-up is well before being asked by a buyer to provide confirmation of ownership during the sale process.
February 9, 2022
The Weekly Scenario
The Weekly Scenario: Identity Theft and Protection of the Estate
Stolen identities and fraudulent usage of personal identifying information continues to be a big problem. These concerns grow when an estate includes digital assets that never existed only a few decades ago. As a result, being mindful of the risks of data breaches and understanding the need for the protection of electronic information have become critically important. Identity Theft of a Deceased Individual While technology allows us secure passwords, firewalls, and credit card chips to lessen the potential to become a victim, when a person dies, his identity can be illegally stolen, which is problematic for an estate that still has to safeguard assets and benefits for estate beneficiaries. Dealing with the identity theft of a deceased individual can complicate an already complex estate administration. Steps to Prevent Identity Theft of Deceased The executor of the decedent’s estate should take a number of steps depending on the specific estate. Credit card companies, banks, and places where the deceased individual had accounts should be notified. There may be estate debts that will need to be addressed, and a death certificate will be required by each company. For closed accounts, it may be a good idea to list an alert on the account that the individual is deceased to prevent theft or forgery. It may also be prudent to request a copy of the decedent’s credit report so you can check active credit cards, collection matters, or relevant account information. Some agencies that should be considered for notification include the Social Security Administration, Veteran’s Affairs, and MVA. Homeowners insurance and other service providers offer a range of identity services and indemnity coverage to address the immediate potential for financial harm. In most instances, relying on guidance from insurer experts or an identity restoration service provider can be cost-effective and efficient. Perhaps, the best protection against identity theft or fraud is to remain vigilant! As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
February 4, 2022
Labor and Employment
Supreme Court Ruling on OSHA’s ETS: Update
In my January 14, 2022, blog, Supreme Court Ruling on OSHA’s ETS: What Does it Mean and What’s Next? I discussed what could be next for OSHA’s Emergency Temporary Standard. As of January 26, 2022, OSHA has withdrawn the Emergency Temporary Standard and is pursuing a permanent standard through the standard process, which is slower and more rigorous. OSHA withdrawing the ETS means that employers can rest easy that they will never have to comply with its requirements. However, there’s more to come as OSHA looks to implement similar requirements through a permanent rule.
February 1, 2022
The Weekly Scenario
The Weekly Scenario: The Build Back Better Act
The Build Back Better Act did not pass in 2021. However, this is not to say that Congress won’t try to get something through in 2022 by piecing out the legislation into two bills or further trimming down programs. This takes us into the new year with the same uncertainty regarding taxation as we had in 2021. Estate and Gift Tax Exemption In 2022, the estate and gift tax exemption will climb higher to $12.06 million per individual – up from $11.7 million per individual in 2021. As such, an individual can leave $12.06 million to heirs and pay no estate or gift tax, and a married couple can pass $24.12 million estates and gift tax-free. (One version of the BBB Act included a provision that would have cut the estate and gift tax exemption to about $6 Million.) Gift Tax Annual Exclusion Amount In addition, the gift tax annual exclusion amount will increase to $16,000 for 2022, up from $15,000 since 2018. Individuals and couples will be able to give away $16,000 to as many people as they like – children, grandchildren, friends, fellow citizens, and anyone else – with no federal or gift tax consequences. Multiple annual exclusion gifts can add up significantly and do not reduce the $12 million credit. This is a simple way to reduce one’s estate. You can also make unlimited direct payments for medical and tuition expenses for as many people as you like with no gift, estate, or income tax consequence. Reducing the Likelihood of Estate Taxes The IRS taxes estates above the threshold at rates of up to 40%. By making gifts and transferring wealth early, the wealthy can reduce the likelihood of the estate tax. The state in which you reside is another consideration for gifting strategy. Seventeen states and the District of Columbia levy some form of an estate or inheritance tax (or in the case of Maryland – potentially both!), so even if you don’t qualify on the federal level, you might wind up owing taxes on a state level. As we enter 2022, regardless of what happens with tax legislation, there are steps you can take to prepare. But, first, everyone must evaluate their situations and identify opportunities. And if you have never done any estate planning and do not have a will or trust, it is essential to get this accomplished. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
January 28, 2022
Business
How to Know if You’re Ready to Sell Your Business
As a business owner, how does one now know the time is right to sell? The easy answer is that the time is right when the owner decides to sell. However, that answer is too simplistic and does not serve the owner well. There are two primary factors to evaluate the timing to sell a business – external considerations and internal considerations. External considerations frequently are not well vetted by many owners. External factors include the market conditions, such as the general receptivity to the owner’s business type (e.g., is the market hungry to acquire PT practices). Other external factors that impact market conditions include the tax framework and access to capital. As mentioned, too many owners decide they want to sell without fully understanding the external considerations as to the optimal time to sell their business. The reason this happens relates back to the internal considerations. The owner determines they want (or need) to sell. It could be circumstantially driven (a family illness or death). It could be a mindset such as an owner being fed up with the pandemic. Regardless, the internal pressures/decisions often outweigh what is going happening in the rest of the world. An owner can manage their mindset by getting themselves fully informed about the true state of their business and how it presently fits into the marketplace. In addition to speaking with the company attorney and CPA, the owner can get the insight of 2 other advisors and services. First, the owner may want to speak with an investment banker. The investment banker can provide the owner with market intelligence about the receptibility of the market to the owner’s business, as well as give the owner insight into how to position the business best for the sale. Further, the owner should speak with a financial advisor. Because a significant component of any sale relates to financial considerations, having an excellent financial advisor help the owner understand their financial picture is key. The financial advisor should do two things. First, this advisor should work with the investment banker/CPA to get a true market value for the business to include the likely composition of sale funds (all cash, cash plus deferred monies, etc.). Second, the financial advisor should work with the owner on their personal financial situation. Having an understanding of what the business is likely worth in the market coupled with the financial needs of the owner allows the owner to go into the selling state fully informed and ready to powerfully evaluate any offers. I find that too many owners decide to sell without having their financial house in order and thus have no ability to vet offers to know that the offers are fair and workable. Lastly, an owner may know they are ready to sell when their mindset is clear. When they have purpose beyond the business. I have experienced a number of owners that have sold their business only to become lost and disaffected. An owner that wants to sell needs to deliberately develop their “life” after their business is sold.
January 20, 2022
The Weekly Scenario
The Weekly Scenario: Three Common Estate Planning Mistakes
Estate planning attorneys frequently see certain common mistakes in an estate plan. Here are the three estate planning mistakes that you should be able to easily avoid. Naming Minors as Beneficiaries Beneficiary designations are a simple way to avoid probate and be certain that an asset goes to your beneficiary at death. Most life insurance policies, retirement accounts, investment accounts and other financial accounts permit you to name a beneficiary. Many well-meaning parents and grandparents name a child or grandchild as a beneficiary. However, a minor is not permitted to own property. Therefore, the financial institution will not name the minor child as the new owner. A guardian or conservator must be appointed by the court to receive the asset on behalf of the child and they must hold that asset for the minor’s benefit until the minor becomes of legal age. The guardian must file annual accountings with the court reflecting activity in the account and report on how any funds were used for the minor’s benefit until the minor becomes a legal adult. The time, effort, and expense of this are unnecessary and should be avoided. Handing a large amount of money to a child the moment they become of legal age is rarely a good idea. Leaving assets in trust for the benefit of a minor or young adult, without naming them directly as a beneficiary, is a possible alternative. Adding Joint Owners to Bank Accounts It seems like a good idea. Adding an adult child to a bank account, allows the child to help the parent with paying bills if hospitalized or lets them pay post-death bills. If the amount of money in the account is not large, that may work out okay. However, the child is considered an owner of any account they are added to. If the child is sued, gets divorced, files for bankruptcy or has trouble with creditors, that bank account is an asset that can be reached. This concept also applies to houses and other property that is owned jointly. Joint ownership of accounts after death can also be problematic if your will does not clearly state what your intentions are for that account (and even if they do, it could still result in a contest). Do those funds go to the joint owner, or should they be distributed between heirs? Analytical estate planning, that includes power of attorney and trust planning, will permit access to your assets when needed and division of assets after your death in a manner that is consistent with your intentions. Poor Choices of Co-Fiduciaries If your children have never gotten along, don’t expect that to change when you die. Recognize your children’s strengths and weaknesses and be realistic about their ability to work together when deciding who will make financial decisions under a power of attorney, health care decisions under a health care proxy and who will best be able to settle your estate. If you choose people who do not get along or do not trust each other (and never will), it will take far longer and cost more to settle your estate. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
January 18, 2022
Intellectual Property
New Year, New Trademark Law – Petitions for Expungement and Reexamination of Trademark Registrations
Petitions for Expungement and Reexamination of Trademark Registrations The Trademark Modernization Act took effect on December 18, 2021, and now it is easier and less expensive to cancel unused registered trademarks. Any party can bring an expungement or reexamination proceeding to remove a trademark from the register. An expungement proceeding is when a party believes that a trademark has never been used in commerce. The proceeding must be brought when the registration is between 3 and 10 years old (although until December 27, 2023, the proceeding can be brought against any registration more than three years old). A reexamination proceeding is for when a party believes that a trademark was not in use at the time an application based on use was filed or when use is claimed in an application originally based on intent to use. The proceeding must be brought before the 5th anniversary of the registration. Below are answers to questions some may have about these new proceedings. How do expungement and reexamination differ from a trademark cancellation action? These new, simplified proceedings will be brought before Trademark Examining Attorneys instead of the judges of the Trademark Trial and Appeal Board. A cancellation action, which is similar to a lawsuit in federal court, has discovery, a trial, and the possibility of motions. Expungement and reexamination will be much more streamlined – the petitioner files a petition setting forth the information to demonstrate non-use. The registrant then has the opportunity to file a response including evidence of use or excusable non-use. The Examining Attorney then reaches a decision based on the petition and response. If the Examining Attorney orders that the registration be canceled, the registrant has the opportunity to file a request for reconsideration and appeal. The costs for expungement and reexamination will be considerably lower than a start-to-finish cancellation proceeding. The filing fee for expungement or re-exam is $400 per class of goods or services, which is less than the $600/class fee for a cancellation action. More significantly, the legal costs for handling the proceeding will be significantly less than for a cancellation action. If there’s no discovery, how does the petitioner show that the mark was not used? The petitioner is required to submit the results of a “reasonable investigation.” This will vary based on the goods or services, relevant industry and customary channels of trade for the goods or services. Generally speaking, a thorough use investigation conducted by an experienced private investigator will likely be appropriate Why would I want to file a petition for expungement or reexamination of a third party’s registration? There are various reasons to file for expungement or reexamination, but the most common reason is likely to be that a party wants to adopt a new trademark that cannot be registered because of prior registration. How can I avoid a petition for expungement or reexamination being filed against a trademark registration I own? If you are selling the goods or rendering the services covered by your trademark, it is unlikely that someone will file a petition for expungement or reexamination against your registration. It will be helpful to make sure that you are actively demonstrating your use and showing your products and services on your website and on social media as may be appropriate for your business and industry. If you have any questions about the use of your trademarks, please feel free to contact me. I was able to get my registration without using the trademark. Can someone petition for expungement or reexamination against my registration? Trademark owners from most countries outside of the US can register trademarks in the US if they are registered in the owner’s home country. If this is your situation, your registration will be vulnerable to an expungement proceeding after three years (and before ten years) if it has never been used. The best way to avoid expungement will be to sell your goods or render your services in the US. Need assistance in navigating the new expungement and reexamination proceedings or guidance on protecting, enforcing or defending trademarks pursuant to these amendments? Please contact Laura Winston at lwinston@offitkurman.com or 347-589-8536.
January 14, 2022
Labor and Employment
Supreme Court Ruling on OSHA’s ETS: What Does it Mean and What’s Next?
On January 13, 2022, three days after the Occupational Safety and Health Administration (OSHA) Emergency Temporary Standard (ETS) COVID-19 vaccination and testing mandates went into effect; the Supreme Court stayed the mandate pending further review in the Sixth Circuit. However, the stay is only temporary, and employers should remain vigilant. For now, the mandate that would have impacted an estimated 100 million Americans is on hold, and employers, who were at the ready to race towards compliance, are likely breathing a collective sigh of relief. Supreme Court Ruling In a 6-3 decision, the Supreme Court reinstated the temporary injunction stopping OSHA from enforcing the ETS, pending resolution in the Sixth Circuit Court of Appeals. The Court’s decision focused on whether OSHA has the requisite authority to promulgate the ETS. In its ruling, the Court explained that, while OSHA has the power to “set workplace safety standards,” it does not have the authority to set “broad public health measures.” Ultimately, given that COVID-19 is a daily risk to individuals as they go about their daily lives, not just in the workplace, the Court found that “although COVID-19 is a risk that occurs in many workplaces, it is not an occupational hazard in most.” Accordingly, the Court views COVID-19 as part of “the hazards of daily living,” not a workplace hazard under OSHA’s purview. Justices Breyer, Kagan, and Sotomayor dissented, finding that OSHA acted within its scope of authority in issuing the ETS. The dissenting justices concluded that COVID-19 presents a “grave danger” to employees, and the ETS is necessary to address those dangers. What’s Next? It is now up to the Sixth Circuit Court of Appeals to determine whether the ETS is valid. If it does, based on the Court’s reasoning in staying the ETS, it is unlikely to survive should it go before the Court again. Another consideration for the future of this regulation is that the ETS is a temporary standard meant to be replaced by a permanent standard on or before May 5, 2022. As such, we could see some movement by OSHA to engage in the formal rulemaking process to publish a formal regulation in the coming months. Also, given that Court approval of a vaccine mandate is unlikely, we may see new targeted regulations from OSHA to implement additional safety measures in workplaces where in-person work is necessary and social distancing is difficult, which are less likely to face successful legal challenges. Though employers are not currently required to comply with the numerous requirements of the ETS, including mandatory vaccination, it is within their discretion to mandate vaccination and implement other COVID-19 safety protocols. Even without OSHA’s mandate, many employers are mandating vaccination or implementing safety protocols based on vaccination status. While businesses implementing voluntary directives do not need to jump through the regulatory hoops of the ETS, they must still take care to develop comprehensive and compliant policies to ensure compliance with Title VII and the Americans with Disabilities Act (ADA). Additionally, it is imperative that companies still carefully consider what safety protocols are suitable for their workplace as the transmittal of COVID-19 in the workplace has both practical and legal consequences, especially where employers are subject to state and local COVID-19 safety orders.
January 14, 2022
The Weekly Scenario
The Weekly Scenario: Estate Tax Liabilities
Protecting a Personal Representative When There are Retirement Plan Accounts In certain situations where a person has a large retirement plan account, such as an IRA, and a substantial estate tax liability, but insufficient probate assets to pay the estate tax, certain precautions may be in order. The personal representative of the estate is responsible to pay the federal and state estate tax to the extent there are probate assets. However, if a personal representative has knowledge of unpaid estate tax but distributes money to creditors of an estate instead of paying the federal and state taxing authorities, the IRS and state taxing authority can hold the personal representative liable for any unpaid taxes. Moreover, if IRA assets pass directly to a beneficiary or beneficiaries, each recipient can be held personally liable for the unpaid estate tax, generally limited to the amount of IRA distributions received. So how might a personal representative protect his or her own interests and the interests of the beneficiaries? One solution is to name a trust as the IRA beneficiary. The trust could stipulate that the Trustee will pay the estate an amount equal to the estate tax attributable to the retirement assets. The trust could also provide that the Trustee is required to pay the income taxes attributable to the IRA funds. This type of trust should be drafted to allow distributions to IRA beneficiaries, but after settling any taxes that are due. Any trust would likely be drafted as a short-term trust (2-4 years) with enough time to give the Trustee the ability to settle the tax liabilities. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
January 7, 2022
Labor and Employment
What Now for Employers? CDC Issues New Recommendations Regarding Isolation
So, the Centers for Disease Control and Prevention (CDC) has issued guidance shortening the recommended time that people should quarantine from 10 days to 5 days based on certain conditions. The CDC’s new guidance says: For those who test positive for COVID-19, but don’t have symptoms, the quarantine period may be reduced from 10 days to 5 days as long as the person wears a mask around others (everywhere) for at least 5 additional days. However, if a person has a fever, they should continue to quarantine until the fever resolves (without medication for 24 hours). The CDC’s recommendation is the same as above for symptomless people who had close contacts with positive individuals if they are:unvaccinated, over 6 months out from receiving the second dose of the Pfizer or Moderna vaccines, or 2 months out from their single dose of Johnson & Johnson (without a booster). (I’m sure that you remember the definition of “close contact”: someone within 6 feet of the positive person for 15 minutes or longer during a 24-hour period.) The CDC now advises that no quarantine is needed for those with close contacts with people who tested positive and who have no symptoms and: have received a booster shot, are less than six months out from being fully vaccinated with Pfizer or Moderna, are less than 2 months from their J&J vaccine, or vaccinated people who are not yet eligible for a booster – including students younger than 16. People who are fully vaccinated should wear a mask in public indoor spaces for 10 days. Keep in mind that even those meeting criteria in #3 above who have symptoms should test and follow #1. According to the CDC, for all those exposed, best practice would also include a COVID-19 test at day 5 after exposure. If symptoms occur, individuals should immediately quarantine until a negative test confirms symptoms are not related to COVID-19. Good luck getting a test at home, but states still have PCR testing centers and some pharmacies are providing rapid and PCR tests for free. What does all of this mean for employers? Revise your policies. There will be less impact from COVID-19 on attendance, so long as your employees wear masks and remain symptomless. Be sure to include and enforce the mask mandate. Collect data on employees’ vaccinated versus unvaccinated status and dates of vaccination and boosters in order to enforce the guidelines. Maintain strict confidentiality. Continue to inform other employees, customers, visitors, and the state’s health department of a positive case. I hope that this is helpful. Please feel free to contact me with any related questions.
January 6, 2022
Intellectual Property
Name, Image & Likeness (NIL): Three Key Legal Issues Facing Businesses in College Athlete Endorsement Deals to Date
The commercial landscape of college athletics has experienced significant change in recent months. The release of the new NCAA “interim policy,” prompted in part by the U.S. Supreme Court decision in NCAA v. Alston, has allowed college athletes and businesses to benefit from new endorsement and income opportunities involving the licensing of an athlete’s name, image, and likeness (“NIL”). Following the NCAA interim policy released in June 2021, a multitude of states enacted NIL statutes outlining the procedures and limitations for endorsement deals by athletes to license their NIL. Despite the world of opportunities that have opened up, the NIL landscape faces ongoing uncertainty and potential pitfalls due to the patchwork of NCAA, state, and university rules and regulations requiring compliance by college athletes and businesses. In order to benefit from all that NIL has to offer and avoid problems, businesses should be aware of three main legal issues that have been prevalent in NIL deals to date. (1) NIL agreements should comply with NCAA policies, state laws, and university rules In pursuing opportunities to contract with college athletes, businesses should perform their legal due diligence before finalizing any deal. Companies should strive to ensure that an NIL agreement complies with the NCAA interim policy, state law, and any applicable rules adopted by the school itself. If the state has yet to pass an NIL statute, the agreement should be flexible enough to accommodate future laws that may be enacted. Businesses should also consider that Congress may adopt a uniform federal law affecting NIL agreements. Even if a possible NIL deal satisfies the relevant state laws, businesses should also seek compliance with NCAA policies, such as the prohibitions against both pay-to-play and using NIL as a recruiting inducement. This means the agreement and related compensation cannot be, among other things, contingent on the athlete attending a specific school, participating in a certain number of games, or performing at a certain level. Businesses seeking endorsement deals with college athletes should also be aware of the categorical prohibitions on athlete association with certain brands or products under state law or university rules. These categorical exclusions vary by state and by institution and may even be enforced through team-specific codes of conduct. (2) NIL agreements should avoid conflicts with the university’s intellectual property and existing sponsorships A frequent hot topic in NIL deals has been the potential for conflicts with existing school or team sponsorships and with the use of school-specific intellectual property (“IP”), which may involve the school’s logos, nick-names, slogans, mascots, venues, and in some cases, team colors. Businesses should be aware of the possible limitations of NIL deals. NIL deals usually grant the sponsor the right to use the athlete’s IP. However, these agreements may not cover the use of the school’s IP, and the schools are not obligated to agree that their IP can be used. If the business wants the athlete to wear their team jersey, use the team locker room, or showcase a school landmark, the company will need to seek permission from the school itself. Universities have sometimes invoked their right to refuse such requests. Additionally, agreements between businesses and college athletes cannot conflict with existing school or team sponsorships with other companies. Athletes may face serious consequences if a NIL deal conflicts with existing sponsorships. Thus, it is in the business’s best interest to ensure that such conflicts do not occur. (3) NIL agreements should consider social media legal and branding issues The marketing opportunities presented by NIL deals have attracted both national brands and small, regional, and non-traditional businesses that may have previously struggled to secure high-profile endorsements. Nearly all businesses can now partner with college athletes, especially for relatively low-cost social media campaigns promoting their brands to an athlete’s followers. Using an athlete’s NIL in a social media campaign presents an enticing option for businesses that wish to engage with a younger audience, but there are certain risks associated with social media that should be evaluated and monitored closely. First, businesses should carefully vet the athlete and ensure that their personal brand and character align with the business’s approach to marketing. Social media campaigns can allow athletes to promote a company in a way that feels more personal and authentic to consumers. However, social media platforms also allow for real-time posting of user-generated content, which might not be subject to prior review. This could potentially hurt the business’s image if the athlete or others make comments that are not a good fit for the company. In addition, the ease through which photos and videos are shared on social media presents the risk of an athlete inadvertently violating IP limitations imposed by the school. To avoid these issues, businesses should consider designating a representative who will be responsible for managing the social media relationship between the athlete and the company’s brand. Conclusion In short, the groundbreaking changes in the NCAA interim policy on NIL have opened up a world of opportunities for businesses and college athletes. However, the legal risks associated with NIL deals require the respective parties to stay well informed on the relevant and quickly changing rules and regulations. In order to ensure your business is well protected, it is important to consult with counsel before entering into any NIL agreement. This summary of legal issues is published for informational purposes only. It does not dispense legal advice or create an attorney-client relationship with those who read it. Readers should obtain professional legal advice before taking any legal action.
December 29, 2021
The Weekly Scenario
The Weekly Scenario: How to Avoid Unintentionally Disinheriting a Family Member
When an account owner dies, the assets go directly to the beneficiaries named on the account. This overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits. Too many stories to count where the individual remarried after the death of his spouse but didn’t change his IRA beneficiary form. At his death, someone else (i.e., second wife, etc.) was left out. So the intended beneficiary receives nothing from the IRA, and the retirement money went to his first wife, the named beneficiary. Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set up as transfer on death, life insurance, annuities and retirement accounts. Generally, beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA. You can name as your beneficiaries individuals, trusts, charities, donor-advised funds, or your estate. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren). If you can help it, it is not recommended to leave assets to minors outright, because it creates the process of having a court-appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age. You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. A special needs or supplemental care trust is often a good solution. This preserves their ability to continue to receive the government benefits. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
December 24, 2021
Business
Five Phases of a Deal from a Sell-Side Perspective: Due Diligence
You’ve signed your letter of intent (LOI). So what’s next? Now it’s time to roll up your sleeves as the real work on your sale begins. Due diligence commences. Prior to signing the LOI, you likely provided your buyer some limited financial diligence, enough that the buyer could determine to move forward and on what proposed terms. With the LOI execution, the buyer will now seek to learn much more about your business. Diligence will generally fall into three categories –financial, legal and operational. As a seller, the buyer will send you a very long and detailed diligence request list. Many times, this request list feels very overwhelming and beyond the scope of your business. This is intentional by the buyer. The buyer is casting a very large net in an effort to uncover and learn about your business in every aspect. Your approach to due diligence likely will require a new mindset. Diligence is opposite the natural inclination of entrepreneurs. Diligence requires disclosure of all things in your business –the good items and the not-so-good items. However, in all events, disclosure and diligence is the seller’s friend. Fully opening up your business in a complete and honest fashion allows the buyer to fully understand the mechanics of your business. The seller should not withhold or color any responses in an attempt to mitigate or spin matters. Rather, disclose what is requested and allow the buyer to ask its questions and make it own conclusions. No seller wants to be in a position where a buyer would revise its intentions had it known about an item (think fraud in the worst case). At times, a buyer will modify terms of the transaction (price, payment, etc.) based upon the diligence findings. While this is not usually positive for the seller (terms usually don’t get better), it is the opportunity for the parties to have open dialogue based on the same business knowledge. And remember, as a seller, diligence is a continuing process up until closing. It is not good enough to disclose and forget. Business is ever moving, and as items change in your business, the seller has the duty to update diligence to the buyer. Anatomy of the Deal 5 Phases of a Deal from a SELL-SIDE PERSPECTIVE: The Players and Their Involvement Pre- Transaction Planning Phase Rule: Find and eliminate skeletons; create multiple options Phase I: Letter of Intent Phase Rule: Know what you want and get it in writing as the LOI may be your high water mark Phase II: Due Diligence Phase Rule: Disclosure is your friend Phase III: Contracts Phase Rule: Confirm Business terms and Phase IV: Closing Phase Rule: Time is your enemy Phase V: Post Closing Phase Rule: Remember to dot the I’s and cross the t’s to meet all conditions Post-Transaction Planning Phase Rule: Enjoy your new status in life; make sure you’ve considered life without the business Sell Side M&A: Three Rules of Thumb for the Transaction Rule #1: You haven’t sold your business until you’ve sold your business Rule #2: Get your money upfront (as soon and as much as possible) Rule #3: Reduce and eliminate your trailing liabilities
December 22, 2021
Immigration Law
The H-1B Visa and the Employment Based Green Card: Explaining the Difference
Among the various ways in which foreign nationals can enter and legally work in the United States are two similar but distinct pathways. First, there is the H-1B non-immigrant visa, and second is the employment-based green card or immigrant visa. Some aspects of the two programs are similar and even overlap, but there are other features that are radically different. Whether you are a business that is interested in employing a qualified foreign professional, or you are a professional who is seeking to explore options for employment in the United States, this article will answer your questions regarding the two programs. There is often some confusion among employers and employees alike regarding the criteria for the two programs, which unfortunately can sometimes result in failing to utilize them. The motivation for this article is to provide a clear and concise explanation to employers and employees so that they can utilize the program that best suits them and not shy away from them because they have not understood the programs fully. H-1B Petitions The H-1B program allows employers to employ foreign nationals in specialty occupations for a temporary period of up to three years. Foreign national employees can spend a total of six years in H-1B status. An exception to that rule applies to certain foreign nationals with an approved employment-based green card petition (I-140). United States Citizenship and Immigration Services (USCIS) caps the number of H-1B visas issued at 65,000 per year, with an additional 20,000 visas reserved for applicants possessing a master’s degree or higher. Determining Eligibility The basic criteria for an H-1B employee are detailed in the guidance provided by USCIS: The employee must have an employer-employee relationship with the petitioning U.S. employer. The employee’s job must qualify as a specialty occupation by meeting certain specified criteria. The employee’s job must be in a specialty occupation related to his or her field of study. The employee must be paid at least the actual or prevailing wage for the occupation, whichever is higher. An H-1B visa number must be available at the time of filing the petition unless the petition is exempt from numerical limits. Who can apply for the H-1B visa? The applicant must be a well-qualified person who has been offered a job in the United States for a term of three years or less at the outset. If the visa is granted, it can be extended for a further three years if the employer still requires the visa holder’s services at that stage. The types of jobs that can qualify for an H-1B visa are quite broad and include those in the following fields: sciences and mathematics, information technology, engineering, architecture, medicine, business and accounting, theology and the arts, education, the law, and other fields. The H-1B Annual Lottery If you are familiar with the H-1B process, you may have heard of the chaos of “Cap Season,” the weeks leading up to the H-1B lottery. Previously, all cap-subject H-1B petitions had to be prepared in full and received by USCIS no later than the first week of April. USCIS would then select 65,000 regular cap petitions (+20,000 master’s cap petitions) for processing from the thousands it received. Thankfully, the horrors of “Cap Season” are behind us, since USCIS implemented a new registration system to streamline the lottery process. Now, employers interested in filing an H-1B petition simply need to complete an online registration form, which USCIS opens for a 14-day period in March. At random, USCIS selects 65,000 regular cap registrants and 20,000 master’s cap registrants. After the selection lottery, notifications are issued to the selected registrants. Only applicants who received selection notifications are permitted to file cap-subject petitions. The new system has drastically improved efficiency for employers and attorneys by eliminating the need to fully prepare petitions which would not be adjudicated. It is important to note that some petitions are not subject to the annual quota. These include petitions filed by universities, nonprofit research organizations, and government research organizations, as well as petitions for applicants who already hold H-1B status and are requesting to amend or extend their stays. Labor Condition Application Once a petitioner receives their registration selection notice, they must file a Labor Condition Application (LCA). The LCA is an attestation that the petitioning employer will pay the H-1B employee either: a wage equivalent to all other workers with similar experience and qualifications for the position; or the prevailing wage level for the occupational classification in the area of employment. The employer is required to pay the employee the higher of the two figures. Processing time for the LCA is usually one week. A copy of the certified LCA signed by the petitioning employer must be filed with the H-1B petition. Processing Times H-1B applications can be submitted and processed in a matter of weeks. The H-1B process is much quicker and preparation is much less time-consuming than a traditional employment-based green card application. Once the LCA is certified, the attorney prepares and files the H-1B petition, which includes Form I-129, the certified LCA, and additional supporting documentation. Applicants requesting expedited processing by USCIS can pay an additional fee for “premium processing,” which guarantees processing within fifteen calendar days. Therefore, the H-1B petition can be prepared, filed, and approved fairly quickly in contrast to an employment-based green card application, which can take months in preparation, filing, and approval. Identify Potential Candidates As Soon As Possible U.S. employers may offer positions to overseas candidates who have recently obtained U.S. degrees. In this case, the employee will be able to start work on Optional Practical Training (OPT). However, once this relatively short period ends, H-1B sponsorship will be required if the employer seeks to retain the employee’s services. For employers considering H-1B sponsorship of an employee, it is critical to speak with an immigration attorney well ahead of the registration period in March to ensure timely entry into the H-1B lottery. Having adequate time to prepare is invaluable for filing a petition which will survive USCIS scrutiny without additional delay. We recommend consulting with one of our esteemed immigration attorneys as soon as a potential candidate is identified. There Can Be Delays If USCIS Is Not Satisfied USCIS can issue a Request for Evidence (RFE) if it is not satisfied with the contents of an application. RFEs cause delays that most employers cannot afford if they want to get their staffing right for the next year. While RFEs cannot be avoided entirely, detailed crafting of the employee’s job description and the job’s location, category, and duties greatly reduce the chances of an RFE being issued. The Employment-Based Green Card While an H-1B visa generally authorizes an employee to work for a U.S. petitioner for up to six years, the U.S. employer may also petition for permanent residence for an employee by filing Form I-140. Obtaining an employment-based green card is a longer and more intense process than obtaining an H-1B visa. However, obtaining a green card is ultimately more rewarding as it allows the holder and any dependent family members to live permanently in the United States. Further, permanent residents can generally apply for U.S. citizenship after five years of living in the United States. Permanent Labor Certification (PERM) Similar to the H-1B visa process, the petitioning U.S. employer must submit a permanent labor certification request with the Department of Labor. This process is known as the PERM process. The PERM process is much more intensive than the LCA process for H-1Bs, as the information supplied in the labor certification request must confirm, with suitable evidence, that there is a lack of availability of U.S citizen or permanent resident workers for the proposed position. As part of the process, the employer must advertise the job through various means and maintain a detailed recruitment report, carefully documenting all contact with candidates who express interest in the position. Advertisements in Newspaper or Professional Journals The U.S. employer must generally place an advertisement on two different Sundays in the newspaper of general circulation in the area of intended employment most appropriate to the occupation and most likely to bring responses from able, willing, qualified, and available U.S. workers. This is not a requirement for an H-1B visa and can make the employment-based green card more difficult to obtain. Recruitment Report The U.S. employer must also prepare a recruitment report signed by the employer or the employer’s representative describing the recruitment steps undertaken and the results achieved, the number of hires, and, if applicable, the number of U.S. workers rejected, categorized by the lawful job-related reasons for such rejections. The DOL Certifying Officer, after reviewing the employer’s recruitment report, may request the U.S. workers’ resumes or applications, sorted by the reasons the workers were rejected. The Green Card Applicant Can Be Working For Another Employer In H-1B Status If the employee is already in the U.S. on an H-1B visa, the petitioning employer does not necessarily need to be the same employer as the H-1B employer. It can be another employer who wishes to employ that person after they obtain their green card. After the Labor Certification is approved by the DOL, the same employer files an I-140 immigrant petition. The person applying for the green card will have to wait for visa availability and will need to fill in a form to change their visa status if they are already living in the United States, or go through consular processing in their home country. Green Card Annual Number Restrictions By Country Unfortunately, like H-1B visas, employment-based green cards are subject to quotas. There are annual caps on employment-based visa categories, resulting in significant waiting lists for applicants from certain countries. There is a fixed quota of green cards issued every year which depends partly on the country and partly on the category of employment. Currently, the annual number of green cards issued is 140,000. Countries such as India and China are subject to long backlogs due to the huge number of applicants that belong to these countries. In comparison, applicants from less populated countries have a shorter wait period to obtain a permanent resident visa. Green Card Employment Categories EB1 (28.6% of quota)—Priority Workers. Priority workers are comprised of the following three sub-groups:Foreign nationals with extraordinary ability in sciences, arts, education, business, or athletics Foreign nationals that are outstanding professors or researchers with at least three years of experience in teaching or research and who are recognized internationally. Foreign nationals that are managers and executives are subject to international transfer to the United States. EB2 (28.6% of quota)—Professionals Holding Advanced Degrees or Persons of Exceptional Ability. Qualifying EB2 candidates must possess a Ph.D., master’s degree, or five years of progressive post-baccalaureate experience or exceptional ability in the sciences, arts, or business. EB3 (28.6% of quota)—Skilled Workers, Professionals, and Other Workers not classifiable as EB1 or EB2 workers. EB4 (7.1% of quota) —Special Immigrants. This group includes certain religious workers, employees or previous employees of the U.S. government, and U.S. Armed Forces, translators. EB5 (7.1% of quota)—Employment Creation. The EB5 categorization is for immigrant investors who make a substantial investment in a U.S. commercial enterprise which will create or preserve 10 permanent, full-time jobs for qualified U.S. workers. Conclusion In sum, both the H-1B visa and the employment-based green card application processes are lengthy and involve significant information and documentation to be provided. Confusing the process, or presenting insufficient or incorrect information can derail, prolong, or even lead to rejection of the applications. It can help significantly if you have the assistance of an experienced U.S. immigration attorney to advise and assist you with each step of the visa process.
December 21, 2021
Business
Treasury Department Issues Proposed Regulations on Disclosure of Beneficial Ownership for Most Business Entities
On December 8, 2021, the Department of Treasury issued a release containing a set of proposed regulations that would implement the reporting requirements for disclosure of Beneficial Ownership Information (BOI) of most US and foreign entities doing business in the US under the Corporate Transparency Act (CTA) adopted by Congress in January 2021. The comment period for these regulations extends until February 22, 2021. Commencing with the effective date of the final rule, the reporting regime would commence for all newly formed entities. All existing entities would be subject to the reporting requirements commencing one year after the effective date of the regulations. It is estimated that these reporting requirements would apply to approximately 4 million newly formed entities each year and 25 million existing entities in the first year of its effectiveness. The proposed regulations require all “reporting companies”, as discussed below, to report to the Financial Crimes Enforcement Network (FinCEN) identifying information concerning any individual who either (i) exercises substantial control over the entity or (ii) owns or controls at least 25% of the ownership interests of the entity. The proposed regulations provide a range of activities that would constitute “substantial control” including (x) service as a senior officer of the entity, (y) authority over the appointment or removal of a senior officer or dominant member of a board of directors or similar body, or (z) direction, determination, or decision of, or substantial influence over, important matters for the entity. The proposed regulations also indicate that substantial control can be exercised through a number of ways by title, contract, arrangement, understanding, relationship, or otherwise, whether directly or through intermediate entities. Similarly, “ownership interests” can be evidenced in a variety of ways including equity, capital or profits interest, convertible instruments, options, through trusts, or otherwise, and either directly or indirectly through intermediate entities. Reporting companies are defined to include all domestic corporations, limited liability companies and other entities that are formed by the filing of a document with the secretary or similar agency of a state or Indian Tribe, or foreign entities that qualify to do business by the filing of a document with a state or Indian Tribe. Therefore, the regulation clarifies that limited partnerships, statutory trusts, and most other business entities would be subject to the regime. As listed in the CTA, there are 23 exempted categories of entities that are not subject to the regulations, primarily because most of these are already subject to FinCEN regulations or other governmental requirements regarding disclosure of beneficial ownership. The broadest category of exempt entities is so-called “large operating companies” which are defined as companies operating in the US that have more than 20 full-time equivalent employees and have reported over $5 million in gross operating receipts on a federal tax return. In addition to the BOI disclosure, the proposed regulations would require the disclosure of information concerning the individual or individuals who directed or controlled the formation of a reporting company. The BOI that must be reported for each beneficial owner by a reporting company includes (i) the individual’s full legal name, (ii) date of birth, (iii) current residential or business address, and (4) unique identifying number, which would include a passport number, driver’s license, or similar number issued by a governmental agency, together with a copy of the document that contains such identifying number. Once an individual’s information was included in a report, FinCEN would issue its own identifying number to be used for any subsequent reports filed with respect to such individual. Identifying information concerning the reporting company would also be mandated under the proposed regulations. Under the CTA, as implemented by the proposed regulations, the disclosure of BOI for each beneficial owner must be reported not only within 14 days of the formation of the entity, or for existing entities, within one year of the effective date of the regulations, but also upon any change in the information reported. The proposed regulations state that the updated BOI must be reported within 30 days of the change. The release indicates that FinCEN has to develop a new IT system, to be called the Beneficial Ownership Disclosure System (BOSS) in order to collect and provide access to the BOI, which may ultimately affect the effective date of the final regulations. The intent behind the CTA and the proposed regulations is to promote financial transparency and compliance and to assist the US government and law enforcement agencies in combatting money laundering, terrorist financing, drug and arms trafficking, and other illegal acts conducted through so-called “shell companies”. These proposed regulations are part of a larger effort by the Biden administration to combat business corruption, and two other rule-making initiatives were announced in the issuing release, including a strengthening of FinCEN’s Customer Due Diligence rules adopted in 2016 and the implementation of protocols regarding access to and the disclosure of information collected by FinCEN under the CTA. We will be monitoring further developments in the adoption of regulations regarding the reporting of BOI for business entities. Please feel free to contact me with any questions.
December 20, 2021
The Weekly Scenario
The Weekly Scenario: Roth IRA/401(k) Head to Head
Both Roth IRA and Roth 401(k) contributions are made with after-tax dollars, grow tax-free, and can be withdrawn tax-free as a qualified distribution. If you believe your tax rates are lower now than they will be when distributions are made, a Roth contribution often makes sense. Anyone meeting certain income restrictions can contribute up to $6,000 (or $7,000 if age 50 or older), to a Roth IRA for 2021 or 2022. Employer plans are not required to offer Roth contributions. If a company does offer a Roth 401(k) option, employees can make Roth plan contributions of up to $19,500, or $26,000 if age 50 or older, in 2021. There is no combined limit for Roth IRAs and Roth 401(k)s. This means that you can contribute the maximum amount to both a Roth IRA and Roth 401(k) in the same year. That is a good outlay of cash to maximize both a Roth IRA and 401(k). If you were presented with both options, which is the correct one to choose? Advantages to a Roth IRA No Lifetime Required minimum distributions (or RMDs): One of the most significant advantages of Roth IRAs is that owners are not subject to required minimum distributions (RMDs) during their lifetime. In contrast to Roth IRAs, Roth 401(k) participants are subject to RMDs. More investment options. Roth IRAs have almost the universe of investment options. Prohibited investments include are collectibles, life insurance and S corporation stock. By contrast, Roth 401(k) investments are restricted to the limited options offered by the plan. Easier accessibility. Roth IRA distributions can be taken at any time (note that earnings may be taxable and subject to the 10% early distribution penalty). With Roth 401(k)s, not so much. An employee still working cannot access his Roth 401(k) assets before age 59½ (except in cases of financial hardship). Easier-to-satisfy “qualified distribution” rules. Earnings on both Roth IRA and Roth 401(k) contributions can be withdrawn tax-free as long as the distribution is considered “qualified.” A qualified distribution requires that the distribution be taken after a so-called ‘triggering event’ and satisfaction of a five-year holding period. Triggering events for both Roth IRA and Roth 401(k) distributions are attainment of age 59½, death, or disability (and also – for Roth IRA distributions, a first-time home purchase also qualifies). In general, the Roth IRA five-year holding period rules are easier to satisfy (I can’t go into all the details here so …trust me?). Advantages of Roth 401(k) Higher annual limit and no income restrictions. The annual Roth 401(k) contribution limits are significantly higher than the Roth IRA limits and do not have income restrictions. As noted, Roth 401(k) contributions have no income restrictions. By contrast, Roth IRA contributions cannot be made directly if MAGI exceeds a certain dollar limit (for 2021, the phase-outs are $198,000- $208,000 for married couples filing jointly and $125,000-$140,000 for single filers). Matching contributions. Many 401(k) plans match Roth 401(k) contributions, but there is no comparable bonus for making Roth IRA contributions. Loans and life insurance available. 401(k) plans often allow loans. Roth IRAs (like traditional IRAs) cannot offer loans and cannot be invested in life insurance. Age-55 10% early distribution penalty relief. Roth 401(k) distributions made after separation from service are exempt from the 10% early distribution penalty if separation occurs in the year the employee turns age 55 or older. This age-55 exception does not apply to Roth IRAs. So, the answer? It depends. Of course! As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
December 17, 2021
Labor and Employment
Why Your Company Should Adopt a Vaccination or Test and Mask Policy Regardless of Its Size
The court that stayed the OSHA vaccination ETS rejected the Biden administration's request to set deadlines in the legal challenge that would have had the case ready for oral argument by the end of December. Accordingly, even if the ETS is implemented, it won't be for a while because the court won't even hear an argument until January at the earliest. So many companies thought leaders are asking: what if the OSHA ETS is never effective? What if our company has less than 100 employees? Should our company still adopt a similar vaccine or test and mask policy? My advice is yes. Even if the ETS is ruled illegal by courts, it won't be illegal for a company to adopt the same policy. If the ETS is ruled invalid, it will be rejected on arguments that the government can't force this on private employers. For instance, the argument's being made that there shouldn't be an OSHA emergency rule unless something poses a "grave danger" to the workplace. At this point, lawyers are arguing that it's not "grave" anymore because of the vaccines. This has no impact on private employers' ability to promulgate a policy like this. OSHA is the Department of Labor's workplace safety expert agency. They have studied this situation, have statistics on the number of cases (and clusters) and have investigated how these cases spread at workplaces. In other words, OSHA has a lot of data on this subject. They have good safety reasons for the recommendations. The approach is not as intrusive as dictating vaccines but could make employees feel safer (because even vaccinated people can get COVID, and they don't know who around them is vaccinated.). Protecting employees portrays the company as a caring employer. At the same time, this type of policy reduces the likelihood that employees or customers may successfully sue the company for negligence if they contract COVID. Key to lawyers! Finally, preventing illness minimizes loss of productivity. Mandating vaccinations, with the required exemptions, would be the best way to prevent illness. But if employees who oppose vaccination aren't forced to vaccinate, they are more likely not to resign. This is a concern in the current labor market. For all of those reasons, I recommend a policy very similar to the ETS policy be implemented. But I welcome your input and discussion.
December 10, 2021
Labor and Employment
Rules Regarding Vaccinations Applicable to Certain Health Providers
Personally, I’m getting “breaking COVID news” fatigue. I’m willing to guess that you are too, but I have to constantly re-write these blogs. Yesterday, a federal court in Missouri blocked the Biden administration from enforcing a vaccine mandate for healthcare workers in 10 states. The U.S. District Court for the Eastern District of Missouri entered a preliminary injunction and the decision marks the first victory for opponents of the mandate, which requires workers at certain facilities that participate in the Medicare and Medicaid programs to be vaccinated by Jan. 4, 2022, and take other action by December 5. This is no longer the case at this time in the states of Missouri, Nebraska, Arkansas, Kansas, Iowa, Wyoming, Alaska, South Dakota, North Dakota and New Hampshire. They aren’t subject to the rule while the injunction stands. More than half of states are now involved in challenges in different federal courts, which claim that the mandate will exacerbate staffing shortages along with other complaints. However, a federal judge in Florida already declined to block the rule in a separate suit. Some with knowledge believe that the mandate is likely to be upheld ultimately because the Centers for Medicare & Medicaid Services have the right to govern the rules for facilities if they want funding. But, the Eastern District federal judge Schlep ruled that the vaccine exceeds the agency’s authority because Congress did not authorize it. The conservative advice is for the qualifying health care businesses to proceed with the requirements for the planning as the December 5 deadline looms. It’s not safe to assume that any other court will enter an injunction. Again, this is still required in all states except the ones highlighted above. The facilities are required to: Develop a process/plan for vaccinating all eligible staff (who must be vaccinated by January 4, so two-shot vaccination series must begin by December 5); develop a process/ plan for providing exemptions and accommodations for those who are exempt; and develop a process/plan for tracking and documenting staff vaccinations. If your business needs more details on the mandates, please reach out.
December 8, 2021
Business
Trends in the M&A Market Heading into 2022
M&A in 2021 is roaring to a close. Most will agree that the 2021 M&A market was exceptional, regardless of geography, industry, sector, etc. Many deals were successfully closed, and a number of transactions are still pushing towards the finish line. What has driven this robust market? I think 3 factors have played a large role. First, the continuing Covid cloud has pushed many sellers into the marketplace that considered sale transactions sooner than they may have otherwise. Covid impacted everyone and for many business owners, the uncertainty around Covid made some owners conclude they want out – or at least to take some risk off the table. Second, though rates, etc., are slowly creeping up, access to money and significant funds on balance sheets have translated to many buyers in the market. The match of multiple buyers with many sellers has driven values up. Deals are bigger than they might have been. Third, tax considerations and the potential for taxes to increase has caused significant pressure to get the deal concluded in 2021. So what does 2022 look like? In my opinion, 2022 will continue where 2021 left off. Covid issues are still with us and the uncertainties of Covid shutdowns and restrictions matched with vaccine mandates are proving too much for some business owners. This will continue to cause many sellers to look for a deal. Further, there are still funds to be had and money to be invested. The M&A boom in this regard has not flattened and I do not believe it will go into 2022. And taxes? Who knows. Earlier in 2021, it appeared certain there would be tax changes that would make business taxes higher. But now there is much speculation, given recent political events, that any tax law changes may not be as significant or perhaps there will not be any tax changes next year given it is an election year with much at stake. So, in conclusion, if you are considering a business sale but did not get moving in 2021, I think 2022 will continue to be a receptive marketplace for buyers and sellers to make good deals!
December 8, 2021
The Weekly Scenario
The Weekly Scenario: 529-ABLE Programs
The 529-ABLE programs have been available nationwide for about 5 years now. With Maryland ABLE, you can contribute up to $15,000 per year (or more if the beneficiary is working) for a wide range of qualified disability expenses. The ABLE to Work Act allows beneficiaries who are employed to contribute an amount equal to their current year’s gross income --up to a maximum of $12,760 in 2021 each year to their ABLE accounts in addition to the annual standard contribution limit of $15,000. The account’s growth is tax-free, and contributions could qualify for an income deduction (for Maryland state income taxes). Contributions can be made up to a maximum account value of $500,000 over the life of the account. Other federal means-tested benefits such as Medicaid, housing and food assistance are not impacted by the balance of the ABLE account. Similarly, ABLE account balances are disregarded for the purpose of determining eligibility to receive, or the amount of, any assistance or benefits from Maryland means-tested programs. Before ABLE accounts, the only way families could save for the future of a disabled child without losing access to SSI and Medicaid benefits was with a special needs trust. That generally involves lawyer’s fees and other costs. While the ABLE isn’t a substitute for a special needs trust, it is a good solution to improve the life of someone with a disability and save some on income taxes. The account works like a 529 college savings account—earnings and withdrawals for qualified expenses are federal and state tax free. 529-ABLEs can be used to save for medical and educational needs, job training, and housing. What’s tricky is the basic rules for the accounts--set by Congress--are the same, but important details vary among plans. All ABLEs are for individuals who were disabled before age 26; An individual can open only one account; The maximum annual contribution is tied to the federal gift tax exclusion amount which is currently $15,000. What’s different? Things like investment choices, fees, and benefits for in-state residents. You must do a little digging on each state plan’s web site and the plan disclosure statements to compare ABLEs. Before you open an account in a state that’s not your home state, check to see if your state will be offering tax incentives for contributions. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
November 19, 2021
Family Law
How to Manage the Expense of a Family Law Case
It is a concern that every client has, but few are willing to discuss with their counsel. So, what are some tips to keeping your fees as low as possible? You can control some of the expenses, but not all of them. What you cannot control is the reasonableness of your spouse or the other attorney. But what you can control may make a significant difference in the expenses associated with your case. Be aware of the fact that divorce cases require disclosure regarding income, expenses, assets and liabilities. The more documents you can locate and provide to your attorney in an organized manner, the better. Generally, we are seeking three years’ worth of records, including tax returns, credit card statements, etc. But it’s also helpful to provide information regarding how and when the assets were acquired. We normally recommend that our clients prepare a chronology of important events, so that we can refer to that document in the future if needed, and we will then be able to fill in some of the blanks that may arise in the future. Because tracing of non-marital funds may be a significant part of a case, documents that trace funds that are premarital, inherited, or gifts from a third party will make a huge difference in educating your attorney in a coherent and organized way. You may not know the value of all of your assets, but you can do some research that will help get the value in the ballpark. Be responsive to requests from your lawyer for documents and information. If your lawyer is looking for the information, it’s because there is a need for it. The sooner you can provide the information, the better. Be aware of the fact that most attorneys rely upon a team, that often includes a paralegal, an administrative assistant and associates. That is often to your benefit, as their hourly rates are generally lower than that of the lead attorney. Show them respect and respond to them just as you would your lead attorney. Listen to your attorney’s recommendations. It’s your case, but there may be opportunities for compromise and settlement that occur early on or later in the case. If you delay considering a resolution until the day before trial, you have incurred substantial fees and costs associated with litigation. Rely upon your lawyer’s advice. That’s why we are often called “counselors.”
November 18, 2021
Family Law
How Long Will I Have to Pay Alimony?
When a couple gets divorced, one party may need to financially support the other party in some shape or form; this divorce-specific monetary support is referred to as alimony. When a client learns that they may be required to pay alimony, they understandably want to know how long they’ll have to make those payments. In order to answer this question, it’s important to first understand that there are three types of alimony in Maryland: pendente lite, indefinite and rehabilitative. The type of alimony a party will be required to pay is discretionary to the judge. Pendente lite alimony is fairly straightforward. Pendente Lite is Latin for pending litigation, and these are payments that a higher-earning party pays to the lower-earning party during the divorce proceedings only. The payments are meant to maintain the family finances at, or as close to, status quo as possible during the legal process of divorce. The definition of indefinite alimony is exactly as it sounds: alimony that has no specific end date. Indefinite alimony is ordered when a dependent party is unlikely to ever become self-supporting. This type of alimony is typically established in cases of long marriages where one spouse did not work outside the home for many years, or when one party is unlikely to acquire a self-supporting income due to age, illness or disability. Indefinite alimony ends if one of the parties dies, or the dependent party remarries. Indefinite alimony may end upon modification of the court or a written agreement between the parties. Rehabilitative alimony is meant to provide support to the lower-earning party for a period of time long enough for him or her to become self-supporting. This is the most common type of alimony awarded, and it usually has an end date. In most cases, this means that the higher-earning party will support the lower-earning party while that person takes the time to acquire the necessary job training or education needed for employment. In some cases, the higher-earning party may need to pay for the lower-earning party’s education to help them become self-supporting. As mentioned, the type of alimony one pays is solely up to the judge; however, if the parties prefer to negotiate alimony amongst themselves, they may come to an agreement as to the terms, but the judge will still have to approve it to ensure that the agreement is fair to both parties. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
November 17, 2021
The Weekly Scenario
The Weekly Scenario: Newest Tax Law Updates
My recollection is that Ben Franklin can be credited as saying, “nothing in this world is certain except death and taxes.” Perhaps more apt right now with all the pending tax legislation and the potential changes to the estate tax system is that nothing is certain aboutdeath and taxes! As tax advisors, we have been waiting on pins and needles to see whether a new tax bill will be passed and, if it is passed, what language the final bill would contain. While the proposed legislation failed to include any changes regarding estate taxes, including a reduction in the estate/gift tax exemption amount to approximately $5,000,000 like many thought, that is not to say it may not be added later. Anything can still happen, and we could find ourselves in a situation like 2012, where a significant change was made at the 11th hour. At this time, the main focus is a new 5% tax to be applied to individual taxpayers’ whose Modified Adjusted Gross Income (MAGI) is in excess of $10,000,000 ($5,000,000 if married but filing separately) and high income (really about $200,000) earning trusts and estates. There is also an expansion of the Net Investment Income Tax for individual taxpayers with a MAGI in excess of $400,000 ($500,000 for joint filers) and trusts and estate undistributed income with no income threshold. Should the new proposed tax legislation go into effect on January 1, 2022, high earners will also feel a significant impact on their Net Investment Income Tax, specifically those who use S-corporations and partnerships to shield themselves from higher taxes. Other proposed changes to note include a 100% gain exclusion on the sale of Section 1202 Qualified Small Business Stock would be limited to 50% of the gain for those with an AGI exceeding $400,000 (unless otherwise contracted for prior to September 13, 2021), a requirement that cryptocurrencies be subject to the constructive and wash sale rules, and 15% minimum tax for large corporations on reported income to be calculated based on complex formulas. The proposed legislation did not include (as was originally expected) a removal of the limitation on deductions for State and Local Income taxes paid (SALT Cap). There was no proposal for an increase in personal income tax or capital gains tax rates, no proposal to compress the current rate brackets, and no proposal to deny fair market value income tax basis for estates of individuals who die owning appreciated assets. To recap, some of the best news from the proposal came from what was omitted: There was no increase in personal income tax rates; No increase in capital gains tax rates; No reduction of the estate tax exemption; No elimination of the step-up in basis on death; and No proposals to eliminate the ability to utilize grantor trusts or valuation discounts for non-active trades or businesses. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
November 12, 2021
Labor and Employment
ETS Legal Challenges, Requirements and Omissions
Ok, so now everyone’s heard that – as promised - OSHA’s new Emergency Temporary Standard has been issued and that, in general, employers with 100+ employees must require workers to vaccinate for COVID or be tested weekly starting January 4. (Incidentally, the guidance for contractors is now requiring vaccination by that date, as well.) Important note – don’t pull the trigger yet, if you haven’t already – although the standard took effect on Nov. 5, the U.S. Court of Appeals for the Fifth Circuit stayed the rule the very next day, pending further litigation (which will be expedited, so the question of whether it was validly issued is decided). To be honest, I would not be surprised if this went to the Supreme Court. We’ll see. The biggest question that my clients have asked so far is who pays for testing, given the ETS doesn’t require employers to pay testing fees or compensate workers for the time spent being tested? Employers are not off the hook because other laws may require it. Importantly, the Fair Labor Standards Act guidance reads: “[the] employer is required to pay you [worker] for time spent waiting for and receiving medical attention at their direction or on their premises during normal working hours. … For many employees, undergoing COVID-19 testing may be compensable because the testing is necessary for them to perform their jobs safely and effectively during the pandemic.” Safe advice: pay non-exempt workers if you’re requiring COVID testing. You don’t want the DOL to come calling and assess double damages and a fine for your company’s failure to pay. Stay tuned, I’ll update you further. In the meantime, contact me if you have any questions and as always, I’d love your feedback. What is your company planning to do?
November 11, 2021
The Weekly Scenario
The Weekly Scenario: Portability
As I (and many others) have reported, the estate tax exemption amounts may change this year. Right now, the latest is that it does not look like the House proposal will include a lowering of the federal estate tax exemption this year, but regardless of what happens this year, the rules covering the estate tax exemption are scheduled to sunset after 2025. Estate Tax Portability Depending on inflation, the exemption could drop to between $5- $6 million after 2025. With this prospect in mind, it has become vital for married couples to make the most of estate tax portability. Mistakes can lead to a reduced exemption and a substantial amount of unnecessary tax. Married Couples and Estate Tax Portability With estate tax “portability” in place, a married couple can effectively use both spouses’ estate tax exemptions, passing as much as $23.4 million to other heirs with no federal estate tax liability. Example 1: Mike has $8 million in assets, including a $5 million IRA, and Mike’s wife, Megan, has $6 million in assets (including joint property). Mike dies in November 2021, leaving everything to Megan. Marital bequests don’t generate estate tax, so Megan gets to keep all $8 million from Mike, estate tax-free. Going forward, Megan might die with a $15 million estate, including the assets inherited from Mike. If her estate tax exemption then is $6 million, Megan’s estate would be $8 million over the limit and her heirs could owe $3 million in tax, at today’s 40% estate tax rate. The tax bill could be even higher because of an increased rate or state tax obligations or both. Deceased Spouse’s Unused Exemption (DSUE) Something called “Portability” can prevent this type of scenario because the surviving spouse can use the Deceased Spouse’s Unused Exemption (DSUE) as well as her own. Mike did not use any estate tax exemption at his death, because he left all his assets to his spouse. If Mike dies in 2021, his unused exemption amount — the DSUE — would be $11.7 million, which Megan can claim as part of her own. Thus, if Megan dies with a $6 million exemption, under the law effective at her death, using the $11.7 million DSUE from Mike would raise her exemption to almost 18 million. Megan’s hypothetical $15 million estate, mentioned previously, would generate no estate tax with an $18 million estate tax exemption. Note that the IRS has announced that a deceased spouse’s unused exemption is locked in, even if the estate tax exemption is reduced, the unused exemption amount claimed at the death of the first spouse will remain in effect, assuming all the proper elections are made. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
November 5, 2021
Real Estate
This Week in Real Estate: Title Insurance
This Week in Real Estate (TWIRE) has explored different series in previous editions. TWIRE will now focus on a new series of discussions on a topic that is very important in the world of real estate: title insurance. Over the next several week's TWIRE will discuss what it is, the different types and provisions included in title insurance policies. What is Title Insurance? Title insurance is a form of indemnity insurance that protects lenders and real estate owners from financial loss sustained from defects in the title to a property. When a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Similarly, records of other events that may affect the ownership of a property, like liens or levies, are also archived. When you buy title insurance for your property, a title company searches these records to find and remedy, if possible, several types of ownership issues. First, the title company searches public records to determine the property's ownership status. After this search, the underwriter will determine the insurability of the title. Even the most skilled title professionals may not find all problems associated with a property. Some risks, such as title issues due to filing errors, forgeries or undisclosed heirs are difficult to identify. After the title company finishes its search, it provides a title insurance policy that will help protect the purchaser, borrower and/or lender from a variety of issues that might be uncovered later. Types of Title Insurance Policies There are two types of title insurance policies: a lender’s policy and an owner’s policy. Both types of policies are typically offered as a bundle together. Lender's Policy A lender’s policy is required in just about every purchase and refinance transaction, and the borrower typically pays for it. This insurance typically insures that the lender is in the lien position it has contracted to be. Should there be a potential title issue, this policy protects only the mortgage lender in the amount of the loan. Owner's Policy On the other hand, an owner’s policy protects the buyer. Although it’s not required by law for borrowers to purchase an owner’s policy, it is highly recommended to make sure that you, as the title holder, are protected from any potential legal issues that may come up. Next week, we will begin to discuss the different parts of each insurance policy.
November 4, 2021
Labor and Employment
Unexpected Long-Lasting Impacts of the COVID-19 Pandemic on Employers
The COVID-19 pandemic has undoubtedly had long-lasting impacts on the workplace as we now enter the twentieth month of the pandemic. Some effects were expected, such as increased safety precautions, layoffs, rehiring, closed offices, and remote work. However, some of the challenges facing employers have been a bit more unexpected and longer-lasting than initially anticipated. In the later months of the pandemic, companies have been navigating vaccine mandates and increases in Americans with Disabilities Act (ADA) requests against a backdrop of worker shortages and continued safety concerns, which weigh heavily on the decisions they are making as it relates to workplace policies. Vaccine Mandates Since vaccines became available earlier this year, employers have been grappling with whether to mandate or encourage vaccination or stay silent. Initially, the lion’s share of employers were opting to remain silent on vaccination or encourage vaccination through incentives or gentle nudging to avoid the hassle of mandating vaccination and providing religious and medical exemptions. Though, as it became clear over the summer that the COVID-19 pandemic was far from over, many employers began to consider mandating vaccination. This change was largely driven by a shift in public opinion, bold moves at the federal level, and the practical need for many employers with in-person operations to keep their workforce healthy and working. However, with many companies struggling to hire and retain enough employees to staff their operations fully, the analysis for many employers has gone well beyond the health and safety of their employees. Ahead of the implementation of the federal mandate through the Occupational Safety and Health Administration (OSHA) issuing an Emergency Temporary Standard, due to industry-agnostic worker shortages, many employers have opted to encourage vaccination over requiring it since they cannot afford to terminate employees for failing to comply with a vaccine mandate. For those who have decided to mandate vaccination, many have faced walkouts and terminations, sometimes resulting in a mass exodus of their workforce. ADA Requests The COVID-19 pandemic has resulted in many business owners and Human Resource (HR) professionals taking a crash course in ADA compliance. While many employers may typically receive a couple of requests per year, the pandemic has led to an increase in these requests, with some being COVID-19 related and many being COVID-19 adjacent. As it relates to COVID-19 specifically, while temporary COVID-19 illness is not a disability, many employers have received leave and accommodation requests related to managing risk around contracting COVID-19 with a pre-existing condition or COVID-19 long-hauler illness. Additionally, companies have seen an increase in employees needing to take time away from work or needing accommodations for mental health conditions. In many instances, these requests have led employers to dig deep into the EEOC’s guidance on these issues and examine the interaction between the ADA and FMLA and determine how accommodating employee needs impact the business's operations. Overarching in both of these issues are the operational burdens of administering these policies and the impact on the company’s workforce based on employees being unavailable to work or terminated or restricted from returning to the office. As employers continue to navigate employment matters related to the COVID-19 pandemic, they will continue to face increased administrative burdens related to keeping their workforce safe and accommodating and retaining employees. There is no shortage of complex issues and legal landmines involved, and employers must stay vigilant regarding legal compliance and consider the practical and legal consequences of their actions.
October 28, 2021
The Weekly Scenario
The Weekly Scenario: Tax Update
As you have likely heard, there are a number of proposed tax rules under Federal law that are working their way through Congress. One potential change could have a dramatic impact on people who own life insurance policies inside of irrevocable life insurance trusts. The House Ways and Means Committee recently released an outline detailing possible tax increases designed to pay for the administration’s infrastructure plan. Of the proposed modifications, one change would cause so-called "grantor" trusts to be included in the taxable estate of the person who made the gifts into the trust. Many life insurance trusts are considered "grantor" trusts and could fall within the scope of this proposed rule. While the details have not yet been released, it appears that the new rule would cause these trusts to be included in a person's taxable estate only if the person made gifts into the trust after the date the law is passed. This could cause problems for those who make cash gifts to their insurance trusts in order to fund insurance premiums. One potential solution may be to make a large gift to an insurance trust now before the law becomes effective. The gift may be retained inside the trust and used to pay premiums in later years -- thereby avoiding future gifts to the trust that would violate the new rule. Right now, this is only a proposal that is part of a larger outline released by the Ways and Means committee. To become law, the outline must first clear the House Ways and Means Committee, be voted on by the full House, have the same rule be proposed in, and voted on, in the Senate, and then have the final bill be signed by the President. If the proposal does become law, then there may be little time for people to preserve the tax-free treatment that life insurance trusts are intended to provide. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
October 22, 2021
The Weekly Scenario
The Weekly Scenario: Executor of an Estate
An executor of an estate has several duties. Of the many duties, one that is often missed is to ensure that all income tax returns have been filed for the decedent, including filing the final personal income tax return. After a person dies, any income earned prior to their death must be reported to the IRS (and state taxing authorities) on the final income tax return. The deadline is April 15th of the year following death. If a person passed away in 2021 and had income before he died, then by April 15, 2022, the final income tax return needs to be filed or an extension needs to be filed. The filing of the income tax return can sometimes hold up the closing of the estate. An executor would be prudent to wait until the final income tax return is filed to close out the estate. If a decedent was married, keep in mind that the surviving widow or widower may file a joint return. If there is money owed for income taxes, then the executor must make the payment from the estate. If there is a refund, then the executor must claim the refund. In order to claim the refund, an IRS form 1310 must be filed with the final return. Note that there is no requirement they a probate administration be opened to request the tax refund. The form 1310 allows the IRS to pay the refund directly to the executor, therefore, avoiding the need for an estate administration (probate). As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
October 15, 2021
Intellectual Property
Trademark Trial and Appeal Board Finds Reckless Disregard for the Truth Equals Fraud, Cancels Trademark Registration
The U.S. trademark law provides that a trademark registration may be canceled if it was obtained fraudulently. A registration may also be canceled if the registrant commits fraud in post-registration filings, including a Section 15 Declaration of Incontestability. Often filed in combination with the Section 8 Declaration of Use due in the 6th year of a registration, the Section 15 Declaration of Incontestability may be filed if the registrant has been using a registered mark continuously for the previous five years. However, certain other conditions are met, including that there are no pending proceedings, such as a lawsuit in federal court or a cancellation action before the US Patent and Trademark Office (USPTO) or Trademark Trial and Appeal Board (TTAB). This was the issue in Chutter, Inc. v. Great Management Group, LLC and Chutter, Inc. v. Great Concepts, LLC, 2021 USPQ2d 1001 (TTAB 2021). In 2010, when Great Concepts was submitting a combined Section 8 and 15 Declaration of Use and Incontestability for its trademark DANTANNA’S, the attorney for Great Concepts signed the declaration. He was aware that there were pending proceedings involving the trademark registration but, he later admitted, he did not read the declaration before signing it, and he was not familiar with the requirements of the Section 15 declaration. Years later, Chutter, Inc. filed a cancellation action against the registration, claiming that the Section 15 Declaration was fraudulently filed. In its decision, the TTAB noted that fraud requires an intent to deceive; false statements made with a reasonable and honest belief that they are true do not result in a finding of fraud. The TTAB went on to find that the attorney who signed the declaration acted with reckless disregard and held that this reckless disregard rises to the level of intent to deceive needed to find fraud. Moreover, although the trademark law allows for the opportunity in certain circumstances to correct misstatements once they are discovered, the attorney who signed the declaration did not take any corrective steps once he discovered that he had made false statements in the declaration. “By failing to ascertain and understand the import of the document he was signing, far from conscientiously fulfilling his duties as counsel, [the attorney] acted in reckless disregard for the truth; nor did he take any action to remedy the error once it was brought to his attention.” Stating that the attorney’s reckless disregard was “the legal equivalent of finding that Defendant Great Concepts had specific intent to deceive the USPTO”, the TTAB granted the petition to cancel the DANTANNA’S registration. Why does this decision matter to trademark owners? It’s a reminder to review carefully the statements in the documents you are signing and to ask questions if you do not understand something and speak up if something does not sound right. Although there is generally a high bar to a finding of fraud leading to the cancellation of a trademark registration, this case shows that a lack of attention to reviewing and understanding the statements being made in trademark declarations can constitute “willful blindness” that rises to the level of reckless disregard and cancellation of one’s trademark registration could be the result.
October 14, 2021
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