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
Business
Skeletons in the Closet: The 5 Biggest Undiscovered Issues that Can Halt the Sale of a Business
You have an interested buyer and they have submitted an exciting letter of intent for the purchase of your business. What could possibly derail the sale? Well . . . the golden rule for a seller is that the business is not “sold” until the closing and the monies hit the account. Before receiving your monies and having the business sold, be aware of a number of issues that could cause problems. By the way, with proper advanced planning these issues can be alleviated/mitigated prior to going to the market. Proper documentation of owner relations. Nothing ices a sale transaction like equity owners not on the same page. Ownership disagreements on the terms of a sale will quickly sour any potential buyer. However, with a proper stockholders’ agreement or operating agreement, the sale of equity can be controlled and “dragged” along into a transaction. Locking up key employees. Too often key employees are not properly locked up. All buyers will compel sellers to lock up their key persons, making such requirement a condition to closing. Going to a key employee on the eve of a sale is a very bad place to be if you are the seller. Poor financials. One of the first intersections a buyer will have with your business is the review of your financial data. Too many sellers have a mess for their financials. A buyer cannot evaluate the value of your business if it cannot review financial statements that are prepared to standard. Wrong corporate form. Many buyers have corporate structures that are not friendly to investors to maximize gains. The form a seller operates their business during normal times (an S corporation for example) may not be the corporate form desired by an acquirer. Uncertain ownership of key assets. Too many sellers rely upon the assumption that they own the assets of their business. This rings especially true with technology and intellectual property. The time to learn that you do not own the source code to your software is not in the middle of your sale transaction. These are a few of the most common pitfalls that many sellers experience during the sales process. Many times a seller is not aware of these items until a buyer brings it up in diligence as part of a larger conversation regarding the path to closing. All M&A transactions spin on leverage. Sellers should be careful to give over leverage to a buyer by falling into one of the traps.
October 13, 2021
The Weekly Scenario
The Weekly Scenario: Naming a Trust as Beneficiary of an IRA
There are certainly valid reasons for naming a trust as beneficiary of an IRA. But if an adult beneficiary is otherwise healthy and responsible, and if there is no desire to control assets after death, then naming a person directly as an IRA beneficiary may be a better option. In cases when a trust is necessary, be sure the trustee – the person responsible for following the provisions of the trust and dispersing its assets — understands the trust and IRA rules. Putting an inexperienced trustee (often an unwary family member or friend of the family) on such a task can lead to a number of egregious mistakes. I’ve reported on botched IRA trust beneficiary articles in the past. In a recent Private Letter Ruling (202125007) relayed a few months ago by the IRS, an IRA owner named a trust as an IRA beneficiary. After her death, the IRA assets were properly moved into a trust-owned inherited IRA. In this case: The adult children of the original IRA owner, as trustees and trust beneficiaries, had total control of the assets. The children wanted to do their own investing in the IRA. They were informed by the custodian that the existing account could not accommodate their request. So, the trustee children decided to transfer the stocks held in the inherited IRA assets to a non-qualified (non-IRA) brokerage account, owned by the trust. This action resulted in a taxable distribution — at trust tax rates of most of the IRA assets. When inherited IRA dollars are withdrawn by a non-spouse beneficiary, there is no putting the genie back in the bottle. Even if the error is discovered within 60 days of the original transaction, a rollover is not allowed, and the distribution is likely going to result in the entire account being subject to tax. Even though the trustees identified their error several months later and requested that the former IRA dollars be returned, there was no remedy that could be done here. The IRS concluded that: “…once the assets have been distributed from an inherited IRA, there is no permitted method of transferring them back into an IRA.” The moral of the story is to be sure that there is a good and legitimate purpose of having a trust that will inherit the IRA account, and if there is a good reason, be sure there are safeguards put in place so mistakes are not made by the Trustee along the way. 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 8, 2021
The Weekly Scenario
The Weekly Scenario: Legislative Tax Update
About two weeks ago, the House of Representatives Ways and Means Committee released an agenda as part of a $3.5 trillion spending and tax bill that Democrats hope to pass. Many of the details will likely change as the bill makes its way through a series of deliberations and votes. But the initial draft provides a good deal of insight about what we can expect. Below is a summary of the proposed changes in the estate tax and some key takeaways: Lowers lifetime gift/estate tax exemptionto $5.85 from $11.7 million, effective January 1, 2022. Clients looking to maximize exemptions should make their gifts as soon as possible, especially gifts to grantor trusts, in case the date of enactment is moved up. Irrevocable grantor trusts in estates, effective upon enactment. A grantor trust is a common estate planning tool which allows an individual (or ‘grantor’) to establish a trust for another (typically a family member). The new provision pulls the assets held in a grantor trust into a decedent’s taxable estate when the decedent is the deemed owner of the trusts. Prior to this provision, taxpayers were able to use grantor trusts to keep assets out of their estate while controlling the trust closely. Establishes an income tax on sales to grantor trustby grantor, effective upon enactment. Currently, a sale to a grantor trust would not trigger an income tax. Clients looking to sell assets to a grantor trust may wish to consider doing so now. However, the proposal maintains stepped-up basis at death. In conjunction with reducing their taxable estates, clients should continue to keep highly appreciated assets in their taxable estates to the extent possible. 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 1, 2021
Immigration Law
COMING TO AMERICA How The United States is Changing Travel Restrictions
It’s a slogan that’s been ingrained in us: “fly the friendly skies.” But let’s face it, for the past eighteen months, flying has been anything but friendly, and when it comes to the majority of foreign nationals hoping to enter the United States, well, the sky hasn’t been the limit. In fact, the sky has been nearly non-existent for them. Last spring, as COVID-19 enveloped the globe like an iron fist, the Trump administration clamped down on international travel to the U.S., hoping to slow down the spread of the virus here. On March 13, 2020, President Trump’s proclamation banned travel into the United States from more than 30 countries, and that list of nations quickly expanded. Although there were specific exceptions, such as foreign diplomats or certain family members of U.S. citizens who were allowed to fly into the U.S., most international travel bound for America came to a halt. For instance, flights from the U.K. to the U.S. were down 76% from pre-pandemic times. And while there was a change of administration in early 2021, that didn’t translate to a change in policy. However, as the worldwide vaccination rate has continued to rise, with roughly six billion shots having been administered globally, the Biden administration recently modified the restrictions that have been in place for the past year and a half. The focus is now on individuals rather than the broad restrictions that had been in place for entire countries or regions. So, what does that mean if you are a foreign national hoping to come to the United States for employment, vacation, or to see family? Starting in early November, in nearly all instances, all foreign nationals must show proof of full vaccination as well as proof of a negative COVID-19 test taken within three days of boarding a flight to the United States. Failure to provide proof of both full vaccination and a negative COVID-19 test will preclude a foreign national’s entry to the U.S. Also, all passengers must remain masked for the duration of their flight unless they are eating or drinking. Expect this mask mandate to stay in place at least through early 2022. There are a few exceptions to the new vaccination requirements, including children who are not yet old enough to be vaccinated, COVID-19 vaccine clinical trial participants, and people traveling for an important humanitarian reason who lack access to vaccination in a timely manner. However, if you are exempted from the vaccine requirement, it is important to note that you may be required to be vaccinated upon your arrival in the U.S. Similar to the requirements for foreign nationals, vaccinated U.S. citizens returning to the United States must show proof of vaccination as well as proof of a negative test taken no more than three days before departure. Unvaccinated U.S. citizens are required to provide their airline proof of a negative test result taken within one day of departure. Additionally, unvaccinated U.S. citizens must present proof of having purchased a viral test to be taken after arrival in the U.S. No matter what your vaccination or citizenship status is, the Centers for Disease Control (CDC) is in the process of developing a Contact Tracing Order that will require airlines to collect comprehensive contact information for every passenger coming into the United States and to provide that information promptly to the CDC upon request. This will allow the CDC to follow up with travelers who have been exposed to COVID-19 variants. Airline carriers initially resisted contact tracing measures, but over the last several months, several airlines have taken steps to collect more contact information from customers on a voluntary basis. Expect this to no longer be “voluntary” soon. While airlines have hailed the travel restriction changes, regarding them as “a major milestone that will help spur an economic rebound,” the decision to implement the changes was not fueled by economics for the Biden administration. Instead, the decision was fueled by science, given the rising worldwide vaccination rate and increased availability of testing. These new travel policies will go into effect in early November, and I’m sure there will be more changes coming down the road, or should I say “through the air,” sooner rather than later. We’re dealing with a very fluid situation, both scientifically and politically. But with more than twenty years of experience as an attorney at Offit-Kurman specializing in international law, I’m here to help you with any questions and situations that arise...and to make this a smooth flight...both figuratively and literally.
September 30, 2021
The Weekly Scenario
The Weekly Scenario: Roth Conversion Planning Review
As we all have heard, Congress is targeting apparent tax loopholes used by wealthy people with the goal of raising taxes to help finance proposed spending. Retirement plans happen to be in their scopes too. The way this may have come about is a widely publicized story of a guy who managed to amass $50 million or so in a Roth IRA. Forget that the story was made public due to an illegal release of his confidential tax return information from the IRS! The following proposed changes to personal retirement plan accounts apply, for years after 2021, to a person who: Is a “high income” individual, that is, a married filing jointly taxpayer with taxable income in excess of $450,000 or a single filer with taxable income over $400,000. This appears to line up with President Biden’s campaign promise not to increase taxes on anyone making less than $400,000 a year. The combined balance of a person’s IRAs, Roth IRAs, and other defined contribution plan accounts (e.g., a 401(k) plan) exceeds $10 million in value as of the prior year-end. Here are the tax consequences inflicted on such as person: He/she may not make a regular contribution to an IRA. Since the maximum annual IRA contribution is in the range of $7,000, this is not such a problem for someone who already has over $10 million in plans. The rest are more consequential: He/she must take a “required minimum distribution” equal to half the excess over $10 million. And.... If this person has more than $20 million in combined value in such plans, he/she must take an RMD equal to 100% of the excess over $20 million! And such excess must be taken from Roth accounts first! Note that these new RMD requirements have no age component. There’s one change in the mix that may cause some 2021 action. They propose to outlaw the Roth conversion of after-tax money whether in an IRA or in a qualified plan, and this new prohibition would not be limited to higher-income individuals. The Roth conversion of after-tax money is a true “loophole” and it makes sense for them to close it, but it will also make sense for a lot of individuals to take advantage of the loophole while it still exists and complete conversions of their after-tax money (if possible) this year. 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.
September 24, 2021
Family Law
What’s the Deal with Adultery in Maryland?
Adultery is a misdemeanor in Maryland, punishable by a $10 fine. It’s doubtful that a prosecutor would ever prosecute that crime, but it may have a consequence in a divorce case. So what’s the big deal? There are two areas where an allegation of adultery has a role in the family law arena. First of all, there are the emotional or psychological considerations. The one who has committed adultery may be embarrassed and may not want those allegations to appear in a pleading that is filed in Court. These pleadings are public record, and, even if no one in the press is interested, children, grandchildren, friends and neighbors may, at some time in the future, access those pleadings. The “innocent” spouse may believe that he/she has a “leg up,” and use the possibility of relying upon those formal allegations in negotiations. The allegation of adultery, however, does not have the same stigma that it did when I began practicing law, many years ago. The “legal” consequences of an allegation of adultery is that, should the case be litigated, the Court is to consider fault as one factor of many in determining both an award of alimony and a division of the marital property. Generally adultery that occurs subsequent to a separation, but while the parties are still legally married, is not nearly as concerning as an adulterous relationship that caused or contributed to the separation. Since even if proven to be true, the allegation of fault is only one of many factors to be considered. And, since that Court has great discretion in making those decisions, the impact of the fault grounds can be significant or minimal. There’s a risk, and that’s the concern/consequence that the parties and their counsel must consider.
September 22, 2021
Family Law
I Received an Inheritance – Will I have to Share the Money with My Ex-Spouse?
The answer to this question can go in two different directions, depending on what the recipient did with the money. When evaluating a divorce, most states view inherited funds as separate property, whether those funds were received before or after the marriage. In Maryland (and in the vast majority of states), inherited funds are considered separate, or non-marital property. Here is the catch, though: the designation of “separate” can change based on what the recipient did with the funds. Generally, marital property is subject to division in a divorce, while separate property is not. However, inherited funds that start out as separate property can become marital property if they are “commingled”—i.e., turned into marital property by using the money for things like remodeling the marital house, paying for a vacation, paying off bills, or other similar things that benefit both spouses. Here are some other specific examples of comingling: If one spouse inherits a house and then adds the other spouse’s name to the deed, the inherited house then becomes a comingled asset. If one spouse receives funds and then puts the money into a savings account for a significant period of time under both their name and their spouse’s names, those funds are now comingled and considered marital property. If one spouse uses inherited funds to renovate the marital home, which is titled in both spouse’s names, the inherited funds become commingled. Because comingling can happen so easily and unintentionally, some couples opt for a postnuptial agreement when they inherit funds. This is an agreement that happens after marriage, wherein the parties agree that the inherited funds used for the renovation, vacation, or other mutually beneficial activity shall be and remain the inherited party’s sole and separate non-marital property, free and clear of any interest of the other spouse. It’s wise to consult with an experienced family law or divorce attorney when one receives a large sum of money from an inheritance. Even if the recipient decides not to pursue a postnuptial agreement, being aware of what actions would be classified as comingling can be extremely helpful when deciding how to use the funds. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
September 20, 2021
The Weekly Scenario
The Weekly Scenario: How Can a Trust Protect My Children’s Inheritance?
One of the main reasons for estate planning is to provide loved ones with protection from claims of future creditors and divorcing spouses or lawsuits. If you leave your property to your child as an outright distribution, the property will not necessarily be protected. 'Spendthrift' Protection There is a longstanding concept in trust law known as ‘spendthrift’ protection. These provisions state that the Trustee will have sole control to make distributions from the Trust without interference from others. The spendthrift clause prevents a third party (e.g., creditor) from being able to compel the Trustee into making distributions of trust property for the benefit of the third party. Protection from Creditors Under the spendthrift rules of most states, a person is free to leave assets in the trust for another person, with specific language in the trust specifying who, besides a trust beneficiary, can have access to the trust assets. If the trust includes a ‘spendthrift’ clause that specifically states that trust income and principal is not to be available for payment to a trust beneficiary’s creditors, then as a general rule the trust would be immune from attack by a beneficiary’s creditors. This strong protection would apply regardless of the amount or nature of a beneficiary’s liabilities and would include protection of the trust assets if the child were to go through a divorce. Variation Between States However, the extent of protection offered by a trust with a spendthrift clause will depend upon state law. In some states, certain creditors are still permitted access to the trust. This might include obligations for alimony, child support or payments to creditors who have provided certain ‘essentials of life’ to the beneficiary. 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.
September 17, 2021
Real Estate
This Week in Real Estate: Fifteen Football Historical Fun Facts
This Week in Real Estate paid homage to Major League Baseball’s Opening Day. Therefore, This Week in Real Estate would be remiss to take the opportunity to honor the National Football League’s Opening Weekend of the 2021 football season and must take a time out from its regularly scheduled program to discuss some historical football Fun Facts (courtesy of mentalfloss.com). Football was essentially rugby until 1882, when new rules were established that gave each team three tries to advance the ball five yards. That’s also why the field looks like a gridiron. Lines had to be established so teams knew how far they had to go. Kickers got more respect in those early days. Originally, touchdowns were only worth four points, while field goals were worth five. In football’s early days, the forward pass was illegal, so most plays were variations on a theme of “ball carrier smashes into the line of scrimmage.” Unsurprisingly, this limited playbook led to a lot of injuries. As president, Teddy Roosevelt threatened to ban football unless new rules were established to ensure player safety. The revised rules introduced the forward pass. The new rules also cut the time of the games by ten minutes. Games were originally 70 minutes long. The huddle was first used in the 1890s by quarterback Paul Hubbard, who was deaf. Hubbard was concerned the other team could interpret his hand signals, so he brought his teammates into a round formation to call plays. The first professional football player was William “Pudge” Heffelfinger. He was paid $500 to play in a game in 1892. The first televised professional football game took place in 1939. It wasn’t quite the huge spectacle that pro football has become—that first broadcast only appeared on approximately 500 TV sets. If you’re talking to a mathematician, the shape of a football is best described as a “prolate spheroid.” But everyone will know what you’re talking about if you just say “football-shaped.” Fans who pay attention to the ball itself will notice a subtle difference between the pro and college balls. While both levels use identically sized balls, college games are played with balls that have white stripes painted on either end. These markings supposedly make a passed ball easier to spot while it’s in flight. The longest field goal made in pro football history was 64 yards. The longest attempted field goal in pro football history was 76 yards. It missed. The name “football” was originally fitting since the game was largely played with players’ feet. The first college game took place in 1869, but modern fans likely wouldn’t have recognized the action. Each team had 25 men, and players weren’t allowed to pick the ball up. Instead, they advanced towards the goal by kicking it or swiping at it with their hands. When future president Herbert Hoover attended Stanford in the early 1890s, he was a student manager of the football team. According to team lore, when Stanford and the University of California met on the field for the first time in 1892, there was a delay after Hoover forgot to bring the ball. Modern games don’t have this problem: Pro rules dictate that the home team has to have 36 balls (for outdoor games) or 24 balls (for indoor games) ready for inspection by the referee two hours before a game’s starting time.
September 16, 2021
Intellectual Property
A Checklist for University Policies Addressing Student-Athlete Name, Image and Likeness (NIL) Issues
In the wake of the Supreme Court's decision in Alston v. NCAA, the National Collegiate Athletic Association ("NCAA") issued an interim policy announcing that it will no longer enforce its rules prohibiting compensation for the use of a student-athlete's name, image and likeness ("NIL"). Other athletic associations have like-wise amended their bylaws to allow student-athletes to profit from the use of their NIL. Additionally, new laws recently enacted by many states, such as Pennsylvania, now require institutions of higher education to publish policies on these issues. To comply with NCAA rules and state law, universities face a range of somewhat complex considerations in forming and implementing NIL policies and procedures. Here are some of the key issues in the form of a practical checklist: Know the NCAA policy or the policy of the athletic association that governs your institution's teams. The NCAA has a Division Manual for each of its three divisions. The Manuals are several hundred pages long and include at least several dozen policies that address issues that may be impacted by NIL activity. These manuals and policies have not yet been revised. Instead, the NCAA's interim policy states simply: "Individuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for state law questions. Individuals can use a professional services provider for NIL activities. College athletes who attend a school in a state without a NIL law can engage in NIL activity without violating NCAA rules related to name, image, and likeness. State law and schools/conferences may impose reporting requirements." https://www.ncaa.org/about/taking-action Know what hasn't changed in the NCAA manuals. Subject to state law, the NCAA still prohibits a "NIL agreement without quid pro quo (e.g., compensation for work not performed)." Subject to state law, the NCAA prohibits "NIL compensation contingent upon enrollment at a particular school." Subject to state law, the NCAA still prohibits "compensation for athletic participation or achievement. Athletic performance may enhance a student-athlete's NIL value, but athletic performance may not be the 'consideration' for NIL compensation." Subject to state law, the NCAA still prohibits "institutions providing compensation in exchange for the use of a student-athlete's name, image or likeness." https://ncaaorg.s3.amazonaws.com/ncaa/NIL/NIL_QandA.pdf (See Q. 11) Know your state's NIL law. A majority of states have enacted brand-new NIL laws, and the requirements vary considerably. Some states even require that institutions create funds from ticket sales or other promotional activities to benefit athletes. Pennsylvania's new law contains many provisions similar to those in other states. For example: Pennsylvania's law applies to institutions within Pennsylvania and to students participating in intercollegiate athletics at those institutions. The laws of other states may also apply to their residents regardless of where they attend school. 24 P.S. §20-2001k, et seq. Pennsylvania's law permits college athletes to earn compensation for the use of the athlete's NIL and provides that the compensation must be commensurate with the market value of the athlete's NIL. Pennsylvania's law prohibits college athletes from accepting compensation in exchange for their attendance, participation, or performance at the institution ("pay-for-play"). Pennsylvania's law prohibits college athletes from earning compensation for NIL use "in connection with a person, company or organization related to or associated with the development, production, distribution, wholesaling or retailing" of the following: Adult entertainment products and services. Alcohol products. Casinos and gambling, including sports betting, the lottery, and betting in connection with video games, online games, and mobile devices. Tobacco and electronic smoking products and devices. Prescription pharmaceuticals. A controlled, dangerous substance. Other products or activities prohibited by the institution. Pennsylvania's law also permits institutions to prohibit student NIL use more broadly: (i) in activities that conflict with existing institutional sponsorship arrangements and (ii) based on other considerations that conflict with institutional values, as defined by the institution. The Pennsylvania law requires institutions to have policies that "specify the name, image or like-ness activities [in] which the college student may not engage." Pennsylvania's law requires students to disclose proposed NIL contracts to a designated official of the institution at least seven days before the execution of the contract. Pennsylvania's law prohibits institutions (i) from preventing student-athletes from earning compensation through the use of the student's NIL or (ii) from obtaining professional representation in relation to NIL use. Pennsylvania's law prohibits institutions from arranging third-party compensation for a student-athlete relating to NIL use as an inducement to recruit prospective students. Pennsylvania's law requires any person producing a college team jersey, video game, or trading card for profit to make a royalty payment to each athlete whose NIL or "other individually identifiable feature" is used. Pennsylvania's law does not require institutions to facilitate or enable NIL opportunities for athletes. The law specifically states that it does not require an institution to permit athletes to use the institution's marks, logos, mascots, or other intellectual property. Know your state's student-athlete agency law. Many states, including Pennsylvania, require registration, which may include payment of fees and posting of bonds. See, e.g., 5 Pa.C.S. §3301 et seq. Tell the students where to find a list of "banned products." Pennsylvania's law requires that institutions disclose to students the types of deals that the institution prohibits. Therefore, institutional policies should let students know which products and activities are prohibited by state law and by institutional decree. For example, should student-athletes be permitted to engage in NIL activity for CBD and hemp products? Nutritional supplements? Guns? Professional sports teams? Gambling? Broadcasters? Can they contract with university entities, such as a meal service? Institutional policies should also specify products that conflict with school contracts, such as institutional sponsorship deals that include exclusivity promises. Policies should let students know whether all teams have a conflict or just certain teams. Is certain activity prohibited on social media? Tell students whether and how they can use the school's copyright materials (including game footage, logos, nicknames, mascots, etc.), and if appropriate, how to get permission to do so. Consider requiring all vendors, whether involved through the student NIL process or otherwise, to seek approval in the same way for the use of school marks. Tell students whether they can use the school's facilities and fields for NIL purposes, and if so, how to get permission to do so. Tell students whether NIL activity can interfere with class time or team activities. Warn students of other potential hazards, including: The need to consult with the designated school official for international students (because many students are in the United States on visas that prohibit employment), and The need to consult with the financial aid office (because a successful NIL venture may result in income, which may need to be included in determining income-based financial aid eligibility and awards). Indeed, before rolling out an NIL policy, it might be a good idea to coordinate with the university's financial aid office and international student office. Require disclosure of student-athlete NIL contracts. Pennsylvania law requires disclosure to the institution of all NIL contracts at least seven days prior to the execution of the contract. In other states, some institutions are establishing dollar amount thresholds. Your policy should clarify what happens in the event the institution is unable to respond in a timely manner. Does a failure to respond mean that the student has the institution's approval to proceed? Create a formal process for disclosure of NIL deals by student-athletes and review by the school. Many schools may find it helpful to designate an NIL coordinator. Consider requiring all agents representing student-athletes for NIL activities to register with your school and to provide basic information. Consider advising students of the need to comply with NCAA rules regarding agents, including that students "shall be ineligible… if the individual enters into an oral or written agreement with an agent for representation in future professional sports negotiations that are to take place after the individual has completed eligibility in that sport." NCAA Manual, Div. 1, 2021-22, bylaw 12.3.1.3. Consider providing education to students about (a) the NIL and agent registration laws, (b) protecting intellectual property, (c) financial acumen, and (d) university policies and procedures. Consider an internal appeal process or grievance process for NIL issues. Consider other policies and documents that may require review and revision: School contracts containing licensing provisions. Will the school be responsible for student NIL disputes with a university vendor? Insurance policies. Will the university's insurance respond if there are disputes? Social media policies. Student forms granting the university permission to use the student's NIL in connection with university promotional activity. Student discipline policies which may need to specifically identify the types of discipline that may be assessed on students who violate NIL rules. Student grievance policies. Do existing policies allow students to file complaints if the institution prohibits a proposed NIL contract or fails to respond to a proposed contract? Takeaways. Institutions of higher education must create policies to inform student-athletes of their rights and responsibilities and consider updating related rules across the full range of inter-connected issues within the institution. Institutions must be prepared to make further updates as additional guidance becomes available and as rules change.
September 13, 2021
Intellectual Property
Navigating the New NIL Landscape: A Checklist for Athletes Looking to Profit
On June 30, 2021, the college athletics landscape was significantly altered, as the NCAA announced an “interim policy” concerning the commercialization of college athletes’ names, images and likenesses (“NIL”). NIL includes an athlete’s name, appearance, signature, nicknames and any other signs, slogans, sayings or symbols that can be used to identify that individual. Here is a basic step-by-step guide to help college athletes profit from their own NIL while complying with NCAA, state and school rules: (1) Know the interim NCAA policy. Athletes can now profit from NIL. State law where the school is located will apply. The school’s rules will also apply, even if there is no state NIL law. You can hire professional representation (attorneys, agents) with certain limitations. You must report NIL activities consistent with state law and school rules. Avoid NIL affiliation with NCAA’s banned sub-stances (drugs, performance-enhancing drugs, etc.). (2) Does your state have an NIL law? If so, know it. In order to play the game, you have to know the rules. Therefore, start by learning about your state's NIL law. If you are unsure, contact your athletic department or a local attorney for guidance. What are the “banned categories” in the state (drugs, alcohol, gambling, etc.)? What are the reporting requirements? What makes someone eligible to help you with NIL deals (state agency requirements)? (3) Know your institution’s NIL policy. You must know what your school does and does not allow. Can you use the school’s logo or facilities in your NIL activities with or without pre-approval? Is there a process to request approval to use school logos and facilities? Can you conduct NIL activities during team-sanctioned events? What are your school’s “banned categories”? Are there special NIL social media rules? Does your proposed endorsement conflict with the school’s existing product agreements? What are the school’s NIL reporting requirements? Does your school have a designated NIL administrator to help you? What is the enforcement mechanism and ap-peal procedure if you make an alleged NIL mistake? (You should consider hiring professional representation to help avoid this.) (4) Protect your NIL. If you are in the market for significant NIL deals, you should consider protecting your intellectual property (“IP”). Seek legal counsel with experience in both IP and sports law. The initial consultation will typically be at no cost. Beyond that, a small expense up front can pay off down the road. Register your IP. Register your name, nickname, or slogan as domain names. Protect your right to use your own NIL and prevent unauthorized third-party use by filing for trademark protection. What is a trademark? It is a word (name or nickname), symbol, design or slogan that can specifically identify you in commercial activities. Consider hiring a trademark attorney to assist you. How do I determine if it is cost-effective to take these steps? The NIL market is extremely new and, therefore, tough to judge. However, the more substantial contracts are being executed by players with larger social media followings and on-field presence. Regardless, do NOT sell yourself short. Test the market and see what deals you may attract. (5) Understand the impact of any earned income. Earning income from NIL may affect your personal financial situation, including your tax status and liabilities, your immigration status, and/or your financial aid package. (6) Seriously consider hiring professional representation. In accordance with NCAA, state and school guidelines, consider obtaining professional representation, such as an attorney or agent registered in the state. Also, consider whether obtaining financial, tax, immigration or other professional advice would be helpful. At the end of the day, no NIL deal is worth your NCAA eligibility or institutional good standing. 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.
September 13, 2021
The Weekly Scenario
The Weekly Scenario: Dynasty Trust planning
The reasons for creating a dynasty trust vary depending upon the needs and desires of the trust settlor. Dynasty trusts can be created to provide creditor and so-called ‘predator’ protection for the beneficiaries of the trust generation after generation. Such trusts can shield against divorce proceedings initiated against a beneficiary of the trust or creditors of a beneficiary arising out of a business failure. The dynasty trust can also provide a pool of assets to be managed by a trustee for the benefit of all the beneficiaries, thus preventing individual beneficiaries from squandering their inheritance by misusing the funds or investing poorly. The dynasty trust can also be used to encourage participation in certain worthwhile causes or discourage behavior that is unacceptable. One of the greatest way’s dynasty trusts are used by families who value education is to establish a fund that will pay for the secondary and graduate education of many future generations. When you ask most people to name their great -great grandparents, they are unable to do so. But providing full college tuition and other educational perks for future generations could be helpful to establish a family legacy. The generation skipping transfer tax exemption can be utilized to plan for several generations and build significant wealth. One of the reasons Congress enacted the generation skipping transfer tax is to curb the wealth building effects of dynasty planning. The concept of dynasty planning is to pass the maximum amount of wealth one can to their grandchildren (and subsequent generations) without subjecting the transfer to the tax. In so doing, one can exempt the trust property from future generations skipping the transfer tax. 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.
September 10, 2021
The Weekly Scenario
The Weekly Scenario: Items that an Estate Plan Should Provide for a Spouse
The objectives that we hear most often from clients regarding a spouse include: I want my spouse to be able to maintain the lifestyle that we currently enjoy after I’m gone. I want to protect what I leave my spouse from people who might otherwise take advantage whether family members or strangers. I am in a second marriage and I want my spouse cared for after I am gone. But I also want to ensure that my estate goes to my children after my spouse passes away. I have handled most of our investments throughout our married life and my spouse has not been involved. I would like my spouse to maintain control, but I’d also like to provide investment guidance. I want to be sure my spouse can, while still benefiting my children, make adjustments in my bequests in order to address changes in the circumstances of my children and grandchildren that occur after I am gone. I want to get any tax protections that are available to my spouse. But what if my spouse remarries? One of the ways to protect a spouse’s assets is to have the estate plan require the surviving spouse sign a prenup if they desire to maintain control of the assets if and when they remarry. The plan could even remove the spouse as trustee or as a beneficiary of the trust if specific criteria are not met. 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.
August 27, 2021
Labor and Employment
That’s a violation of HIPAA! But is it…
It has certainly been an eventful summer from the reopening of businesses and office spaces, talk of a fall “comeback” with many employers hoping to return the majority of their workforce to working in person or operating in a hybrid model, and the elimination of mask mandates to the reinstatement of mask mandates, a delta surge, increased vaccine mandates, and approval of the Pfizer vaccine. As we have learned over the last 18 months, there is never a dull moment when it comes to the COVD-19 pandemic. Over the last month, I have seen a sharp increase in companies mandating vaccination in the workplace and organizations requiring proof of immunization or a negative COVID-19 test to attend meetings or events. With these increases in mandatory policies, I have also been fielding many questions regarding HIPAA compliance. Namely, what do we need to do to comply with HIPAA when requesting and obtaining medical information, such as vaccination status? Well, I am here to set the record straight-HIPAA probably doesn’t apply to your business. The Health Insurance Portability and Accountability Act of 1996, better known by its acronym, “HIPAA,” is a federal law that created national standards to protect sensitive patient health information from being disclosed without the patient’s consent or knowledge. Since this law covers patients, it only applies to healthcare providers, health plans, healthcare clearinghouses (“Covered Entities”), and business associates acting on behalf of these Covered Entities. HIPAA does not cover businesses that are not in healthcare or acting on behalf of healthcare entities. While HIPAA does not cover most businesses who call me with questions regarding HIPAA compliance, that does not mean they are not responsible for keeping medical information confidential and keeping it secure and out of the wrong hands. When it comes to protecting confidential medical information, other federal, state, and local laws likely apply. For example, when it comes to employees, under the Americans with Disabilities Act (ADA), employers are required to keep all employee medical information confidential and keep it in a confidential medical file separate from the employee’s personnel file. There are also laws, such as the Family Education Rights and Privacy Act (FERPA), that protect the medical information of elementary, secondary, and post-secondary students. While asking whether HIPAA applies is not technically relevant to most companies or organizations, the question has become a colloquial way of asking what they should do with confidential information to stay out of trouble, which is a thoughtful and necessary question. Ultimately, when obtaining or storing personal medical information of employees, clients, or event attendees, companies and organizations need to check federal, state, and local regulations to ensure compliance.
August 26, 2021
The Weekly Scenario
The Weekly Scenario: Where to Keep Your Trust
What if I can’t find a copy of my Trust and how do I prove it exists? Without a copy of the trust instrument, proving that such a trust is in existence can be a challenge. The attorney who drafted the trust, or the attorney or firm’s successor, should keep a record of the trust on file. But sometimes law firms go under or lawyers retire, and files are lost. One potential solution if no copy of the trust can be located is to file a declaratory action with the court. Such an action will provide clarification of the existence of the trust. The hope is that through the filing of the declaratory action, the court will issue an order of the existence of the trust and what the terms of the trust provide. A trustee will need to be appointed and if none exists, the court could appoint one at that time. While there might not be an actual trust document, there will likely be other evidence of the existence of the trust such as references to the trust on titling documents (Deeds, account statements, etc.). There might be an annual tax return that was filed which an accountant could attest to with the tax records. The court can consider these extraneous documents in a ruling of the existence of a trust. Clearly, having a copy of the trust instrument would be ideal. It would not be a bad idea to keep a copy in a safe deposit box or home safe (just be sure you are not the only person with access) with other important papers. You could also keep a copy in a cloud file, though accessing the cloud is not always 100% reliable. Your lawyer should have a cloud backup for all your executed legal documents. 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.
August 20, 2021
Real Estate
This Week in Real Estate: Commercial Leases — Base Year Lease
This Week in Real Estate continues its discussion on Leases. This week we’ll remain our focus on commercial leasing and discuss the base year commercial lease. In a base year lease, a base year is selected (usually the first year of the lease). The landlord agrees to pay the property’s expenses (Real Estate Taxes, Insurance and CAM) for the base year. The landlord continues to pay the property expenses at the base year level and the tenant agrees to pay its pro rata share of any increases in property expenses in excess of the amount of the base year. For example, if the property expenses for the base year (say 2020) are $100,000 and the expenses increase to $150,000 for the year 2021, a tenant with 20% of the square footage (or its pro rata share is 20%) would pay $10,000 (20% of the $50,000 increase) in 2021 in addition to the tenant’s base rent (with a NNN lease, the tenant would pay its pro rata share of the entire $150,000 in 2021 or $30,000 in addition to the base rent). Each year thereafter, the tenant pays its pro rata share of the property’s expenses but only to the extent that those expenses exceed the $100,000 established in the base year. In most cases, the annual increase in expenses is estimated at the start of each year and tenants pay monthly to spread out the cost over the year. In the above example, if at the beginning of 2021 the landlord over-estimated the increase in property expenses at $60,000, the tenant would pay monthly payments of $1,000 (20% of $60,000 divided by 12 months) totaling $12,000. The tenant thus overpays $2,000. At the end of 2021, the landlord would perform an expense reconciliation resulting in the extra $2,000 being credited back to the tenant. When presented with a base year lease, Tenants should take steps to minimize the uncertainty of their share of future expenses. First, ensure that the base year calculation is accurate. Landlords shouldn’t be reluctant to review their calculations with prospective tenants. Second, ask for historical data and trends to see how expenses have increased over time. This gives tenants a reasonable basis from which to anticipate future expenses. Tenants that move into a commercial space after the first of the year should ask for 12 months of base year protection guaranteeing 12 months of tenancy before expenses become due. Larger landlords are typically more amenable to this request. Tenants should also consider asking for a cap on operating expenses. Most landlords will be reluctant. However, it’s worth asking for as there are certain circumstances that can result in significant unanticipated expenses associated with remodels, improvements and/or tax reassessments after the sale or transfer of ownership of the property. Tenants and landlords should be careful when negotiation gross-up provisions in base year leases. With gross-up provisions, landlords calculate tenants’ pro rata share of variable expenses (expenses that vary with occupancy) based on 95% or 100% occupancy allowing landlords to recoup their actual expenses from existing tenants when occupancy is low. In base year leases, tenants need to ensure that the gross up provisions apply to the base year as well as succeeding years to avoid significant increases in expenses when occupancy levels rise after the base year. Otherwise, if the base year is one with less than full occupancy, tenants will be responsible for the expenses associated with full occupancy later (increases in expenses due to new tenants). As long as the base year is included, tenants with base year leases benefit from gross-up provisions. To avoid future conflict, the lease should specifically identify which expenses will be variable and which will be fixed. Finally, tenants should seek audit rights to ensure that expenses are accurately determined and that landlords are only being reimbursed for actual expenses. So long as landlords accurately account for expenses, base year leases are advantageous to both landlords and tenants. Tenants’ burden for common expenses is limited to increases over the base year level and landlords maintain revenue stability.
August 20, 2021
Family Law
So, What About Your Personal Property - Is It Yours?
Anything that you owned prior to your marriage, that you received through inheritance, or that was a gift to you (not to both of you) during the marriage, is not marital property. It’s yours. You can keep it upon divorce, and you do not need to offset the value of those items with anything that is marital. Usually, the engagement ring, since it’s given prior to the marriage, is not marital property. However, jewelry that was purchased during the marriage, even if it was a “gift” to one party from the other, remains marital, and will be divided, or it’s value will be offset upon divorce. Although that’s the law, to be frank, very few folks fight over marital property. It is expensive to do that, both financially and emotionally. Usually there is some agreement regarding furniture, home furnishings, artwork, etc. When the parties cannot agree, there are some options for resolution. Some of the options that have worked for our clients are: flipping a coin, and the winner gets first choice, then alternating until all of the marital property on the list is divided. Another option is that one party prepares two separate lists that “equitably” divide the property, and the other party gets to choose which of the lists is his/her property. Often, the parties attempt mediation, with the understanding that if they are not able to arrive at an agreement after a certain amount of time, the mediator makes the decision, as an arbitrator, and that decision is binding on the parties. Even when the division of the property that has value has been determined, there usually remains the issue of photographs, videos, movies of the family, etc. Fortunately, almost everything can now be reproduced, so that each of the parties can retain those very important memories. The issue of the cost of reproduction must be addressed. Because it can become very expensive, the parties often agree to share most of the items, rather than reproducing everything. Again, the options, should the parties not be able to agree, may be to resort to the flipping of the coin. Because physical ownership often determines control, one should either consider removing items that have great sentimental value from the marital home that one would be devastated to lose, or take photos or a video of everything in the house, so that a list can later be made that will include all of the marital personal property. In some cases, a personal property appraiser is required to assess the value of the assets. This is especially true in the case of artwork and antiques. Best advice is to keep a record of all significant items, not only in case of separation and divorce, but also in case of loss due to fire or theft.
August 18, 2021
Family Law
The Rundown on Custody Evaluations: A Q&A
When a divorce involves children and a court-issued custody evaluation, the parents can understandably be uneasy about the process, what it will entail and how it will affect the outcome of the custody arrangement. The key to successfully navigating a custody evaluation is understanding how they work and having a strategy in place with your divorce attorney beforehand. Here are the most common questions my clients ask me about custody evaluations. Q: What is a custody evaluation, and when are they used? A: Custody evaluations are sometimes appointed in highly-contested divorces involving children; A custody evaluation is the legal process in which a court-appointed mental health expert (or chosen by the parties) evaluates a family and makes a custody recommendation to the court based on the child(ren)’s best interest. You should expect a series of interviews conducted both alone with the evaluator and with the evaluator and the other parent, and with you and your child(ren). In some cases, psychiatric testing for one or multiple family members will also be part of the process. Q: What is the goal of the custody evaluation? A: The goal of the custody evaluator is to gather data from the parties, witnesses, documents and the children themselves to ultimately render an opinion on physical custody (the visitation/access schedule of the children) as well as legal custody (decision-making authority for the children). Q: What qualifications does a custody evaluator have? A: For the most part, custody evaluators are trained mental health professionals. In some jurisdictions, the custody evaluators are psychologists, but it varies. In my local jurisdiction, the court evaluators are social workers. While psychologists can do psychological testing during an evaluation, non-psychologist evaluators cannot. Most court evaluators are not licensed to conduct the psychological testing that is sometimes needed to help the family understand and address a parent or child’s mental health issues. This is when it might be more beneficial to hire a private evaluator who can do the appropriate psychological testing, but private evaluators can be quite expensive. Q: How much will it cost to get a custody evaluation? A: Some courts have the resources available to appoint custody evaluators at no expense to the parties, which is the case in my jurisdiction. Otherwise, if the evaluation is being commissioned through a court-connected program, the fees will be determined by the court’s policy. Private evaluators typically charge by the hour, and the fees can be significant. Q: How much influence does the evaluator have over the judge’s final decision? A: It is my experience that the courts do not always follow the recommendations of the evaluators; however, the courts do like to hear what the evaluator learned from their observations, and the evaluator’s perspective can certainly sway the judge in one direction or the other. Q: Should I request a custody evaluation? A: This is a question that you should discuss with an experienced divorce or custody attorney. There is some strategy involved as to whether, or not, a custody evaluator makes sense for your specific situation, and your attorney can help you navigate that. For example, if you already have significant leverage and the judge is likely to rule in your favor already, adding another layer of complexity to the case with a custody evaluation may not be the best choice. Q: What if I disagree with my ex-spouse on whether or not to get a custody evaluation? A: If the parties do not agree on whether or not to get a custody evaluation, one side may file a motion requesting a court or private evaluator; the other side will likely oppose the motion, and the court will make the decision. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
August 16, 2021
The Weekly Scenario
The Weekly Scenario: Where is the Original Copy of your Will?
You should let someone know where your original Will is stored. If one cannot be found after a person dies, a court may decide it was destroyed. Dying without a Will means intestacy will rule the day and, in that case, state law determines how probate assets will pass. It may be a good idea to keep a copy of the Will in a safe deposit box, but if you put the original there, it may be difficult to retrieve it after death. Most states require that safe deposit boxes be sealed after the renter dies and a Personal Representative will need to be appointed in order to gain access to the box. Other places to store your will include: Store an original in the office of the Register of Wills in the County where you reside. Have your attorney and/or your accountant retain the original will. Some law offices will retain the original in a Will safe file. Store the will at home in a safe place. While there is a possibility that the Will could be lost, inadvertently destroyed, or discovered by an interested party who could deliberately destroy or conceal it, this is generally not a huge risk. 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.
August 13, 2021
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