The Weekly Scenario
The Weekly Scenario: Witnesses and Wills
Some clients ask why all the formalities when we execute estate planning documents such as a Will. When a client comes in to sign a Will, we always assist the client with witnesses and a notary. In many states, a Will is not valid if not witnessed by at least two individuals. A DC case from the D.C. Probate Division illustrates this point. The probate court allowed the probate of a Will that had been signed without any witnesses. D.C. law requires two witnesses to sign a Will in order to be legally valid. In this case, the court admitted certifications from people who had personal knowledge of the circumstances surrounding the execution of the Will. When the case went to the Court of Appeals, the Court held that there is no getting around the requirement to have two witnesses for the Will to be valid. The distinction is that the court said the law could allow a Will to be admitted to probate even if the two witnesses could not be reached at the time the Will was probated. Nevertheless, it was not a substitute for having actual witnesses.
June 11, 2021
Labor and Employment
Are you National Labor Relations Act (NLRA) compliant?
In 1935, Congress enacted the National Labor Relations Act (NLRA) intending to protect workers from harmful labor practices and encourage collective bargaining. Out of the NLRA came the National Labor Relations Board (NLRB), an independent federal agency created to enforce the NLRA. While the NLRA granted employees the right to form or join a union and engage in activities aimed at improving working conditions, many employers are unaware of the impact of the NLRA beyond its unionization rights. The NLRA applies to all private workplaces (unionized and non-unionized) in the United States, and all businesses must ensure that their policies and practices do not violate the NLRA's protected activity provisions. Under the NLRA, employees have the right to act with co-workers to address work-related issues. These rights materialize in many ways that go above and beyond employees circulating a petition or joining together to protest working conditions. Concerted protected activities include employees talking openly about pay and benefits, talking to the media about working conditions in the workplace, and refusing to work in unsafe conditions. It is also important to note that it does not take several employees engaging in the activity for it to be a "concerted protected activity." Individual employees may be engaging in protected activity if they are acting on the authority of other employees, bringing group complaints to the employer's attention, trying to induce group action, or seeking to prepare for group action. Ultimately, employers should not prohibit employees from talking about their pay and benefits and must be mindful of their confidentiality, workplace conduct, conflict of interest, and solicitation policies and whether they are NLRA compliant. Overly restrictive policies, while appearing reasonable on their face, may run afoul of the NLRA. For example, while an employer may prohibit an employee from posting something maliciously false or disparaging on social media, broad policy language prohibiting employees from posting anything negative or unsavory about an employer is likely unlawful.
June 10, 2021
Real Estate
Setting A Price For A Minority Ownership Interest
This Week in Real Estate continues its current series on Leases. This week, we’ll remain focused on commercial leasing and discuss the different types of net commercial leases. The net lease is a highly adjustable commercial real estate lease. The base rent for a net lease is fixed (typically with an escalation, which is set at the outset of the lease) but is lower than a gross lease. The tenant also pays fixed operating expenses such as property taxes, insurance, and common area maintenance (CAM) items. There are four types of net leases: Single Net Lease: In a single net lease, tenants pay a set rent and a piece of the property tax (which would be negotiated with the landlord). The landlord then pays building expenses, while the tenant pays utilities and other services directly. Double Net Lease: A double net lease is similar to the single net lease, except the tenant also pays a piece of the property insurance along with the property tax. The landlord is responsible for maintenance of the common area, but the tenant is still responsible for his or her own utilities and garbage services. Triple Net Lease: For the triple net lease, also known as “net net net leases” or “NNN Leases”, the tenant pays the base rent and, in addition, three primary operating expense categories, hence the “NNN” definition. These categories include (1) CAM (Common Area Maintenance charge), to cover the landlord’s property management, waste, water, landscaping and general maintenance, (2) property taxes, and (3) building insurance. In addition to the base rent and NNN charges, the tenant also pays their own utility charges for the subject premises, contracted directly with the service provider. Landlords typically estimate expenses and charge tenants a portion of these expenses based on their proportionate or pro-rata share. Triple net leases are generally the most landlord-friendly commercial lease type, and tenants should always scrutinize NNN charges and negotiate limits on the amounts they can be increased annually. NNN charges can also fluctuate monthly as operating expenses increase or decrease, making it harder for a business to forecast and budget their occupancy costs. Absolute Triple Net Lease: This is the triple net lease on steroids. The tenant takes on all costs enabling them to have sole responsibility of the building. The benefit to the tenant in this lease is that the tenant can virtually own a building without buying it. The benefit to the landlord is she collects rent but has little to no responsibility to maintain the property. Next week’s edition of This Week in Real Estate will discuss the base year and percentage leases.
June 4, 2021
The Weekly Scenario
The Weekly Scenario: Estate Planning in 2021
What may be the best word to describe estate planning in 2021? I submit ‘uncertainty.’ This year may be the year to account for potential changing circumstances. The typical estate plan for a married couple leaves all property to the other. In the case of retirement plan benefits, the spouse is named as the primary beneficiary and the children as contingent beneficiaries. Children will usually wait to receive their inheritance after the surviving spouse’s death. One twist on the standard plan is through the use of disclaimers. A disclaimer provision allows your named beneficiary to say, I don’t want the money, give it to the next in line. If you include disclaimer provisions in your wills, trusts, and in the beneficiary designations of retirement plans, your surviving spouse generally has up to nine months after your death to consider how much to keep and how much to disclaim to your children. Your children would also be able to disclaim into trusts for the benefit of their own children. For example, if the surviving spouse had executed a disclaimer in 2019 of at least a portion of the IRA (e.g., $1,000,000), that amount would be transferred as an Inherited IRA directly to the children. The disclaimer would have allowed the children to defer income taxes on their Inherited IRA, and perhaps would have saved the family a million dollars or more in estate taxes. The rules in effect in 2019 (as opposed to 2020 and beyond under SECURE) allowed the stretch of the Inherited IRA, resulting in a good result for the family. In contrast, if an IRA owner dies after January 1, 2020, there may not be as big of an income tax incentive to disclaim IRA dollars due to the inability to secure the stretch payments. But in some circumstances, there is still incentive. In addition, there may be an incentive to disclaim after-tax or non-IRA dollars. The big point is there is a constant uncertainty surrounding what laws will be in effect when you die. You can’t control Congress, the market, or many other things. Furthermore, for each type of asset, whether it is an IRA, a Roth IRA, a brokerage account, life insurance, an annuity, real estate, or other assets, there might be compelling reasons to do something that cannot be predicted today. A change in circumstances could change the optimal choice of which beneficiary gets which asset. The key concept here is disclaiming. In this type of plan, you can’t force anyone to accept a bequest. The plan works by allowing the beneficiary of an asset to accept the property for him/herself, or to say, I don’t want that asset, or any part of it. If there is a disclaimer of all or part of an IRA, for example, we look to see who is next in line, or if we want to use the official term, the contingent beneficiary. The ability for the primary beneficiary to make a partial disclaimer adds enormous flexibility to the plan. This means that he or she can accept part of the asset and let the contingent beneficiary have the rest. If a surviving spouse needs all the money, that is fine ¾ if he or she can keep everything left to him or her. But if the surviving spouse doesn’t need the money, or more likely doesn’t need all of the money, then he or she can disclaim either all, or again more likely, a portion of it, in favor of the next beneficiary on the list (i.e., the children). The child can also decide to accept the property or disclaim it further down the line. With traditional planning and traditional estate administration, children do not get any inherited money until both spouse’s deaths. Grandchildren do not get anything until their parents are gone. Incorporating disclaimers into the estate plan allows the children to receive money at the first death, which not only has potential tax advantages but also can help them out while they are younger and may need it more. Disclaiming can not only reduce taxes after your death but also get money to younger generations sooner when they have a greater financial need for it. It is too tough to guess what the best strategy will be after the first and second death. Therefore, you will want to build flexibility into the estate plan with disclaimers. Ultimately, you might be able to get the right assets to the right beneficiaries at the right time and save money on taxes 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.
June 3, 2021
Labor and Employment
Delaware's Contractor Registration Act – 19 DEL. C. CHAPTER 36
EFFECTIVE JULY 1, 2021 After a lengthy delay caused by the COVID-19 pandemic, the Delaware Contractor Registry will “go live” on July 1, 2021. Any Contractor who performs construction or maintenance services in Delaware must be registered before performing those services. If the services include work on any public project, the registration must be completed by August 1, 2021. Failure to become registered can result in severe penalties, some of which will effectively put the Contractor out of business. Registration is being handled online through the Delaware One-Stop system (https://onestop.delaware.gov) and is currently in a testing phase with contractor volunteers. Assuming that one has all of the necessary information at their fingertips, the process appears relatively simple and painless. The annual fee is $200 for Contractors performing only private work, $300 for only pubic work, and $500 for those who perform both. A two-year registration discount exists for Contractors who are on the registry for two years with no violations. Most of the information necessary to register is straightforward (FEIN, NAICS Code, contact information, business, and related licenses) if also somewhat intrusive (contact information for all persons with a financial interest in the business). Proof of participation in unemployment and workers’ compensation is required, as well as having an OSHA-compliant safety plan. One item likely to cause confusion and discontent is the disclosure of “labor law violations” during the prior six (6) years. The form asks if the Contractor has received “notifications” from the Department of Labor that it has incurred a violation but fails to distinguish between mere allegations and actual, proven violations. And penalties, of course, there are penalties. They range from being denied registration or having registration revoked (and thereby the ability to work) to being required to post a surety bond to civil penalties ranging from $5,000 to $85,000 (no, that last one is not a typo). One unusual aspect of this statute is that while appeals to the Secretary of Labor are allowed (as with other labor law statutes), there is also a right of appeal from the Secretary’s decision to the Superior Court. Any business that performs construction services or maintenance work must register and do so quickly. For further information, go to the Department of Labor website at CONTRACTOR REGISTRATION ACT - Delaware Department of Labor. This site has FAQs, a copy of the statute, a brochure and checklist of the required information, and links to the Delaware One Stop and the application.
June 3, 2021
Labor and Employment
What to Ask a Lawyer When Starting a Business
(Note: to navigate through the video, click on the YouTube button on the bottom right of the video to open the full version with time controls.) I sat down with Dave Lorenzo on the Inside BS Show to discuss what business owners should consider when hiring an attorney and the importance of having a team of subject matter experts available to help when needs arise. During my conversation with Dave, I answer several questions regarding how I engage with clients and what business owners need to know when dealing with legal issues impacting their business, including: Do I need a lawyer to start a business? Should I work with a litigator of a transactional attorney? What questions should I ask a lawyer before I hire her? Check out the interview for the answers to these questions and more. You can use the timestamps below to navigate through the interview: 00:00 - What to Ask a Lawyer When Starting a Business 01:47 - Business Lawyer Profile: How do you become a business lawyer? 02:22 - What is the biggest challenge you face as a business lawyer? 03:40 - What challenges do you face related to the law and COVID? 05:24 Why is it important to work with a lawyer who knows litigation as well as transactional work? 06:47 What is the definition of Complex Commercial Litigation? 08:00 Why your attorney must ask the right questions when you are a business start-up. 09:53 Do I need a lawyer to start a business? 11:48 How do you protect trade secrets when you hire employees? 14:53 How to get business clients as a lawyer 16:16 How to use LinkedIn and Blogs for law firm marketing. 18:00 Examples of strategic alliance marketing for law firm business development 19:40 How do I find the right lawyer for my small business? 21:18 What unique insight has being a general counsel given you as a business lawyer? 24:36 What is the biggest challenge for a small business owner in working with a lawyer? 26:33 How to get in touch with a business lawyer
June 1, 2021
M&A Nuggets
M&A Nuggets: Know Your Buyer
Many times, a business seeking to sell is in discussions with the wrong buyer – a mismatch. Negotiating with a mismatched buyer can be a waste of time, money and resources and lead to either the demise of a potential transaction or a transaction taking longer with much greater effort, all of which could have been avoided. It is therefore very important that a seller conduct its own due diligence on potential purchasers. This due diligence should include the following: Checking the background of the owners of the potential purchaser – in conducting this check, treat the owners as you would a job applicant; The potential purchaser’s experience in the M & A arena – has the potential purchaser acquired any businesses? The potential purchaser’s finances – requests should be made for the potential purchaser’s financial statements and for evidence of the source of its purchase price funding; References – ask the potential purchaser for the names and contact information of the owners of other companies that have been acquired and contact those references; NDA – insist that any potential purchaser sign a non-disclosure agreement up front. Any reluctance to do so should be a warning sign; The potential purchaser’s objectives – obtain a clear understanding of the purchaser’s objectives, which can vary greatly depending upon whether the purchaser is strategic or financial; and Time Frame – ask the purchaser for a definite time frame in which it anticipates closing the transaction. A reluctance to state a time frame could indicate that you are dealing with a purchaser which is always exploring but never willing to commit. By following the above suggestions, a seller can go a long way to assure that its purchaser is a match. If you have any questions about this or any other M&A issue, please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.
May 28, 2021
Immigration Law
The Land of Opportunity
From the jeans we’ve worn for the past 170 years, to the yogurt we’ve eaten for nearly the last two decades, to the proliferating Teslas that hum along our highways, the companies founded by such foreign-born entrepreneurs as Levi Strauss, Hamdi Ulukaya (Chobani yogurt) and Elon Musk prove that America truly is the land of opportunity. It’s a nation that knows no boundaries when it comes to those who have a dream to leave their mark and in many ways change the way we live our lives...just ask anyone who’s ever googled anything (Google was co-founded by Russian born Sergey Brin). Being an entrepreneur in the United States is woven into the fabric of the American Dream, and several years ago the government put into place a unique program that would put foreign-born entrepreneurs, who had started a successful business in this country, on the path to possibly obtaining citizenship. The International Entrepreneur (IE) Program began on January 17, 2017. It allowed foreign nationals to apply for up to five years of authorization to stay in the United States in order to nurture a start-up business that had the potential for quick and substantial growth. The program provided a way for promising foreign entrepreneurs, who might not meet the eligibility criteria of existing visa programs, to remain in the U.S. In doing so, the IE program would allow them to hopefully see their businesses flourish while hiring U.S. workers and making contributions to the U.S. economy. But before the program could really get up and running, the Trump Administration tried to halt its implementation. It worked for a while until a federal court in December of 2017 overruled this decision. Since then the program has been in effect but was just recently given an important boost by the Biden Administration. They wanted to prioritize the program to fill a gap they saw in the U.S. immigration system, as well as strengthen and grow the United States economy through increased capital spending, innovation, and job creation. On May 10, 2021 the U.S. Citizenship and Immigration Services (USCIS) announced that the Department of Homeland Security (DHS) was withdrawing a 2018 notice of proposed rulemaking to remove the International Entrepreneur parole program from DHS regulations. This latest announcement from USCIS establishes the continuity of the International Entrepreneur parole program and the benefits it offers to foreign-born entrepreneurs and the U.S. economy as a whole. Acting USCIS Director Tracy Renaud summed up the administration’s stance on the important program, stating: “Immigrants in the United States have a long history of entrepreneurship, hard work, and creativity, and their contributions to this nation are incredibly valuable. The International Entrepreneur parole program goes hand-in-hand with our nation’s spirit of welcoming entrepreneurship and USCIS encourages those who are eligible to take advantage of the program.” So what does it mean for you, if you believe you have a sure-fire idea and want the opportunity to also, hopefully, obtain citizenship? Well first it’s critical to realize that this program does not provide immigration status to approved applicants. Rather, qualifying entrepreneurs receive what’s known as “parole” – a discretionary and temporary permission to remain in the United States for up to five years. After that, they must qualify for citizenship under another U.S. immigration program. Foreign entrepreneurs must meet the following criteria to be eligible for parole: The applicant must have established their U.S.-based start-up within five years before applying. The applicant must own at least 10 percent of the start-up. The applicant must play an active and central role in running the business, and not merely be an investor. No more than three foreign entrepreneurs may be granted parole per each start-up. The start-up must have received a capital investment of at least $250,000 from qualified U.S. investors or at least $100,000 in grants or awards from qualifying federal, state, or local government entities for economic development, research and development, or job creation. Foreign nationals who only partially satisfy these funding requirements must provide additional evidence of the start-up’s potential for rapid growth and creating jobs. If approved, entrepreneurs are paroled into the U.S. for up to 30 months, but can only work for their start-up. The spouses and children of the foreign entrepreneur may also be eligible for parole. While spouses may apply for work authorization once they’re in the United States, children are not eligible to work. And once these 30 months (2 ½ years) have come to an end, an additional 30 months of parole may be available if the entrepreneur demonstrates that: The start-up is still operating. The entrepreneur retains at least a five percent ownership and still plays a central role in the business. The business has:Created at least five qualifying jobs; Received at least $500,000 in qualifying investments, government grants, or awards, or a combination thereof; or Generated at least $500,000 in U.S. revenue and has grown by an average of 20 percent each year. As with the initial grant, an applicant who doesn’t meet all of the above criteria can still qualify by providing other compelling evidence of the start-up’s potential for rapid growth and job creation for the next 30 months. 135 years ago, these words became part of the American lexicon and have been seen by millions on The Statue of Liberty as they have come to our shores to fulfill their dreams...”Give me your tired, your poor, your huddled masses yearning to be free...” And while those words still hold true today, we can add “your determined, your dreamers, your entrepreneurs yearning to make this a better America.” For more than twenty years, I have specialized in international and immigration law. If you have any questions on how to apply and navigate Form I-941, Application for Entrepreneur Parole, or any of the subsequent forms, as well as any questions about your start-up, please contact me. I am here to provide needed guidance.
May 25, 2021
The Weekly Scenario
The Weekly Scenario: No One is Too Old to Make IRA Contributions Now
By the time this article is published, ‘tax season’ for the 2020 reporting will be coming to a close. Tax season is the time when individuals have the opportunity of contributing to an IRA. It is not well known, but one benefit the SECURE Act gave us was to do away with the age limit for traditional IRA contributions. Now, no one will be too old to contribute to an IRA. 2020 is the first year that those age 70 ½ and older can make traditional IRA contributions. As such, individuals who may still be working, even part-time, can continue to add to their retirement plan. No one is ever too old to contribute to an IRA anymore. An individual must have earned income to contribute, but age is no longer a barrier. The SECURE Act did away with the age limit for traditional IRA contributions. This is good news for older individuals who may still be working, even part-time because they may be able to continue to add to their retirement savings. Example: Mary is 80 and works part-time at a local market. She has earned income of $25,000 for 2020. Since the SECURE Act has eliminated the age limit for traditional IRA contributions, Mary can make a contribution to an IRA of $7,000. Mary will still have to take her minimum required distribution, however, if she had a balance on December 31 of the previous year. In order to make an IRA contribution, one must have earned income. This means salary from a job or self-employment income. One exception to the ‘rule’ is for a spousal IRA for a nonworking spouse. A nonworking spouse can make a contribution based on a working spouse’s earned income. Contributions would be made to the nonworking spouse’s IRA. Any IRA contributions to that nonworking spouse’s IRA from earned income (at a future time) can also be made to the same IRA. 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.
May 24, 2021
Labor and Employment
Saying Goodbye to Maryland’s Mask Mandate: Now what?
On Friday, May 14, 2021, Governor Hogan announced changes to Maryland’s mask mandate, which took effect on Saturday, May 15, 2021. Under Governor Hogan’s executive order, individuals are no longer required to wear masks, inside or outside, except when they are: in or on any Public Transportation or School Bus; obtaining healthcare services, including without limitation, in offices or physicians and dentists, hospitals, pharmacies, and laboratories, and indoors in any portion of a School where interaction with others is likely, including, without limitation, classrooms, hallways, cafeterias, auditoriums, and gymnasiums. Many Maryland counties have advised that they will follow Governor Hogan’s order and not impose any additional mask restrictions. In contrast, some jurisdictions, such as Baltimore City, have kept their mask mandates in place. While individuals are no longer required to wear masks under Maryland law, the CDC has recommended that individuals who are not fully vaccinated against the coronavirus should continue to wear masks and practice social distancing (where possible) when inside or when outside and engaging in any of the following behavior: Attending a small outdoor gathering with fully vaccinated and unvaccinated people; Dining at an outdoor restaurant with friends from multiple households; And attending a crowded outdoor event, like a live performance, parade, or sports event. While Governor Hogan’s order does not distinguish between vaccinated and unvaccinated individuals, the CDC does. The CDC still recommends that unvaccinated individuals wear a mask most of the time to protect themselves. Now that Governor Hogan has limited the mask mandate, Employers must determine what policies and procedures make the most sense for their workforce. While, under Equal Employment Opportunity Commission (EEOC) guidance, employers can ask employees to verify whether they are fully vaccinated, the administrative burden will likely be too much for most employers. However, if employers are unaware of the vaccination status of their workforce, they are left to either continue a mask mandate in the office to protect unvaccinated employees or implement policies allowing employees to go maskless and encouraging unvaccinated employees to wear a mask to protect themselves. Putting the onus on each individual to act according to their vaccination status is likely how many employers will move forward. However, in doing so, it is vital for employers to thoroughly inform their employees of the current guidance and make it clear that employees, regardless of vaccination status, may still wear masks and practice social distancing. Additionally, regardless of whether employers decide to require masks or ditch mask-wearing, they need to pay close attention to what other policies they need to keep, such as quarantine requirements for unvaccinated employees and reporting policies. Ultimately, employees should explore their options and develop a clear and comprehensive policy letting employees know what the company expects and how to keep themselves safe. It is also crucial that employers continue to pay close attention to local rules and mandates. Questions about this or any other legal matter, please contact Sarah at Sarah.Sawyer@offitkurman.com.
May 20, 2021
Real Estate
This Week in Real Estate: Commercial Leases
This Week in Real Estate’s continues its current series on Leases. This week we’ll focus on commercial leasing and begin discussing the different types of commercial leases. In general, there are three types of commercial leases: Gross, Net, and Modified Gross (Base Year) Leases. Gross Lease or Full-Service Lease The first type of commercial lease is the gross or full-service lease. It’s the easiest to understand. In a gross lease, the rent is all-inclusive. The landlord pays all or most expenses associated with the property, including taxes, insurance, and maintenance out of the rents received from tenants. Utilities (except utilities that are separately metered and the tenant agrees to pay) and janitorial services are included within one easy, tenant-friendly rent payment. When negotiating a gross lease, the tenant should ask which janitorial and other services are provided and how often they are offered. Excess utility consumption beyond building standards is sometimes charged back to the tenant, so if the tenant is a big consumer of electricity, this point should be clarified in the lease. The tenant pays his own property insurance and taxes. As costs increase over time, many gross and full-service leases will contain escalation clauses that increase rents overtime to offset tax increases and higher insurance and maintenance costs. It is important that a tenant shopping for space understand any escalation clauses to project rent expense into the future. A benefit of this type of lease is that it is supremely easy for the tenant, which can forecast expenses (even with the escalations, which are outlined in the lease) without worrying about an unexpected lobby maintenance charge, for example. The landlord assumes all responsibility for the building while tenants concentrate on growing their businesses. Next week’s edition of This Week in Real Estate will net lease, the different types (there are three), and what they are.
May 14, 2021
Family Law
Divorce and Dementia – Why You Need an Attorney Knowledgeable in Both Areas
You may watch the Real Housewives of Beverly Hills and think that your life bears very little resemblance to the lives of the housewives, but one recent story line (the divorce of housewife Erika Jayne and her husband, Tom Girardi) touches on issues that many divorcing spouses face and highlights the focus of my practice, namely the intersection of divorce and guardianship. Tom Girardi has reportedly been diagnosed with Alzheimer’s Disease and dementia, which his representatives have claimed has contributed to the financial issues that his law firm has experienced. I will leave it to the creditors and Girardi’s representatives to sort out the details of his financial issues and liability. What the story demonstrates, however, is the way that dementia can cause a financial implosion of a marriage. I have counseled numerous clients about how to approach their spouse’s cognitive decline and accompanying financial mess. The first thing I generally tell clients is not to avoid doing something just because the spouse gets upset. A marriage is like a boat, and if one spouse is drilling holes in the boat, you both will sink. Do not let yourself go down with the ship just because your spouse gets upset when you question his or her financial actions or capacity. You cannot control your spouse’s reaction. You can take action, however, to try to stop the financial damage. Once we get over the client’s reluctance to cause upset, we talk about four main issues: (1) what debts are there, and who is liable for them? (2) how can we stop the bleeding in terms of financial misuse, waste, or even exploitation? (3) what care needs and costs will the spouse have and how will those be paid? and (4) what are the client’s expenses and how will those be paid? The client may have to file for divorce to protect the client’s emotional and financial well-being. If that is the path that the client chooses, the first question is whether the other spouse needs a guardian to represent him or her in the divorce. The client and spouse often have mirror estate plans established many years earlier where they name the other party as their attorney-in-fact through a power of attorney. The client, however, cannot act on behalf of the spouse in a divorce using the power of attorney because it’s a conflict of interest. If the spouse no longer has the capacity to sign a new power of attorney, a guardian will have to be appointed for the spouse. If you serve a complaint for divorce upon someone who does not have the capacity to understand a legal proceeding or advocate for themselves, that service may be ineffective, so any relief that you may obtain from the court may be overturned. Further, the court may see the client’s efforts to proceed with a divorce without alerting the court as to a spouse’s cognitive deficits as an attempt to take advantage of the spouse in the divorce process. As the divorce proceeds, you can still try to reach a settlement on the financial terms of the divorce even if the spouse is under a guardianship. While the court does not generally look behind the terms of a separation agreement between spouses, if one of the spouses is subject to a guardianship, the court will need to be persuaded that the financial arrangement is in the spouse’s best interest. The client will need to consult with an expert about the spouse’s care needs and costs and determine the best way to fund that, particularly if there is a possibility that the spouse will need Medicaid to pay for the care. When applying for Medicaid, there is a five-year lookback period to examine any transfers of assets and determine whether they have been made for fair market value. This lookback period can cause negative consequences for a transfer that in a typical divorce would be advantageous. Complex issues arise when divorce and dementia intersect. It is important to consult with an attorney experienced in both divorce and capacity issues to make sure that these issues are addressed proactively and advantageously. Attorneys whose practice includes both focuses can also provide the client with valuable connections to financial, Medicaid, and elder care professionals who can help the client with all of the issues the client is facing. If you have questions about this or any other Family Law issue please contact Catherine H. “Kate” McQueen at (240) 507-1718 or kmcqueen@offitkurman.com.
May 13, 2021
The Weekly Scenario
The Weekly Scenario: Trust Decanting
What is trust decanting? Trust decanting is the act of distributing assets from one trust to a new trust with different terms for one or more beneficiaries of the first trust. As I have heard some practitioners say, ‘just as you can decant wine by pouring it from its original bottle into a new bottle, leaving the ‘unwanted’ sediment in the original bottle, the distribution trustee can pour the assets from one trust into a new trust, leaving the unwanted terms in the original trust.’ For years, practitioners have struggled to find ways to change the terms of an irrevocable trust. However, through the decanting statutes that have been enacted in many jurisdictions, it is now possible to modify an irrevocable trust by having the trustee distribute the trust assets into a new or different irrevocable trust for one or more of the same beneficiaries of the first trust. Not all states allow decanting through their own state statutes. There are 31 states that have decanting statutes. Some states have laws with respect to decanting that offer more flexibility than others. There are rankings that are published to this end (feel free to reach out to me if you would like me to provide you a state ranking chart). So, what if the trust is in a non-decanting jurisdiction? Do you throw in the towel? No! We first look into the trust agreement to see if it has decanting language. Since decanting is a relatively recent phenomenon, it likely does not have such a statute. However, if it does, then one can likely utilize decanting through the authority granted in the trust agreement. Assuming no decanting language is in the trust, the trust may give the trustee the power to change the trust situs. If it does, then we can often move the trust to a new situs that allows decanting. If the trust does not give anybody the power to change the situs, then we look at the current situs statutes to see if there is a nonjudicial settlement agreement statute. If there is, we may be able to change the situs using that statute and then decant it under the new situs statute. Typically, clients are comfortable changing the trust via a nonjudicial settlement agreement statute, however, since the statute requires all interest parties to agree, it doesn’t always work. As a final remedy, we can petition the court for a trust reformation. Taking a case through the judicial system however, may be the most costly alternative. 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.
May 13, 2021
Family Law
Flying This Summer?
Nonetheless, we want to be cautious and take precautions from the time you enter the airport until you depart the airport at the end of your journey. One easy step is to register for TSA Precheck, which allows passengers to bypass crowded security lines, saving time and reducing the number of contacts. Secure your boarding passes online before arriving at the airport, which also minimizes the number of contacts you will have with airport employees. You don’t have the same level of good air filtration and airflow in the airports as you do in the planes, so you want to minimize the amount of time you spend in the airport. A carry-on bag minimizes the time spent in crowded baggage areas at both the beginning and end of your flight. Make sure that your carry-on is small enough to fit in the overhead compartment. If it isn’t, you may be able to check it at the gate. Although you will still have to deal with the baggage claim area upon your arrival, you can avoid dealing with that issue at the departure airport. If your flight is long, or if you have a layover, you should consider packing your own lunch and a snack. Many airport restaurants are not operating at capacity and packing your own food will minimize your contact with other passengers and employees as you stand in line to order. Collapsible storage containers are perfect for keeping food fresh, if you are not inclined to use plastic sandwich bags. Masks are still required on all airlines. You should bring four or five masks and change them out every three to four hours. It’s best to double mask or use an N-95 or KN-95 mask to assure maximum protection. Find one that fits comfortably, because you will be using it for multiple hours at at time. It’s also important that you wash your hands a lot when you can’t, use sanitizer. And, if you can, find one that contains a moisturizer since skin dries out in airplanes. Look for one that has at least 60% alcohol. Stay in your seat as much as you can to avoid contact with others on the plane. Although airlines report that they clean the plane between flights, it’s a good idea to wipe down the armrest, tray table, seat belt and general seat area when you first board the plane. Alcohol wipes are good for this, so put a few in a zip lock bag, so that you can easily access them and then dispose of the ones that you have already used. Check the labels to find those that kill 99.9% of the viruses. Public charging states make you more vulnerable to hacking and malware, and also require that you stand or sit close to other passengers, so bring along a portable charging device when you travel to assure that you will not run out of power for your phone, iPad or computer. If you travel frequently, consider investing in a charger that has a capacity of at least 10,000mAh. If you are taking a short, direct flight, a charger with an under 5,000mAh rating should work. Because your phone rests all over when you travel, consider investing in a portable UV light sanitizer that help keep it clean. That UV light can kill everything from bacteria and fungi to viruses themselves, although no one is sure that it will kill the Covid-19 virus. UV light can get into the nooks and crannies and is much more effective than wipes. It works like a mini-tanning bed for your phone. While the airlines often provide earphones, it is not as hygienic as bringing a comfortable pair from home. If you want to watch movies, bring headphones that can plug into the screen. Finally, consider bringing along a neck pillow. Choose one that provides a removable, washable cover. Once you reach your destination, toss the cover in the wash, so it will be ready for your next trip. Then, try to relax and enjoy your flight.
May 11, 2021
Real Estate
This Week in Real Estate: Ten Things Every Landlord Should Know
This Week in Real Estate’s current series is focusing on Leases. This week, we’ll focus on residential leasing and the Top Ten Things Every Landlord Should Know. 1. Become familiar with your jurisdiction’s Landlord-Tenant Code. 2. Don't rent to anyone before checking his or her credit history, references and background. Haphazard screening and tenant selection too often result in problems. 3. Get all the important terms of the tenancy in writing. Beginning with the rental application and lease or rental agreement, be sure to document important facts of your relationship with your tenants. 4. Establish a clear, fair system of setting, collecting, holding, and returning security deposits. Inspect and document the condition of the rental unit before the tenant moves in to avoid disputes over security deposits when the tenant moves out. 5. Stay on top of repair and maintenance needs to make repairs when requested.If the property is not kept in good repair, you'll alienate good tenants. And they may have the right to withhold rent, sue for any injuries caused by defective conditions, or move out without notice. 6. Respect the privacy of your tenants. Notify tenants whenever you plan to enter their rental unit and provide as much notice as possible. Make sure you are aware of your jurisdiction’s minimum notice requirements. 7. Disclose environmental hazards such. Landlords are increasingly being held liable for tenant health problems resulting from exposure to environmental poisons in the rental premises. 8. If you choose to obtain one, choose and supervise your manager carefully. If a manager commits a crime or is incompetent, you may be held financially responsible. Do a thorough background check and clearly spell out the manager's duties in writing to prevent problems down the road. 9. Purchase enough liability and other property insurance. A well-designed insurance program can protect your rental property from losses caused by everything from fire and storms to burglary, vandalism, and personal injury and discrimination lawsuit. 10. Treat your rental property like a business. It’s important to remain professional and consistent with your tenants. Everyone falls on hard times, but allowing tenants to not pay rent or break rules is a recipe for disaster.
May 7, 2021
The Weekly Scenario
The Weekly Scenario: Required Minimum Distribution (“RMD”) under the SECURE Act
Is there a year of death for Required Minimum Distribution (“RMD”) under the SECURE Act? Even over a year in the passage of the SECURE Act, many questions remain about the correct way to handle the RMD in the year of death. The RMD for the year of death will only need to be taken if the IRA owner died on or after their required beginning date (RBD) and had not already taken all of their RMD. Under the new rules of the SECURE Act, the RBD is now April 1 of the year following the year the IRA owner reaches age 72. Note that all Roth IRA owners are considered to have died before their RBD. This means that there is never a year-of-death RMD required from a Roth IRA. Nothing needs to be withdrawn in the year of death. Example 1: Jane’s 72nd birthday is November 21, 2021. She died in December of 2021 without taking her 2021 RMD. Jane died before her RBD (April 1, 2022). Therefore, no RMD is required for the year of her death (2021). The RMD for the year of death is calculated as if the IRA owner had lived for that year. This means it will be calculated using the Uniform Lifetime Table. The requirement that a year-of-death RMD be taken is unaffected by the SECURE Act. This is because the changes made in the SECURE Act to the calculation of RMDs deal only with post-death RMDs. The amount of the year-of-death RMD is based on the IRA owner’s pre-death lifetime payments. Example 2: Dave, age 75, dies in 2021. The year-of-death RMD that must be taken from his IRA will still be calculated using the factor that corresponds to his age 75 on the Uniform Lifetime Table (22.9). If the year-of-death RMD was not already taken by the IRA owner, it must be taken by the beneficiary. It is not paid to the IRA owner’s estate (unless the estate is named as the beneficiary). The beneficiary will also pay the tax on the distribution. The SECURE Act’s requirement that non-spouse beneficiaries use the 10-year rule does NOT remove the beneficiary’s responsibility to take the year-of-death RMD. Example 3: Sam died in 2021 at age 81. He named his nephew Joey as his IRA beneficiary. However, Sam did not take his RMD prior to his death. Joey is a non-eligible designated beneficiary and is subject to the 10-year payout term. Joey is responsible for taking his uncle’s year-of-death RMD prior to the end of 2021. 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.
May 6, 2021
Labor and Employment
Pennsylvania Enacts Law Requiring Mandatory Police Officer Background Disclosures
Pennsylvania Act 57 of 2020 (enacted July 14, 2020) is a game changer in terms of what a Township Police Department must make public and disclose to prospective Police Employers concerning a former or present Township Police Officer. It is long, long overdue and should be welcome by all Townships, Police Officers and Police Unions. It makes all the sense in the world that before a Police Officer is hired, given lifetime tenure, a gun and the power to take life and liberty that the Township and Police Department know everything they can about the officer including all past discipline. The law now requires the Municipal Police Officer Education and Training Commission (“Commission”) to develop a database to hold separation records of all "law enforcement officers" in the Commonwealth (defined as "peace officers" in Title 18 Pa.C.S.A. § 501). The act requires the database to be operational by July 14, 2021 and temporary regulations that were established on March 14, 2021 [Pennsylvania Bulletin (pacodeandbulletin.gov)]. All too often Township Police Departments in their zeal to get rid of a bad officer, for expediency purposes, will agree to expunge an officer’s disciplinary record or let him/her resign in good standing before disciplinary charges are filed, agreeing to not disclose that discipline when the officer applies to another Police Department. The new Department, however, has no idea it is getting a “bad apple.” It is a vicious cycle that, if not broken, harms all Township Police Departments and the public they are entrusted to protect. While a Police Chief is thrilled to be rid of a problem officer, the Department could fall victim, if the next officer hired had his/her prior disciplinary record cleansed as well. Everyone should have empathy and consideration for others who could end up with the problem officers if proper disclosures are not made. This new law finally attempts to address this very serious issue brought about by the recent national publicity about problem officers and the desire for more public transparency and accountability. We expect that more states, if they have not already, will adopt similar legislation in the wake of public backlash against problem police officers. Under this law the Township must proactively maintain and make certain employment records available on the Township website for the public and other Prospective Employer Police Departments to view. Further, it provides a process whereby a prospective employer can go to court if the prior employer stonewalls on providing documents, a process that did not exist before. Municipal employers should consult experienced employment counsel for any assistance needed in complying with the new requirements. Any questions please contact, Gabriel V. Celii at Offit/Kurman, gcelii@offitkurman.com.
May 5, 2021
Family Law
Will New Legislation Approved by the Maryland Legislature Improve the Lives of Adolescents in High Conflict Custody Cases?
In high-conflict custody cases, parents often disagree about whether a child needs mental health treatment. Divorced parents often have joint legal custody of a child, which means that the parents have to agree on a decision regarding mental health treatment for their child. If the parents are unable to reach an agreement that a child requires mental health treatment, and it is necessary to ask the court to order mental health treatment, it can take close to a year to reach a trial date. A year is a very long time for a child to go without needed mental health treatment. Under prior law, a child age 16 or older had the same capacity as an adult (anyone age 18 or over) to consent to mental health treatment. Under the new law, any child age 12 or older who is determined by a health care provider to be “mature and capable of giving informed consent” can consent to mental health treatment. The new law provides, however, that a child under the age of 16 “may not consent to the use of prescription medications to treat a mental or emotional disorder.” Under both the prior law and the new law, a minor does not have the capacity to object to mental health treatment if it is authorized by a guardian or parent. In addition, a mental health provider may decide whether to provide information about mental health treatment to a guardian or parent, even if the child objects. It is unclear how often mental health providers will determine that a child between 12 and 16 is mature and capable of giving informed consent to mental health treatment, but the new legislation could help adolescent children caught in the middle obtain the mental health treatment they need. If you have questions about this or any other Family Law issue please contact Catherine H. “Kate” McQueen at (240) 507-1718 or kmcqueen@offitkurman.com.
May 4, 2021
Real Estate
This Week in Real Estate: Leases
This Week in Real Estate will focus on a new series of discussions on a topic that is very important in the world of real estate: leases. Over the next several weeks, TWIRE will discuss what they are. What are the different types, and what are the provisions included in the lease that are frequently overlooked but could have major implications? A lease is a contract outlining the terms under which one party agrees to rent or lease property owned by another party. It guarantees the lessee’s, also known as the tenant, use and occupancy of a property or asset and guarantees the lessor, the property owner or landlord, regular payments for a specified period in exchange. Both the lessee and the lessor have rights and responsibilities and face consequences if they fail to uphold the terms of the contract. Leases are legal and binding contracts that set forth the terms of rental agreements in real estate and real and personal property. These contracts stipulate the duties of each party to effect and maintain the agreement and are enforceable by each. For example, a residential property lease includes the address of the property, landlord responsibilities, and tenant responsibilities, such as the rent amount, a required security deposit, rent due date, consequences for breach of contract, the duration of the lease, pet policies, and any other essential information. Not all leases are designed the same, but there are some common features: rent amount, due date, lessee and lessor, etc. The landlord requires the tenant to sign the lease, thereby agreeing to its terms before occupying the property. Leases for commercial properties, on the other hand, are usually negotiated in accordance with the specific lessee and typically run from one to 10 years, with larger tenants often having longer, complex lease agreements. The landlord and tenant should retain a copy of the lease for their records. This is especially helpful when disputes arise. Next week, we will discuss residential leases, specifically in the State of Delaware, and the Ten Things Every Delaware Residential Landlord Should Know.
April 30, 2021
Labor and Employment
Workplace Discrimination and Harassment Outside the Office
The breakdown of a concrete workplace where worker interaction was somewhat limited to the office during work hours has led to increased flexibility for workers and employers. In many cases, this flexibility has allowed companies greater access to skilled workers, led to a more productive and engaged workforce, and reduced overhead. However, the blurring of the lines between work and home has created additional compliance burdens, especially when communicating and enforcing harassment and discrimination policies. Difficulty ensuring that employees are compliant with workplace policies promoting healthy work environments did not start with the increase in remote work, but they have certainly increased since the world went remote a little over a year ago. Before the COVID-19 pandemic, employers were navigating the difficulties associated with employees’ behavior on social media. Many companies found themselves balancing their desire not to control or police employee behavior outside of work with the impact their outside behavior had on the company culture and exposure. For example, if a group of employees have connected on social media and an employee posts something discriminatory in nature and her colleagues see that post and bring it to the attention of the company, the company may face liability even though the post was made outside of work hours on an employee’s personal page. Now, with many employees working remotely, the ability for employers to prevent and address discriminatory and harassing behavior has become even more complex, and the impacts of such behavior have been more severe. A 2020 Pew Research Center study found that 41% of Americans have personally experienced some form of online harassment. Virtual harassment can take many forms, including sexually explicit jokes, use of derogatory terms through electronic communications, inappropriate use of memes and emojis, insistence on video calls after work hours, and a failure to maintain dress code during video conferences and calls. With fewer natural touchpoints between management and their subordinates, workplace harassment is more likely to go unreported. With this conduct taking place virtually within employees’ homes, employees are more likely to suffer more severe effects. So, what are employers to do? Employers should invest in training and adapt their policies to fit new and evolving office dynamics. Companies can mitigate many of the issues outlined above through clear expectations of employee conduct during work hours and outside work hours, a practical reporting structure that meets the needs of a remote environment, and regular check-ins with remote employees. More than ever, clear and consistent communication with employees is essential to a compliant and healthy work environment. Questions about this or any other legal matter, please contact Sarah at Sarah.Sawyer@offitkurman.com.
April 29, 2021
The Weekly Scenario
The Weekly Scenario: Uncertainty and Opportunity in 2021
Is Now the Time to Make a Substantial Gift? As I reported last week, we may soon see a rollback in the ‘Trump’ tax cuts. Such a roll-back might even be made effective retroactively to January 1, 2021. Most of the changes made by the Tax Cuts and Jobs Act of 2017, as related to individuals, are already set to expire after 2025. Under this act, we now have an estate, gift, and generation-skipping transfer tax exemption amount of $11,700,000 per person. This exemption amount is up from $5,490,000, where it stood in 2017 prior to the ‘Trump’ tax cuts taking effect. This means that until the end of 2021, an individual dying or making a large gift can pass up to $11,700,000 free of any federal transfer tax. Thereafter a roughly 40% tax on the fair market value of the estate or gift would be paid. For married couples, they can now pass up to $23,400,000 (federal estate/gift/generation-skipping). The individual exemptions may likely roll back soon to around $5 million per donor or even $3.5 million per donor. On November 26, 2019, the IRS issued a regulation under IR-2019-189 that there would have been no “clawback” for any gifts made in 2020. Thus, if an individual had given up to $11.5 million in 2020, and the related exemption amount was reduced in 2021 to something less than that, then the difference between those amounts would not have been added back when computing the value of the taxable estate when the donor later dies. This is the “use it or lose it” approach that many people talk about in trying to figure out whether to make a large gift. While it is likely the IRS would do this again; there are no guarantees. The analysis to figure out whether a gift might be beneficial to a family is difficult and requires many different factors. Some of the factors include the total estate value, the health of the family member, the income tax basis of the estate assets, the charitable giving goals, prior gifts, the desire to retain control over the use of assets, and the readiness of beneficiaries to receive a large gift. Keep in mind that a gift doesn’t have to be made directly to an individual beneficiary. It can be made in trust, for example, given a person access to the property but not ownership or control. 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.
April 28, 2021
The Weekly Scenario
The Weekly Scenario: What is a Spendthrift Provision?
One of the best forms of asset protection we can provide is through a trust that contains a spendthrift provision. The general idea behind a spendthrift trust is to prevent certain beneficiaries from receiving their inheritances all at once. The risk is that the ‘spendthrift’ beneficiary will end up blowing through the money in a short period of time. The process of establishing a spendthrift trust is nearly identical to creating any other trust, except the trust instrument must contain a spendthrift provision. So what exactly does a spendthrift provision do? A spendthrift provision is a provision within a trust that limits the beneficiary’s access to trust. This restriction protects the trust property in two ways: First, it prevents a beneficiary from selling his or her interest in the trust property as a beneficiary to a creditor, and second, it prevents the beneficiary’s creditors from compelling the trustee to satisfy a debt by making a distribution except where this would void public policy like in the case of alimony, child support and some civil judgments. So, for instance, creditor X demands that Beneficiary 1 use the money to pay his debt of $20,000. Even if the beneficiary cannot pay off his debt, creditor X cannot compel the trust to pay a debt directly to creditor X if the trust is discretionary and contains such a spendthrift provision. However, once the trustee has made a distribution to a beneficiary, the creditor may then take the distributed assets from the individual beneficiary. In a discretionary spendthrift trust arrangement, the beneficiary's inheritance is, therefore, distributed in portions over an extended period of time. The beneficiary has no right to the money and can't spend it before actually receiving any of these distributions, and creditors and others can only reach the money that the beneficiary has actually received—not the portion of the inheritance that remains in the trust. The trustee would have discretion to decide when and why payments are made, or the creator of the trust can set these terms in the trust documents when the trust is created. There are some debts that courts do not allow spendthrift provisions to protect due to public policy concerns. For instance, a spendthrift provision will not apply to claims for alimony, child support, and back taxes. The courts favors these debtors because it is public policy to keep families from relying on support from the state when there are other resources that could provide support. If such great protection from creditors exists, why not simply create a spendthrift trust and name yourself a beneficiary? The reason is that most states won't allow this for public policy reasons. However, there are some exceptions where certain states allow something called ‘self-settled’ asset protection trusts where the person setting up the spendthrift trust can also be a 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.
April 22, 2021
Labor and Employment
Now Hiring: Getting Back to Work Amid the COVID-19 Pandemic
For much of 2020, my conversations with employers were around layoffs, furloughs, and terminations. With the uncertainty of the pandemic, many companies moved forward with mass layoffs and terminations. With businesses opening back up, individuals getting vaccinated, and more information about the virus, employers are bringing employees back and making new hires. With these are overall positive changes, there are also challenges with hiring or rehiring during a global pandemic. While there are the obvious complications associated with safety and COVID-19 compliance, many employers face complaints around who they rehired and who they didn't. Though employers are not required to reinstate employees they have laid off or terminated due to the pandemic; if they reinstate some employees and terminate others, their actions could come under scrutiny if they reflect a potentially discriminatory pattern. For example, suppose an employer laid off similarly situated men and women of all ages but only brings back the young men under forty. In that case, the company could face age and sex discrimination claims. Employers are particularly susceptible to these claims when they do not bring back otherwise qualified candidates without any history of poor performance or misconduct. Accordingly, employers should be mindful of who they are bringing back and why and look for potential problematic patterns that could appear discriminatory. Also, as a practical matter, in addition to avoiding a potential claim of discrimination, bringing back employees who are already trained and ready to hit the ground running can provide businesses with a leg up and allow a business to scale back up quickly. However, many individuals companies laid off have found other jobs. With many companies hiring simultaneously and many individuals still being cautious because of COVID, many employers are struggling to find qualified candidates. This is particularly true in the hospitality industry, where many employees, still reeling from the industry uncertainty caused by the pandemic, have left the industry in favor of jobs that are more likely to withstand the ebbs and flows of crisis. Main Takeaway: As many employers go into hiring mode, they should think strategically regarding whether they rehire, who they rehire, and how they attract new talent. Former employees who were laid off or terminated and aren't rehired may challenge the company's hiring decisions and claim they were discriminatory or retaliatory.
April 15, 2021
Labor and Employment
All of My Employees are Vaccinated. Can We Ditch the Masks?
Not Yet. Over the last three months, many employers, including large employers like Aldi, Amtrak, Instacart, McDonald’s, and Target, have been hard at work motivating employees to get vaccinated through incentive programs and education campaigns. Many businesses, especially small businesses with small workforces, wonder when they can start to lift COVID-19 safety protocols, such as mask-wearing in common areas and limiting in-person meetings. While we are the closest we have ever been since the start of the pandemic to scaling back these restrictions, in most states, we aren’t there yet. While the CDC has given vaccinated individuals the green light to visit with other fully vaccinated people indoors without wearing masks or distancing, a review of the CDC’s guidance is the start of the analysis, not the end. Many states, including the State of Maryland, still have mask mandates in place that impact employers. For example, in Maryland, Governor Hogan’s statewide mask mandate from July 2020 is still in place and requires that individuals wear a mask when “engaged in work in any area where…interaction with others is likely, including without limitation, in shared areas of commercial offices…” (View the Governor’s Order here: Executive Order 20-07-29-01) Governor Hogan’s Order does not contain any exceptions for vaccinated individuals, and willfully violating the Order is a misdemeanor punishable by up to a year in jail or up to a $5,000 fine or both. While changes to the Maryland mask mandate are likely in the months to come as more individuals are vaccinated, employers must continue to abide by the current order. Additionally, even when the rules on the federal and state levels loosen, employers will need to consider what makes the most sense for their workplace based on vaccination rates and the realities of their physical workplace to continue to keep employees safe. While restrictions are lifted nationwide, employers should be mindful of the risks associated with prematurely lifting restrictions in the workplace and continue to review their policies and procedures to ensure their employees are safe and comfortable coming to work. Main takeaway? Employers should continue to encourage their employees to get vaccinated, as vaccination is the best way for employees to stay safe and avoid contracting the virus. However, it is too soon to start removing other safety procedures in the workplace. Employers should continue to utilize COVID safety protocols, including liberal use of remote work, where possible, and mask and distancing mandates. Questions about this or any other legal matter, please contact Sarah at Sarah.Sawyer@offitkurman.com.
April 15, 2021
The Weekly Scenario
The Weekly Scenario: What to Know About the “For the 99.5% Act” and the “Sensible Taxation and Equity Promotion (STEP) Act"
There are many potential tax law changes that may be coming to a theatre near you. I can’t get too far into the weeds in this blog, but I’ll address two current proposals that may be of interest. About three weeks ago, Senators Bernie Sanders (D-VT) and Sheldon Whitehouse (D-RI) introduced what they refer to as the “For the 99.5% Act.” As the name implies, the Act is focused on the top 0.5% of Americans. Under current law, the estate and gift tax lifetime exemption amount is $11.7 million per person (indexed for inflation), with amounts transferred in excess of this amount (this does not include annual gift tax exclusion gifts of $15,000 per person) subject to a 40% tax. The estate and gift tax exemptions are currently unified, meaning amounts not used via gifts during one’s life can be applied to offset estate tax upon death. The current exemption levels were doubled by the Tax Cuts and Jobs Act (TCJA) of 2017 and are expected to “sunset” or return to pre-TCJA 2017 amounts at the end of 2025. Some of the most significant provisions of the 99.5% Act are as follows: Reduces the estate tax exemption amount to $3.5 million per person but continues to index it for inflation. Reduces the gift tax exemption to $1 million per person (the system would no longer be unified). Increases the estate and gift tax rate (40%) to: 45% of an estate between $3.5 million and $10 million. 50% of an estate between $10 million and $50 million. 55% of an estate between $50 million and $1 billion. 65% of an estate over $1 billion. Eliminates valuation discounts for non-business assets. Eliminates the use of “Defective (for income tax purposes) Trusts.” Restricts the funding of Grantor Retained Annuity Trusts (GRATs) and imposes a minimum term of 10 years. Limits on "Generation-Skipping” while also imposing a maximum term of 50 years. Reduce the annual gift tax exemption (as mentioned above) from $15,000 per donee per year to $10,000 per donee per year. About the same time, Senators Chris Van Hollen (D-MD), Corey Booker (D-NJ), Elizabeth Warren (D-MA), Bernie Sanders (D-VT), and Sheldon Whitehouse (D-RI) introduced what they call the Sensible Taxation and Equity Promotion (STEP) Act. Under the current law, when an individual dies, the cost basis of property would receive a cost basis adjustment being adjusted to its Fair Market Value (FMV) at the date of death. When gifting appreciated property, the cost basis would carry over to the recipient. Some of the most significant provisions of the STEP Act are as follows: Property transferred by gift or bequest is treated as sold for its FMV, with the gain (or loss, but only if transferred via bequest) being recognized currently. There would be a $100,000 exclusion for gifts and a $1 million exclusion for transfers at death. There is a deferral period of 15 years built in to pay the tax. The exclusion of up to $250,000 per person on the sale of a principal residence would continue. All ‘non-grantor' trusts would have to pay tax on unrealized gains every 21 years (although trusts created in 2005 or earlier would have their first “deemed realization” in 2026). Gifts or bequests to spouses or charities would be exempt. The effective date of these proposed changes would be January 1, 2022. 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.
April 15, 2021
Real Estate
This Week in Real Estate: LLC and LLP Asset Protection
Pursuant to most LLC and LLP statutes, there are three types of asset protection provisions— a liability shield provision, “pick-your-partner” provisions, and charging order provisions. Essentially: Liability shield provisions protect the personal assets of partners, members and managers (except contributions to the entity) from liability for claims by third parties against their LLC or LLP. “Pick-your-partner” provisions protect the management rights of members and partners from the members' or partners’ creditors. Generally, charging order provisions limit a judgment creditor’s recourse to a members' or partners’ basic economic rights, in other words, their right to allocations of income and losses and their right to distributions of cash and other assets. As This Week in Real Estate has discussed numerous times, the Delaware LLC Act is the preeminent act in the country. Section 18-303 of the Delaware LLC Act provides in its entirety as follows: 18-303 LIABILITY TO THIRD PARTIES (a) Except as otherwise provided by this chapter, the debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the limited liability company, and no member or manager of a limited liability company shall be obligated personally for any such debt, obligation or liability of the limited liability company solely by reason of being a member or acting as a manager of the limited liability company. (b) Notwithstanding the provisions of subsection (a) of this section, under a limited liability company agreement or under another agreement, a member or manager may agree to be obligated personally for any or all of the debts, obligations and liabilities of the limited liability company. See 6 Del. C. § 18-303. Similarly, for LLPs, Section 15-306 of the Delaware RUPA. This provision provides in its entirety as follows: 15-306 PARTNER’S LIABILITY (a) An obligation of a partnership arising out of or related to circumstances or events occurring while the partnership is a limited liability partnership or incurred while the partnership is a limited liability partnership, whether arising in contract, tort or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of indemnification, contribution, assessment or otherwise, for such an obligation solely by reason of being or so acting as a partner. (b) Notwithstanding the provisions of subsection (c) of this section, under a partnership agreement or under another agreement, a partner may agree to be personally liable, directly or indirectly, by way of indemnification, contribution, assessment or otherwise, for any or all of the obligations of the partnership incurred while the partnership is a limited liability partnership. See 6 Del. C. § 15-306. Here are the most important things regarding statutory liability shields: Statutory liability shields do not confer limited liability on LLCs or LLPs themselves, but only on their members or partners. In any claim against an LLC or an LLP, all of its assets will be at risk, and the most important way for an LLC or LLP to protect against this risk is by acquiring and maintaining adequate liability insurance. Statutory liability shields do not protect LLC members or managers or LLP partners from liability for personal misconduct. LLC members or LLP partners may be personally liable for claims against their entity on veil-piercing grounds. Liability shields do not protect partners, members and managers from claims by members that they have breached their fiduciary or contractual duties to the entity. Under many acts, including the above Delaware LLC Act § 18-303(b) and Delaware RUPA § 15-306(e), members and partners may waive their limited liability in their operating or partnership agreements or otherwise.
April 9, 2021
The Weekly Scenario
The Weekly Scenario: Designating a Beneficiary on a Vehicle Title
Like an individual retirement account or life insurance policy, a vehicle owner can designate a beneficiary to receive ownership of a Maryland titled vehicle upon their death. Since the designation is made prior to the death of the individual, the vehicle will not be considered part of the estate; therefore, Letters of Administration (obtained as a result of opening a probate estate matter) will not be required for transfer. What are the requirements (and clarifications): The vehicle must be solely owned and currently titled in Maryland; Only one beneficiary can be named; which can be either an individual or a business entity; A beneficiary must be designated prior to the death of the vehicle owner; A beneficiary may be added, even if the vehicle is subject to a lien. When the vehicle is transferred to the beneficiary all liens must be satisfied, or a letter of permission from the lien holder must be provided to change ownership to the beneficiary; The designation of a beneficiary does not affect the ownership of the vehicle until the death of the vehicle owner; The owner of the vehicle may choose to delete or change the designation of a beneficiary or sell the vehicle at any time prior to their death without the consent of the beneficiary. Once a beneficiary is designated, a corrected title will be delivered to the vehicle owner. All previously issued titles will be voided. In addition, no inspection is required if the beneficiary is an immediate family member (spouse, child, or parent of the deceased). In addition: The vehicle registration may be transferred if the vehicle is transferred to a member of the immediate family. All other transfers will require the purchase of new registration plates; At the time the transaction is submitted for processing a death certificate must accompany the title. If the MVA has received notification of the vehicle owner’s death from the Department of Health and Mental Hygiene, the death certificate would not be required; There is a fee to add, delete or change a beneficiary to a vehicle title record. The beneficiary designation form is available on the MVA’s website. 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.
April 8, 2021
Business
The Terrifying New York Definition of a Franchise
As Published in the New York Business Law Journal Licensing is big business. Brand owners may license selected product lines, create brand extensions, enter new markets or simply enhance their brands through licensing. But few brand owners know that the New York Franchise Sales Act (“NYFSA”), by its terms, regulates licensors who provide no marketing assistance and impose no requirements other than quality control. The definition of a “franchise” under the NYFSA is extremely broad.[1] It covers far more business arrangements than anyone would reasonably consider to be a franchise. This anomaly puts New York franchise law in “left field” as the late Rupert Barkoff noted in his excellent article published in the New York Law Journal on May 1, 2012.[2] This is an understatement. The NYFSA, which has not been revised since it went into effect in 1981, is not even in the same ballpark as similar legislation in other jurisdictions. Barkoff called this anomalous New York definition of a franchise “terrifying.” In order to sell franchises anywhere in the U.S., a franchisor must prepare a detailed franchise disclosure document that includes audited financial statements. A franchisor located in New York, or a franchisor that intends to sell franchises to buyers in New York, must register the offering with the state Attorney General’s Office before the franchisor may lawfully sell franchises from or in the state. The franchisor must then make the required disclosures to each prospective franchisee and wait 10 business days (or 14 calendar days in the other dozen or so states that regulate franchise sales) before entering into the agreement or accepting any payment. Failure to comply with the NYFSA can result in enforcement action by the New York State Attorney General’s Office and private actions by franchisees for rescission, damages, injunctive or declaratory relief, attorneys’ fees, and costs. Willful violation of the NYFSA can lead to punitive damages and criminal liability. Not only can a simple trademark license agreement be a franchise in New York. A marketing consulting agreement can also be a franchise. So can a distribution arrangement where the distributor must pay an initial fee to the supplier to gain the right to distribute in a specific market or territory. To put this another way, outside of the business arrangement that we all know as a franchise is a large “gray” area in which the arrangement is at risk of being a franchise under New York law. In short, the NYFSA is a trap for the unwary. Most people would not think of consulting with a franchise lawyer before entering into a trademark license agreement or a marketing agreement. Yet failure to comply with the NYFSA can give ammunition to an aggrieved licensee in a dispute with its licensor or result in prosecution of the licensor by the New York State Attorney General’s office. The broad definition of a franchise cries out for change in the law. A Two-Prong Definition Impedes Business in New York The definition of a franchise under most franchise sales laws contains three elements: a fee, a trademark and a marketing plan prescribed in substantial part by the franchisor. The franchise sales laws of Maryland and Virginia are typical examples.[3] These definitions, unlike the New York definition, are also similar to the definition of a franchise under the Federal Trade Commission’s trade regulation rule on franchising (the “FTC Rule”), which also contains three elements.[4] The New York definition of a franchise has just two elements.[5] One element is either a trademark or a marketing plan prescribed in substantial part by the franchisor. The second element is a fee. Each of the franchise sales laws, of course, has various exemptions and exclusions from the definition of a franchise.[6] Both prongs of the NYFSA’s definition of a franchise raise issues. Starting with the first prong, what does it mean to grant “the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor” without a trademark? A marketing consultant may provide a marketing plan to a client to enable that client to launch a business. Certainly, the client will pay a fee. Is this a franchise? When does such an arrangement constitute a “grant” of the “right” to engage in a business? The statute is not at all clear on what type of arrangement this prong of the definition is intended to cover. The second prong is easier to understand but is extremely broad. The plain language of the statute covers many license and distribution arrangements that would not be considered franchises in other states. Any trademark license granting someone a right to engage in a business in consideration for a royalty would fall within the definition of a franchise under the NYFSA. So would a distribution arrangement with no grant of trademark rights in which the distributor pays a one-time fee to the supplier to purchase the distribution rights. These are not the types of business arrangements that anyone unfamiliar with New York law would expect to be franchises. For licensors who receive proper legal advice, this broad definition is an impediment to doing business in the state of New York or with a person located in New York. The proper advice in many of these cases is that the broad scope of the New York law creates risk and imposes a degree of uncertainty. This advice would discourage some from locating their business in the state. Why would a licensor choose to be subject to the extensive franchise registration and disclosure requirements in New York when the company can avoid these requirements by locating in or licensing into any other state? Why would a consultant based in New York or working with a New York client provide a marketing plan to enable the client to launch a business? For Traditional Franchisors, New York’s Broad Definition of a Franchise is a Non-Issue Companies that offer traditional franchises have no issue with the broad definition of a franchise under the NYFSA. Franchisors know that they must prepare franchise disclosure documents in accordance with the FTC Rule and, when necessary, also in accordance with the requirements of the NYFSA and the franchise laws of other states. Franchisors register their franchise offerings in New York as they do in other states and they make the required disclosures to prospective franchisees. The broad definition of a franchise under the NYFSA also does not adversely affect franchisees or prospective franchisees in traditional franchise arrangements. They receive the required disclosures from their franchisors regardless of the law’s overly broad definition of a franchise. The “terrifying” aspects of the New York definition apply only to those who would not be considered franchisors under the FTC Rule or the franchise sales laws of any other state. Narrowing New York’s broad definition of a “franchise” to conform to the definition in other states would have no effect on franchisors or franchisees as those terms are commonly understood. Does the Broad Definition Serve a Useful Purpose? In practice, relatively few litigants raise the issue of noncompliance with the NYFSA against trademark licensors or marketing consultants. The Attorney General’s Office seldom prosecutes business arrangements that are not commonly understood to be franchises. The reason may be that these business arrangements do not require the protections that the NYFSA affords to prospective franchisees. Maybe we should view trademark licensors and certain marketing consultants in New York as we do drivers who speed on a highway. Drivers often speed. Only a small number are prosecuted. But speeding is dangerous. A simple trademark license agreement or marketing consulting agreement is not. The sparse enforcement of the NYFSA does not change the fact that the threat is always there. An enforcer can arbitrarily decide at any time to enforce it. Why should a licensor or consultant have to run this risk? The fact that the Attorney General’s Office does not apply the law to arrangements that are not commonly understood to be franchises also indicates that the Attorney General’s Office may not view the broad definition as a necessity. Cutting back the definition so that it conforms to the laws of other states would not significantly change the enforcement activity at the Attorney General’s Office. Nor would it change the way private litigants behave. A revised NYFSA could eliminate the registration and disclosure requirement for businesses that lie in the “gray” area of the New York definition today while retaining the Attorney General’s broad anti-fraud jurisdiction for these businesses. If necessary, the state might even consider enacting a “business opportunity” law, as roughly half of the states have done, which would regulate some business arrangements in the “gray” area but have far less onerous registration and disclosure requirements than a franchise law. The broad definition of a franchise has been a part of the NYFSA since it became effective in 1981. New York was the last state to enact a franchise sales law, and that law has never been amended. One commentator noted in 2012 that the NYFSA “was crafted to attack a vast criminal invasion of the franchise arena which transpired in the 1960s and 70s (including significant organized crime involvement) and to safeguard New York’s reputation as the financial capital of the world.”[7] In other words, the NYFSA was written expansively in order to give the Attorney General broad latitude to prosecute bad actors who might run off with initial franchise investments of would-be franchise buyers. The same author noted in 2020 that on its 40th anniversary, the NYFSA “achieved its intended purpose – the eradication of massive fraud and criminality that had permeated the then-nascent franchise arena.”[8] Even if there was a need for a franchise law with such broad application in 1981, there is no such need today. Undoubtedly, the FTC Rule, which went into effect in 1979, also played an important role in cleaning up an industry that was riddled with fraud, as did the franchise laws of other states, which were all enacted in the 1970s before the FTC Rule became effective. Time for Change Most business owners want to comply with applicable laws. If by chance or good fortune a business owner based in New York or planning to do business in New York happens to consult with a franchise lawyer before entering into a trademark license agreement or a market consulting agreement, that business owner might be advised either to seek a discretionary exemption or to locate the business outside the state of New York and to consider not entering into the contract with anyone who is located in New York. This sounds extreme because it is. Franchising is a respected way of doing business. Franchising is also an important part of the U.S. economy.[9] With some careful revising, the NYFSA can make franchising a far more important part of the New York economy than it is today. The broad definition of a franchise under the NYFSA today is the single most important reason to change this law. It is high time for New York State to change its definition of a “franchise” to conform more closely with the franchise sales laws of other states. [1] N.Y. General Business Law (GBL) Article 33, Section 681.3 defines a franchise as follows: "Franchise" means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which: (a) A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor, and the franchisee is required to pay, directly or indirectly, a franchise fee, or (b) A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate, and the franchisee is required to pay, directly or indirectly, a franchisee fee. [2] “New York Franchise Act: Out in Left Field,” by Rupert M. Barkoff, NYLJ 5/1/2012. [3] Section 14-201(e)(1) of the Maryland Business Regulation Code provides as follows: “Franchise” means an expressed or implied, oral or written agreement in which: (i) a purchaser is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by the franchisor; (ii) the operation of the business under the marketing plan or system is associated substantially with the trademark, service mark, trade name, logotype, advertising, or other commercial symbol that designates the franchisor or its affiliate; and (iii) the purchaser must pay, directly or indirectly, a franchise fee. Section 13.1-559(A) of the Code of Virginia (the Retail Franchising Act) defines a “franchise” as follows: "Franchise" means a written contract or agreement between two or more persons, by which: 1. A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services at retail under a marketing plan or system prescribed in substantial part by a franchisor; 2. The operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and 3. The franchisee is required to pay, directly or indirectly, a franchise fee of $500 or more. [4] 16 CFR Section 436.1(h) provides as follows: Franchise means any continuing commercial relationship or arrangement, whatever it may be called, in which the terms of the offer or contract specify, or the franchise seller promises or represents, orally or in writing, that: (1) The franchisee will obtain the right to operate a business that is identified or associated with the franchisor’s trademark, or to offer, sell, or distribute goods, services, or commodities that are identified or associated with the franchisor’s trademark; (2) The franchisor will exert or has authority to exert a significant degree of control over the franchisee’s method of operation, or provide significant assistance in the franchisee’s method of operation; and (3) As a condition of obtaining or commencing operation of the franchise, the franchisee makes a required payment or commits to make a required payment to the franchisor or its affiliate. [5] Note 1 supra. [6] See Exemptions and Exclusions Under Federal and State Franchise Registration and Disclosure Laws, Leslie D. Curran and Beata Krakus, Editors (ABA Forum on Franchising, 2017). [7] “In Defense of the New York Franchise Act,” by David Kaufmann, NYLJ June 26, 2012. [8] “New York Franchise Act Turns 40 – A Look Back,” by David Kaufmann, NYLJ June 25, 2020. [9] See, e.g., https://www.franchise.org/franchise-information/franchise-business-outlook/franchise-business-economic-outlook-2020
April 6, 2021
Intellectual Property
Is Genericide Still A Thing? Maybe We Worry Too Much About 'Proper Use Of Trademarks'
As Published in The Legal Intelligencer – Special Section March 2021: Intellectual Property By: Laura Winston Earlier this year, the comedian Seth Meyers was making a joke about a politician on his talk show "Late Night with Seth Meyers." In doing so, he referred to a well-known brand of popular plastic building bricks as “Legos.” Mr. Meyers was immediately flooded with online comments telling him that the plural of Lego is Lego. He took to the airwaves again on the topic, thanking the commenters but adding, “It’s too late for me…I’m not going to walk home and tell my kids `Clean up your Lego’”. Not long after, the owner of the world-famous LEGO trademark got into the act via a tweet, saying, “Hey @SethMeyers, let us blow your mind...the plural is not `Legos.’ It’s not even `Legos.’ It's actually `LEGO BRICKS!’" @LEGO_Group, Twitter (February 11, 2021), https://twitter.com/lego_group/status/1359856214591627269. If you have questions about this or any other legal matter, please feel free to contact Laura Winston at 347.589.8536 Reprinted with permission from the March 30, 2021 issue of The Legal Intelligencer. © 2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
April 5, 2021
Business
Avoiding an Adverse Tax Impact on Death of an S Corporation Shareholder
As Published on American Bar Association – ABA Tax Section I. Introduction One of the main reasons to consider a partnership for owning a business rather than an S Corporation is the adverse impact upon death if the business is held by an S Corporation. Now there are solutions to this problem for S Corporation shareholders that tax advisers need to add to their toolbox. These solutions convert the tax status of the business from an S Corporation to a partnership for federal tax purposes, in a federal income tax-neutral manner. This can be accomplished through liquidation in the case of a deceased shareholder or reorganization prior to death of a shareholder. A. Upon the Death of an S Corporation Owner Specifically, upon the death of an S Corporation owner, the heirs are denied the benefits of receiving a step-up in bases in underlying corporate assets to fair market value. In a partnership, the heirs receive a full income tax-free step-up in basis for all of the underling partnership assets and the benefits of obtaining the income tax shelter from new large depreciation deductions. However, in an S Corporation when the owner dies, the shareholder heirs only receive a step-up of basis in the corporate stock equal to the fair market value of the company at the date of death. The underlying S Corporation assets retain the same pre-death tax bases even though the decedent estates in both cases have the same federal estate tax implications and costs. Therefore, the S Corporation heirs should consider promptly liquidating the corporation to also achieve an income-tax neutral stepped-up basis for the company’s assets. This same technique can also be considered if a surviving shareholder buys out the estate of a deceased shareholder. If you have questions about this or any other legal matter, please feel free to contact Herb Fineburg at 267.338.1376 or Charles McCauley, III at 484.531.1712. Read the full article below.
April 1, 2021
Page 35 of 36
About the Blog
Receive timely content, newsletters and event information delivered to your inbox.
