Labor and Employment
Separate Pay for Restaurant “Side Work?” Maybe.
Anyone who has ever worked in the restaurant industry is familiar with the term "side work." For most servers, side work, typically consisting of folding napkins, setting tables, restocking, and other maintenance tasks, often make up a significant portion of their work hours. This is especially true when the restaurant is slow and there isn't much for servers to do. Side work, which is untipped work, is typically regarded as undesirable grunt work that is a necessary evil of waiting tables. Often, since restaurant owners can reduce servers' hourly rates well below the minimum wage to account for tips, employees are making as little as $2.13 per hour. However, a rule proposed by the DOL is seeking to change the way employees are paid for their side work, creating a dual approach where employees are paid at one rate when completing tip-producing duties and another when completing other tasks. Under the proposed rule, individuals who spend a "substantial amount of time" on untipped side work would be entitled to the full minimum wage for certain hours worked. The DOL defines a "substantial amount of time" as (a) spending more than 20% of their hours worked in a workweek on side work (otherwise known as the 80/20 rule), or (b) spending more than 30 minutes of uninterrupted time on side work must be paid standard minimum wage. Thus, per the proposed rule, if an employee spends a substantial amount of time on untipped work, the employer will not take a tip credit and lower the employee's minimum wage for the time the employee spends on untipped work. The comment period for the DOL's proposed tipped rule closes on August 23, 2021. If it is adapted, restaurants will need to shift from simply tracking the hours employees work to documenting what employees are doing during those hours.
July 2, 2021
The Weekly Scenario
The Weekly Scenario: Health Care Directives
A common mistake is to assume that estate planning is solely about ‘death’ planning and writing wills (and trusts) to make sure that your property is distributed according to your wishes after your death. Planning for incapacity or disability planning is often overlooked, but it can be essential because it addresses what happens if you are unable to make medical decisions or handle your financial affairs because of an injury or medical condition. In most states, your wishes regarding your medical treatment may be made known by executing an advance directive to express your healthcare wishes. A healthcare directive often contains both healthcare Power of Attorney provisions in addition to a “Living” Will. Healthcare directives will allow you to express which kinds of medical treatments should be withheld. For example, you may specify that you would not want surgery, respirators, or other life-prolonging procedures to be used if there is no reasonable expectation of your recovery. Once you have executed a healthcare directive, you have the option to change it or revoke it at any time. Living wills take effect when your death can no longer be significantly delayed by treatment. Healthcare directives, in contrast, will generally become effective as soon as you are unable to speak for yourself due to a terminal or end-stage medical condition or coma. The healthcare Power of Attorney allows you to appoint an agent to make healthcare decisions on your behalf should you become unable to communicate your healthcare wishes yourself. You can specify that your agent must make healthcare wishes according to what is stated in your healthcare directive. If your healthcare directive does not address a particular situation, or your desire is to give your agent authority to make all medical decisions for you, you can direct your agent to decide based on the preferences you have expressed to that person (within or outside the document). In addition to making healthcare decisions on your behalf, your agent can be empowered to: Check you in and out of hospitals and medical facilities Hire and fire medical staff responsible for your care Receive information concerning your care Review your medical records Speak to insurance providers It is essential to have a medical directive as part of any estate plan. 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.
July 2, 2021
Intellectual Property
What Does the Future Hold for College Athletics after the Supreme Court Decision in NCAA v. Alston?
On June 21, 2021, the United States Supreme Court issued a unanimous decision in National Collegiate Athletic Association v. Alston. The long-anticipated decision affirmed the injunction against NCAA rules that limited the education-related benefits schools may offer student-athletes. But perhaps equally as important as the majority decision is the concurring opinion by Justice Kavanaugh. BACKGROUND Current and former student-athletes in men’s Division I FBS2 football, and men’s and women’s Division I basketball brought a class-action claim against the NCAA and eleven Division I conferences, alleging that their agreement to restrict the compensation colleges and universities may offer the student-athletes who play for their teams violated the Sherman Anti-trust Act. The District Court’s March 2019 ruling enjoined the NCAA from enforcing “rules limiting the education-related benefits schools may offer student-athletes—such as rules that prohibit schools from offering graduate and vocational scholarships.” However, the District Court decision also allowed the NCAA to maintain its rules limiting athletic scholarships to the full cost of attendance and restricting compensation and benefits unrelated to education. The Ninth Circuit affirmed, and the injunction took effect in August 2020. SUPREME COURT DECISION On appeal, the Supreme Court only considered the injunction’s legality. The Court unanimously held that “[t]he district court’s injunction is consistent with established anti-trust principles” and that the NCAA’s compensation restrictions were “properly subjected to antitrust scrutiny under a ‘rule of reason’ analysis.” The Court determined that: First, “the NCAA enjoys ‘near complete dominance of, and exercise[s] [monopoly] power in, the relevant market’” of “athletic services in men’s and women’s Division I basketball and FBS football.” As a result, the NCAA and its member schools are able to “restrain student-athlete compensation in any way and at any time they wish, without any meaningful risk of diminishing their market dominance.” Second, while the NCAA was concerned that the injunction would result in “micromanagement” of its business, the Court noted that the injunction applies only to the NCAA’s rules “limiting the education-related benefits” that conferences or schools may offer student-athletes. Relaxing these restrictions will not “blur the distinction between college and professional sports,” and the NCAA can achieve the “same procompetitive benefits” by significantly less restrictive means than its current rules provide. Finally, because the injunction applies only to the NCAA and multi-conference agreements, the Court reasoned that the injunction both leaves the NCAA with “considerable leeway” and leaves the individual conferences and their member schools “free to impose whatever rules they choose.” With this in mind, the Court upheld the injunction prohibiting the NCAA from enforcing its rules limiting education-related benefits that conferences and schools may provide to student-athletes, including those rules limiting scholarships for graduate or vocational school, payments for academic tutoring, and paid post-eligibility internships. These education-related benefits could not “be confused with a professional athlete’s salary.” The Court also held that the NCAA may continue to limit cash awards for academic achievement, but only if those limits are no lower than the cash awards currently allowed for athletic achievement (currently a maximum of $5,980 per year, but the NCAA is free to reduce the amount). To the extent the NCAA is concerned that schools might exploit the injunction to give student-athletes “unnecessary or inordinately valuable items” that are only nominally related to education, the Court held that the NCAA can specify and enforce “rules delineating which benefits it considers legitimately related to education” and forbid questionable benefits. Finally, the NCAA and its member schools can propose a definition of “compensation or benefits related to education,” and the NCAA is free to regulate how conferences and schools provide them. TAKEAWAYS Alston may bring student-athletes one step closer to receiving full benefits for their services. Looking forward, Justice Kavanaugh’s concurring opinion may give hope to student-athletes that further ground can be gained on this issue. Justice Kavanaugh directed his attention to the NCAA’s remaining compensation rules and suggested that they also “raise serious questions under the antitrust laws.” He found that these rules should also be scrutinized under “rule of reason” analysis, “absent legislation or a negotiated agreement between the NCAA and the student-athletes.” In such a case, Justice Kavanaugh leaves little doubt about how he would rule: The NCAA’s business model would be flatly illegal in almost any other industry in America . . . Price-fixing labor is price-fixing labor . . . No-where else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate. And under ordinary principles of anti-trust law, it is not evident why college sports should be any different. The NCAA is not above the law. Alston and the threat of potential future litigation may spur the NCAA to negotiate an agreement with conferences and schools, or even with student-athletes if they become unionized, out of concern that another court will use “rule of reason” analysis to dismantle its remaining compensation rules or otherwise “micromanage” its business. A negotiated agreement would at least allow the NCAA to maintain some control over whether any of its remaining compensation rules remain intact. The NCAA may also explore other options to achieve more robust compensation for student-athletes, including further expansion of the rules on how student-athletes may use their name, image and likeness beyond the NCAA Board of Governors’ proposed rules from April 2020. Read the Court’s ruling in Alston here: https://www.supremecourt.gov/opinions/20pdf/20-512_gfbh.pdf. This summary of legal issues is published for informational purposes only. It does not dispense legal advice or create an attorney-client relationship with those who read it. Readers should obtain professional legal advice before taking any legal action.
June 28, 2021
The Weekly Scenario
The Weekly Scenario: Retirement Funds from Previous Employers – Weighing the Options
The year 2020, and so far 2021, has been a reset of sorts. The ever-changing landscape has resulted in people deciding to retire, move or literally reset their careers. For most people, their retirement accounts represent a significant amount of wealth for them. What to do with retirement funds from a previous employer is an important decision. This discussion should be had with an advisor before jumping in. I will discuss 3 of the primary options for most people. Option #1 is to keep the funds in a company plan. A great reason to do so is that these plan assets receive federal creditor protection under ERISA. ERISA protection is a very high bar in bankruptcy, lawsuits and other judgments against the plan participant. Creditor protection should be considered before rolling these funds out of a company protected plan. Another reason to stay in the company plan has to do with the age 55 plan exception. If a participant is age 55 or older in the year he separates from service, keeping the 401(k) money in the plan means there will be no 10% early withdrawal penalty. If a rollover to an IRA is done, the age 55-exception on this money is lost. IRA withdrawals prior to age 59 ½ will generally be subject to the 10% early withdrawal penalty. Option #2 is to roll over the plan to a traditional IRA. IRAs have a number of benefits. Typically, IRA rollovers permit flexibility in making changes more quickly without the administrative hurdles that other plans can impose. Many employer-based plans can be more restrictive for example in terms of permitting trusts to be beneficiaries or will need spousal consents. IRAs do not have such requirements so for the most flexible and favorable post death payout, the better choice is almost always rolling the company plan into an IRA. Plan participants that take distributions from employer plans thinking there will be no 10% penalty if the funds are used for higher education expenses or (first time) home purchases are mistaken. The exceptions to the penalty only apply to withdrawals from an IRA. IRA plans can also generally offer more diverse and wide-ranging investment options. Option #3 is to convert to a Roth IRA. A conversion can be done within the plan if the plan permits this. If there is no Roth component to the employer plan, rolling plan money to a Roth IRA is the only way to get into a Roth. It is permissible to roll over part of the plan to a traditional IRA and part to a Roth IRA. This type of rollover to a Roth IRA would qualify as a valid conversion. However, it is not necessary to move the entire plan to a traditional IRA and then convert. For most people, it is recommended to roll after tax dollar plans (if applicable) into a Roth IRA (this would qualify as a tax-free conversion). After tax money rolled into a traditional IRA will create cost basis in the IRA and will need to be accounted for going forward.
June 25, 2021
Family Law
Courts Treat Pets as Personal Property in Divorces, and that is Unlikely to Change Anytime Soon in Maryland
In divorces in Maryland, pets are treated as mere personal property. In other words, the Court is not going to put a visitation schedule in place for a pet if the parties are unable to agree on who gets the pet. At most, the Court will determine the value of the pet and perhaps award a certain sum to the party who is not keeping the pet. I have thankfully never had to have a Court determine ownership or the value of a pet for a client, as my clients are generally able to reach an agreement on the issue. As the owner of an eleven-year-old rescue dog named Bernice, who cannot manage to get out of the veterinarian’s office for less than $300 a visit, I generally tell clients that the value of a pet is not worth the attorney’s fees of fighting over the pet, if the parties are unable to reach an agreement. While I love Bernice, she is more of a liability than an asset. I also know firsthand the emotional connection that you can have with a pet. In the recent case of Anne Arundel County v. Reeves, 2021 Md. Lexis 259 (Md. Ct. of Appeals June 7, 2021), however, the Court declined a suggestion that the Court re-examine the classification of pets as personal property and treat a pet as something worthy of emotional damages in the case of injury or death. I first became aware that Maryland has a statute capping damages for the injury or death of a pet as a first-year associate, when the managing partner of my former firm asked me to handle a trial involving a claim of damages to a very old, pure-bred dog. It was the type of case that older attorneys love to give to first-year associates. The client was devastated, but the statute capped damages, and the defendant disputed liability. Half-way through a full-blown trial, my client testified so well regarding her upset that the defendant offered a settlement, which my client accepted. While the emotional significance of pets has become even more accepted in the twenty years since that shining moment in my legal career, the Reeves case makes clear that Maryland is no closer to changing the legal significance of pets. In Reeves, the Court held that damages for the shooting death of a pet by a police officer were limited by statute to $7,500 and were limited to compensating for the fair market value of the pet, in the case of the pet’s death, and veterinary bills to care for an injured pet or care of a pet prior to death. The Court ruled that the statute did not allow for noneconomic damages for the death or injury of a pet, such as pain and suffering. The Reeves case and the decision not to change the legal standing of pets avoids numerous complications that would arise if the Court had decided otherwise. An obvious negative consequence that the outcome avoids is increased liability for veterinarians and kennels. A not so obvious potentially negative outcome would have been the increased complications in divorce cases if a pet is considered something more significant than personal property. Thankfully at least for family lawyers, if not pet owners, the custody of pets will not be an issue that can be disputed in Maryland divorces. 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.
June 24, 2021
Family Law
Recent Case Makes Clear that Guardians in Maryland Cannot Change Beneficiary of Life Insurance Policy of Ward Without Prior Court Order
There is a saying that is common among guardianship attorneys, namely: “When in doubt, let the Court sort it out.” In other words, if the guardianship statutes or rules do not specifically allow you to do something, get a court order blessing your action in advance. The recent case of United Bank v. Buckingham, 472 Md. 407, 247A.3d 336 (Md. 2021) reinforces that saying, as the Maryland Court of Appeals found that the guardian could not change the beneficiary of the ward’s life insurance policy without prior court approval. The Court noted that a section of the guardianship estate addressing a guardian’s authority as to life insurance policies, namely Maryland Ann. Code, Estates and Trusts § 15-102(t), did not specifically give the guardian the authority to change the beneficiary, although the statute gave the guardian authority to conduct several other life insurance transactions. The Court rejected the reliance upon 13-203(c)(1) of the Estates and Trusts Article for authority. Section 13-203(c)(1) gives a guardian, except with specific limitations, “all the powers over the property of the minor or disabled person that the person could exercise if not disabled or a minor.” The Court found that this general language was insufficient to authorize a guardian to change a beneficiary of a life insurance policy. In the Buckingham case, one could argue that the outcome could have been due, in part, to the bad facts of the case, as it was alleged that the beneficiary designation was changed in an effort to avoid a creditor of the ward from collecting the funds after the ward’s death. The court found that the change was contrary to the guardian’s duty to preserve a ward’s estate of the ward’s heirs. Most cases I have been involved in, however, whether I have represented clients seeking guardianship, or I have been appointed guardian for someone, have starkly different facts. In many of these cases, a ward has been financially exploited by a family member, friend, or caregiver. In those cases, it is quite common for the exploiter to not only try to steal the ward’s money while the ward is living, but also to try to manipulate the ward’s estate planning framework, including beneficiary designations, asset titling, and the ward’s will, to inherit from the ward when the ward dies. I already counsel clients to seek court approval, prior to attempting to change any type of beneficiary change or other term of an estate planning framework. The Buckingham case makes clear that the Court also believes that guardians should abide by the “when in doubt” rule. If an action is not expressly authorized by the guardianship statute, a guardian is better off seeking court approval in advance, especially where there is likely to be a dispute over an asset or estate. 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.
June 22, 2021
Real Estate
Distressed Real Estate and COVID-19 - The Future is Here, Act Now
While COVID-19 restrictions and moratoriums may be coming to an end, COVID-19’s impact on real estate will continue to unfold. Landlords and tenants must still follow best practices: in short, know your contract, know your rights and remedies, and analyze the effect and cost of exercising those rights and remedies on your business and relationships. As retailers had to convert or expand online, curbside, and delivery services, real estate owners will need to reimage their space and the future demands and uses for their space. Short and long-term solutions will require creative and forward-thinking. Real estate has been down, but with a lot of capital still to be deployed across sectors, it is not out. Whether you view COVID-19 as an apocalypse or an accelerator of change already on the horizon, there is no better time than now to reimagine the future and consult your advisors to better understand the promises and pitfalls of the emerging real estate landscape.
June 21, 2021
The Weekly Scenario
The Weekly Scenario: The Importance of Digital Assets in an Estate Plan
When creating an estate plan, it is important to consider how to deal with your digital assets. Technology is constantly evolving, and so what constitutes a digital asset now may evolve into something completely different in a few years. What are some common examples of digital assets? Social media accounts Digital copyrights or trademarks Online bank accounts or investment accounts Digital photos, videos, or written works that produce income Email accounts Online photos Virtual currencies Credit card rewards Information or documents stored in the cloud Because digital assets usually do not have a tangible financial value, people often ask why you need to account for digital assets when planning your estate. The answer to this question is that creating a plan for digital accounts, whether they are financially ‘valuable’ in their nature, will make it easier for your family to retrieve these assets after you pass away. Estate planning for your digital assets eliminates the need for your loved ones to track down passwords and gives the beneficiaries of your estate the legal right to your passwords. Additionally, specifically for online financial accounts, estate planning for digital assets protects income that your digital assets can generate, such as royalty income or online records from a business. From a legal perspective, digital property is similar to other kinds of property. However, as digital property laws are still evolving, gaining access to digital assets or digitally encoded financial information can present challenges to those other than the original owner. For example, take passwords. If a family member does not know a password, he or she may not be able to access phone or computer and the digital assets on these devices. Aside from the password, data encryption is a complicating factor. Encryption can destroy data in a single file, device, or in the cloud, making it impossible for anyone without the proper passcode to unscramble it. Most digital assets exist on new technology, such as smartphones, that have advanced encryption. Thus, it is vital that you leave passwords behind or risk your family losing all of your information. All this has to be navigated around data privacy laws, which make it so online account service providers are unable to give the contents of electronic communications to anyone without the lawful consent of the data’s owner. The upshot is that this could leave your heirs unable to access photos, messages, online accounts, and other data. In order to address these difficult problems, the first step in the planning process is to inventory your digital assets (e.g., keep track of your online accounts and passwords). Next, you should determine how you want to manage your assets. You must decide what you want your estate or family to do with each of your digital assets when you pass away. You will also want to choose who you want to manage your assets –the executor of your estate, a family member, or perhaps a professional advisor. Finally, it is advisable to put any digital asset plan in writing. 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 18, 2021
Family Law
Who Gets the Dog?
“But who gets the dog?” This is a question I get often. In a situation like divorce, deciding where the dog will go can be tricky, as animals often feel like part of the family. And while just a few states (Alaska, Illinois, and California) have treated dog ownership disputes like custody cases, in most states, animals are considered a type of “chattel,” or personal property—just like jewelry, clothes, and artwork. Of course, in an ideal world, the parties are able to work out an agreement in regard to their animals, but if there is no written agreement as to who gets the dog and when the dog is likely to stay with the spouse who has possession. That is, if partner X moves out of the house, partner Y, who is still living in the house with the dog, will most likely get the dog. Most people are not aware of this, but it’s something both parties should keep in mind when considering moving out. Now, if there are minor children involved, that is a different story. I am seeing a trend in case law wherein the dog is ordered to follow the children. This makes sense, as children are often bonded to their pets and the judge will not want to separate the children and the dog; in other words, the children’s happiness takes precedence over parental preferences. Even when the decision is clear, such as when children are involved, logistics can still be a little sticky. For example, in a case of split custody in which the children travel back and forth between parents, arrangements must be made for the dog while the children are staying with the other parent. In some cases, the dog will travel to and from the parents’ houses with the children, but if the children attend school or daycare, the parents will have to separately agree to transition the dog from one house to the other. There are also situations in which, children or no children, the parties agree that if the party in possession of the dog must travel, they will give the other party the right of first refusal before seeking third-party care (such as a kennel). Each situation is different and will require legal expertise to get the right agreement in place. When considering who will “get” the dog, it’s important for parties to have an experienced attorney draft language to include who will have the dog, how the dog will be transferred between the parties, and how the dog’s expenses will be paid—this will help move things along more quickly and give the party in question a higher chance of a favorable outcome.
June 17, 2021
Business
The Fab Five’s $2 Billion Crypto-Fraud Flop
On May 28, 2021, the U.S. Securities and Exchange Commission (“SEC”) commenced an enforcement action against five U.S. individuals who, between January 2017 and January 2018 participated in BitConnect’s fraudulent scheme, which collectively raised an eye-popping $2 billion from investors throughout the world. The complaint alleges that: (i) the Fab Five promoted investments into a “lending program” to U.S. retail investors, promising significant return on investment; (ii) the sale of these investments into BitConnect’s lending program was an illegal, unregistered securities offering, sold without a valid exemption from the SEC’s securities registration requirement; and (iii) that the crew were part of a network of promoters selling these investments. BitConnect represented to its investors that the company could “deploy investor funds to trade in and profit from the volatility of Bitcoin,” promising monthly returns of up to 40%, or over 566% a year. In return for his promotion efforts, each defendant received compensation based on a percentage of investor funds received by BitConnect. The BitConnect complaint is one of a long list of SEC enforcement actions asserting that the sale of products promising returns, whether from trading in cash or cryptocurrency, are sales of securities. Others include Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Savings and Trust and In the Matter of Erik T. Voorhees. It is also a reminder that promoters cannot profit from the sale of securities—even unregistered securities—without being a registered broker-dealer, or affiliating with a licensed broker. Indeed, the complaint explains that receipt of transaction-based compensation, which often occurs “in the form of a percentage of the funds raised for investments,” is an important hallmark of a broker-dealer. (In a somewhat analogous anti-touting law, the SEC has obtained cease and desist orders against celebrities such as Floyd Mayweather, Jr., DJ Khaled and Steven Seagal for promoting securities sold via initial coin offerings or ICOs without publicly disclosing the compensation paid for these promotions.) The global reach of the BitConnect fraud also highlights how the SEC often cooperates with its overseas companion-agencies. Indeed the press release made specific mention of the assistance it received from the Cayman Islands Monetary Authority, the Hong Kong Securities and Futures Commission, the Monetary Authority of Singapore, the Ontario Securities Commission, the Romanian Financial Supervisory Authority, and the Thailand Securities and Exchange Commission. Ultimately, the BitConnect enforcement action serves as a reminder that the SEC is actively investigating the offer and sale of digital asset securities and fraudulent conduct surrounding these assets, even offerings as far back as the 2017 ICO Boom. Click here to learn more about the FinTech team at Offit Kurman.
June 16, 2021
Business
Five Phases of a Deal from a Sell-Side Perspective: Letter of Intent
Congratulations, you’ve received a letter of intent (LOI) to sell your business. What is your next step? Do you sign it because the valuation seems fair and the letter states the terms are not binding? Or do you ask your advisors, especially your legal counsel, to fully review? If you picked option two, you are a very smart seller. The letter of intent is frequently the “highwater mark” for seller deal terms. If the seller does not negotiate material commercial points and legal points, the ability to do so later in the transaction becomes compromised. Yes, the LOI is typically non-binding on the parties. However, it is an expression of goodwill and credibility. As the transaction process gets deeper, it is hard to negotiate material changes to the terms unless the seller is committed to walking away. If closing (and money) is within reach, many sellers will roll over on key items due to deal fatigue, lack of understanding, or buyer pressure. For a seller, leverage is paramount to negotiate the best transaction terms possible. The seller has the most leverage at the LOI stage. In addition, it is always better for a seller to know that a deal will fail on day 1 than day 45 when much time, energy and costs have been incurred. Make certain to have your attorney review all letters of intent before signature! Anatomy of the Deal 5 Phases of a Deal from a SELL-SIDE PERSPECTIVE: The Players and Their Involvement Pre- Transaction Planning Phase Rule: Find and eliminate skeletons; create multiple options Phase I: Letter of Intent Phase Rule: Know what you want and get it in writing as the LOI may be your high water mark Phase II: Due Diligence Phase Rule: Disclosure is your friend Phase III: Contracts Phase Rule: Confirm Business terms and Phase IV: Closing Phase Rule: Time is your enemy Phase V: Post Closing Phase Rule: Remember to dot the I’s and cross the t’s to meet all conditions Post-Transaction Planning Phase Rule: Enjoy your new status in life; make sure you’ve considered life without the business Sell Side M&A: Three Rules of Thumb for the Transaction Rule #1: You haven’t sold your business until you’ve sold your business Rule #2: Get your money upfront (as soon and as much as possible) Rule #3: Reduce and eliminate your trailing liabilities
June 16, 2021
Real Estate
This Week in Real Estate: Commercial Leases — Net Leases
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 know 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 14, 2021
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
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