The Weekly Scenario
The Weekly Scenario: Items that an Estate Plan Should Provide for a Spouse
The objectives that we hear most often from clients regarding a spouse include: I want my spouse to be able to maintain the lifestyle that we currently enjoy after I’m gone. I want to protect what I leave my spouse from people who might otherwise take advantage whether family members or strangers. I am in a second marriage and I want my spouse cared for after I am gone. But I also want to ensure that my estate goes to my children after my spouse passes away. I have handled most of our investments throughout our married life and my spouse has not been involved. I would like my spouse to maintain control, but I’d also like to provide investment guidance. I want to be sure my spouse can, while still benefiting my children, make adjustments in my bequests in order to address changes in the circumstances of my children and grandchildren that occur after I am gone. I want to get any tax protections that are available to my spouse. But what if my spouse remarries? One of the ways to protect a spouse’s assets is to have the estate plan require the surviving spouse sign a prenup if they desire to maintain control of the assets if and when they remarry. The plan could even remove the spouse as trustee or as a beneficiary of the trust if specific criteria are not met. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
August 27, 2021
Labor and Employment
That’s a violation of HIPAA! But is it…
It has certainly been an eventful summer from the reopening of businesses and office spaces, talk of a fall “comeback” with many employers hoping to return the majority of their workforce to working in person or operating in a hybrid model, and the elimination of mask mandates to the reinstatement of mask mandates, a delta surge, increased vaccine mandates, and approval of the Pfizer vaccine. As we have learned over the last 18 months, there is never a dull moment when it comes to the COVD-19 pandemic. Over the last month, I have seen a sharp increase in companies mandating vaccination in the workplace and organizations requiring proof of immunization or a negative COVID-19 test to attend meetings or events. With these increases in mandatory policies, I have also been fielding many questions regarding HIPAA compliance. Namely, what do we need to do to comply with HIPAA when requesting and obtaining medical information, such as vaccination status? Well, I am here to set the record straight-HIPAA probably doesn’t apply to your business. The Health Insurance Portability and Accountability Act of 1996, better known by its acronym, “HIPAA,” is a federal law that created national standards to protect sensitive patient health information from being disclosed without the patient’s consent or knowledge. Since this law covers patients, it only applies to healthcare providers, health plans, healthcare clearinghouses (“Covered Entities”), and business associates acting on behalf of these Covered Entities. HIPAA does not cover businesses that are not in healthcare or acting on behalf of healthcare entities. While HIPAA does not cover most businesses who call me with questions regarding HIPAA compliance, that does not mean they are not responsible for keeping medical information confidential and keeping it secure and out of the wrong hands. When it comes to protecting confidential medical information, other federal, state, and local laws likely apply. For example, when it comes to employees, under the Americans with Disabilities Act (ADA), employers are required to keep all employee medical information confidential and keep it in a confidential medical file separate from the employee’s personnel file. There are also laws, such as the Family Education Rights and Privacy Act (FERPA), that protect the medical information of elementary, secondary, and post-secondary students. While asking whether HIPAA applies is not technically relevant to most companies or organizations, the question has become a colloquial way of asking what they should do with confidential information to stay out of trouble, which is a thoughtful and necessary question. Ultimately, when obtaining or storing personal medical information of employees, clients, or event attendees, companies and organizations need to check federal, state, and local regulations to ensure compliance.
August 26, 2021
The Weekly Scenario
The Weekly Scenario: Where to Keep Your Trust
What if I can’t find a copy of my Trust and how do I prove it exists? Without a copy of the trust instrument, proving that such a trust is in existence can be a challenge. The attorney who drafted the trust, or the attorney or firm’s successor, should keep a record of the trust on file. But sometimes law firms go under or lawyers retire, and files are lost. One potential solution if no copy of the trust can be located is to file a declaratory action with the court. Such an action will provide clarification of the existence of the trust. The hope is that through the filing of the declaratory action, the court will issue an order of the existence of the trust and what the terms of the trust provide. A trustee will need to be appointed and if none exists, the court could appoint one at that time. While there might not be an actual trust document, there will likely be other evidence of the existence of the trust such as references to the trust on titling documents (Deeds, account statements, etc.). There might be an annual tax return that was filed which an accountant could attest to with the tax records. The court can consider these extraneous documents in a ruling of the existence of a trust. Clearly, having a copy of the trust instrument would be ideal. It would not be a bad idea to keep a copy in a safe deposit box or home safe (just be sure you are not the only person with access) with other important papers. You could also keep a copy in a cloud file, though accessing the cloud is not always 100% reliable. Your lawyer should have a cloud backup for all your executed legal documents. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
August 20, 2021
Real Estate
This Week in Real Estate: Commercial Leases — Base Year Lease
This Week in Real Estate continues its discussion on Leases. This week we’ll remain our focus on commercial leasing and discuss the base year commercial lease. In a base year lease, a base year is selected (usually the first year of the lease). The landlord agrees to pay the property’s expenses (Real Estate Taxes, Insurance and CAM) for the base year. The landlord continues to pay the property expenses at the base year level and the tenant agrees to pay its pro rata share of any increases in property expenses in excess of the amount of the base year. For example, if the property expenses for the base year (say 2020) are $100,000 and the expenses increase to $150,000 for the year 2021, a tenant with 20% of the square footage (or its pro rata share is 20%) would pay $10,000 (20% of the $50,000 increase) in 2021 in addition to the tenant’s base rent (with a NNN lease, the tenant would pay its pro rata share of the entire $150,000 in 2021 or $30,000 in addition to the base rent). Each year thereafter, the tenant pays its pro rata share of the property’s expenses but only to the extent that those expenses exceed the $100,000 established in the base year. In most cases, the annual increase in expenses is estimated at the start of each year and tenants pay monthly to spread out the cost over the year. In the above example, if at the beginning of 2021 the landlord over-estimated the increase in property expenses at $60,000, the tenant would pay monthly payments of $1,000 (20% of $60,000 divided by 12 months) totaling $12,000. The tenant thus overpays $2,000. At the end of 2021, the landlord would perform an expense reconciliation resulting in the extra $2,000 being credited back to the tenant. When presented with a base year lease, Tenants should take steps to minimize the uncertainty of their share of future expenses. First, ensure that the base year calculation is accurate. Landlords shouldn’t be reluctant to review their calculations with prospective tenants. Second, ask for historical data and trends to see how expenses have increased over time. This gives tenants a reasonable basis from which to anticipate future expenses. Tenants that move into a commercial space after the first of the year should ask for 12 months of base year protection guaranteeing 12 months of tenancy before expenses become due. Larger landlords are typically more amenable to this request. Tenants should also consider asking for a cap on operating expenses. Most landlords will be reluctant. However, it’s worth asking for as there are certain circumstances that can result in significant unanticipated expenses associated with remodels, improvements and/or tax reassessments after the sale or transfer of ownership of the property. Tenants and landlords should be careful when negotiation gross-up provisions in base year leases. With gross-up provisions, landlords calculate tenants’ pro rata share of variable expenses (expenses that vary with occupancy) based on 95% or 100% occupancy allowing landlords to recoup their actual expenses from existing tenants when occupancy is low. In base year leases, tenants need to ensure that the gross up provisions apply to the base year as well as succeeding years to avoid significant increases in expenses when occupancy levels rise after the base year. Otherwise, if the base year is one with less than full occupancy, tenants will be responsible for the expenses associated with full occupancy later (increases in expenses due to new tenants). As long as the base year is included, tenants with base year leases benefit from gross-up provisions. To avoid future conflict, the lease should specifically identify which expenses will be variable and which will be fixed. Finally, tenants should seek audit rights to ensure that expenses are accurately determined and that landlords are only being reimbursed for actual expenses. So long as landlords accurately account for expenses, base year leases are advantageous to both landlords and tenants. Tenants’ burden for common expenses is limited to increases over the base year level and landlords maintain revenue stability.
August 20, 2021
Family Law
So, What About Your Personal Property - Is It Yours?
Anything that you owned prior to your marriage, that you received through inheritance, or that was a gift to you (not to both of you) during the marriage, is not marital property. It’s yours. You can keep it upon divorce, and you do not need to offset the value of those items with anything that is marital. Usually, the engagement ring, since it’s given prior to the marriage, is not marital property. However, jewelry that was purchased during the marriage, even if it was a “gift” to one party from the other, remains marital, and will be divided, or it’s value will be offset upon divorce. Although that’s the law, to be frank, very few folks fight over marital property. It is expensive to do that, both financially and emotionally. Usually there is some agreement regarding furniture, home furnishings, artwork, etc. When the parties cannot agree, there are some options for resolution. Some of the options that have worked for our clients are: flipping a coin, and the winner gets first choice, then alternating until all of the marital property on the list is divided. Another option is that one party prepares two separate lists that “equitably” divide the property, and the other party gets to choose which of the lists is his/her property. Often, the parties attempt mediation, with the understanding that if they are not able to arrive at an agreement after a certain amount of time, the mediator makes the decision, as an arbitrator, and that decision is binding on the parties. Even when the division of the property that has value has been determined, there usually remains the issue of photographs, videos, movies of the family, etc. Fortunately, almost everything can now be reproduced, so that each of the parties can retain those very important memories. The issue of the cost of reproduction must be addressed. Because it can become very expensive, the parties often agree to share most of the items, rather than reproducing everything. Again, the options, should the parties not be able to agree, may be to resort to the flipping of the coin. Because physical ownership often determines control, one should either consider removing items that have great sentimental value from the marital home that one would be devastated to lose, or take photos or a video of everything in the house, so that a list can later be made that will include all of the marital personal property. In some cases, a personal property appraiser is required to assess the value of the assets. This is especially true in the case of artwork and antiques. Best advice is to keep a record of all significant items, not only in case of separation and divorce, but also in case of loss due to fire or theft.
August 18, 2021
Family Law
The Rundown on Custody Evaluations: A Q&A
When a divorce involves children and a court-issued custody evaluation, the parents can understandably be uneasy about the process, what it will entail and how it will affect the outcome of the custody arrangement. The key to successfully navigating a custody evaluation is understanding how they work and having a strategy in place with your divorce attorney beforehand. Here are the most common questions my clients ask me about custody evaluations. Q: What is a custody evaluation, and when are they used? A: Custody evaluations are sometimes appointed in highly-contested divorces involving children; A custody evaluation is the legal process in which a court-appointed mental health expert (or chosen by the parties) evaluates a family and makes a custody recommendation to the court based on the child(ren)’s best interest. You should expect a series of interviews conducted both alone with the evaluator and with the evaluator and the other parent, and with you and your child(ren). In some cases, psychiatric testing for one or multiple family members will also be part of the process. Q: What is the goal of the custody evaluation? A: The goal of the custody evaluator is to gather data from the parties, witnesses, documents and the children themselves to ultimately render an opinion on physical custody (the visitation/access schedule of the children) as well as legal custody (decision-making authority for the children). Q: What qualifications does a custody evaluator have? A: For the most part, custody evaluators are trained mental health professionals. In some jurisdictions, the custody evaluators are psychologists, but it varies. In my local jurisdiction, the court evaluators are social workers. While psychologists can do psychological testing during an evaluation, non-psychologist evaluators cannot. Most court evaluators are not licensed to conduct the psychological testing that is sometimes needed to help the family understand and address a parent or child’s mental health issues. This is when it might be more beneficial to hire a private evaluator who can do the appropriate psychological testing, but private evaluators can be quite expensive. Q: How much will it cost to get a custody evaluation? A: Some courts have the resources available to appoint custody evaluators at no expense to the parties, which is the case in my jurisdiction. Otherwise, if the evaluation is being commissioned through a court-connected program, the fees will be determined by the court’s policy. Private evaluators typically charge by the hour, and the fees can be significant. Q: How much influence does the evaluator have over the judge’s final decision? A: It is my experience that the courts do not always follow the recommendations of the evaluators; however, the courts do like to hear what the evaluator learned from their observations, and the evaluator’s perspective can certainly sway the judge in one direction or the other. Q: Should I request a custody evaluation? A: This is a question that you should discuss with an experienced divorce or custody attorney. There is some strategy involved as to whether, or not, a custody evaluator makes sense for your specific situation, and your attorney can help you navigate that. For example, if you already have significant leverage and the judge is likely to rule in your favor already, adding another layer of complexity to the case with a custody evaluation may not be the best choice. Q: What if I disagree with my ex-spouse on whether or not to get a custody evaluation? A: If the parties do not agree on whether or not to get a custody evaluation, one side may file a motion requesting a court or private evaluator; the other side will likely oppose the motion, and the court will make the decision. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
August 16, 2021
The Weekly Scenario
The Weekly Scenario: Where is the Original Copy of your Will?
You should let someone know where your original Will is stored. If one cannot be found after a person dies, a court may decide it was destroyed. Dying without a Will means intestacy will rule the day and, in that case, state law determines how probate assets will pass. It may be a good idea to keep a copy of the Will in a safe deposit box, but if you put the original there, it may be difficult to retrieve it after death. Most states require that safe deposit boxes be sealed after the renter dies and a Personal Representative will need to be appointed in order to gain access to the box. Other places to store your will include: Store an original in the office of the Register of Wills in the County where you reside. Have your attorney and/or your accountant retain the original will. Some law offices will retain the original in a Will safe file. Store the will at home in a safe place. While there is a possibility that the Will could be lost, inadvertently destroyed, or discovered by an interested party who could deliberately destroy or conceal it, this is generally not a huge risk. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
August 13, 2021
Labor and Employment
Can Public Facing Businesses Deny Entry Based on Vaccination Status?
MAY I DENY A CUSTOMER OR CLIENT ENTRANCE TO MY BUSINESS? YES BUT. Business owners concerned about customers or clients entering their place of business without proof of a COVID-19 vaccine should be mindful of their obligations under Title III of the Americans with Disabilities Act. Specifically, Title III prohibits discrimination on the basis of disability in the activities of places of public accommodations (businesses that are generally open to the public and that fall into one of 12 categories listed in the ADA, such as restaurants, movie theaters, schools, day care facilities, recreation facilities, and doctors’ offices) and requires newly constructed or altered places of public accommodation—as well as commercial facilities (privately owned, nonresidential facilities such as factories, warehouses, or office buildings)—to comply with the ADA Standards. 42 U.S. Code § 12182 et seq. While Title III has general restrictions that businesses have to abide by when they choose to deny accommodations, a business may deny goods or services to individuals if their participation would result in a “direct threat” to the health and safety of others, but only when this threat cannot be eliminated through an alteration of policies, practices, procedures, or providing auxiliary aids and services. See 42 U.S.C.A. § 12182 (b)(3). Unsurprisingly, there is no precedent applying the law of public accommodations to an individual’s inoculation status. And though no court has yet said that the “direct threat” provision of Title III will be an affirmative defense to public accommodation discrimination, the analogous “direct threat” provision of Title I of the ADA, concerning employment discrimination, has been held to be an affirmative defense. Chevron U.S.A. Inc. v. Echazabal, 536 U.S. 73, 78 (2002) (interpreting 42 U.S.C. § 12113(b)); see also Bragdon v. Abbott, 524 U.S. 624, 649 (1998) (§§ 12113(b) and 12132(b)(3), of Titles I and III, are “parallel provisions”). Still the Equal Employment Opportunity Commission, analyzing the analogous provisions under Title I, has said that under the ADA, a “direct threat requirement is a high standard.” See What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws, EEOC Guidance, available at https://www.eeoc.gov/es/node/131879. WHAT IF A CUSTOMER REFERENCES HIPPA? HIPAA does not prohibit businesses or employers from requestinghealth information, including information about vaccination status. Rather, HIPPA protects the disclosure of such by the provider. Here is why: HIPPA applies to the following: Health plans Health care clearinghouses Health care providers who conduct certain financial and administrative transactions electronically. These electronic transactions are those for which standards have been adopted by the Secretary under HIPAA, such as electronic billing and fund transfers. WHAT ARE MY OBLIGATIONS BEFORE DENYING A CUSTOMER OR CLIENT ENTRANCE TO MY BUSINESS? Businesses would be wise to apply the same three step review of their policies and procedures that they would with their customers and clients under Title III, as they would with their employees under Title I. First, businesses should make an individual assessment before turning away a customer or client. In determining whether a customer or client poses a direct threat to the health or safety of others, a business must make an individualized assessment, based on reasonable judgment, that relies on current medical knowledge or on the best available objective evidence, to ascertain: STEP 1: The business must identify the specific risk posed by the individual. Here, the inquiry is whether the unvaccinated customer or client will expose others to COVID-19. STEP 2: Once the risk is determined, then the business must look at the four factors of whether the “direct threat” actually exists: Duration of the risk; Nature and severity of the potential harm; Likelihood that the potential harm will occur; and The imminence of the potential harm. 28 C.F.R. § 36.208(b). Businesses should consult with counsel when conducting this four-pronged assessment. Second, businesses should balance these factors before turning away a customer or client. When balancing factors relevant to determine whether the risk to health or safety of others is significant, each factor does not need to be significant on its own; rather, the gravity of one factor might compensate for the relative slightness of another. See 42 U.S.C. § 12182(a), (b)(3); See also Montalvo v. Radcliffe, 167 F.3d 873, 878 (4th Cir. 1999). Third, businesses should recognize that just as they do under Title I, they maintain a duty to try an accommodation first (before finding a direct threat). If the business determines that the customers and client would pose a significant risk to the health and safety of others, then it must determine “whether reasonable modifications of policies, practices, or procedures will mitigate the risk,” 28 C.F.R. § 36.208(c), to the point of “eliminat[ing]” it as a “significant risk.” 42 U.S.C. § 12182(b)(3). Under the ADA, a failure to make a reasonable modification is itself an act of discrimination unless the business can demonstrate that implementing the modification would fundamentally alter the nature of their business. See 42 U.S.C. § 12182(b)(2)(A)(ii). BOTTOM LINE: Businesses can deny customers and clients entrance to their businesses if they are unvaccinated. Businesses must make individualized assessment and balance those factors before denying unvaccinated customers and clients entrance to their business. Businesses are required to try an accommodation if it would not alter the nature of their business before denying unvaccinated customers and clients entrance to their business. Again, businesses should consult with counsel on issues relating to vaccination of customers and clients. This is a nuanced issue and additional guidance and rules are anticipated.
August 11, 2021
The Weekly Scenario
The Weekly Scenario: Donor-Advised Funds
A donor-advised fund is like a charitable investment account, for the sole purpose of supporting charitable organizations you wish to benefit. When you contribute cash, securities or other assets to a donor-advised fund at a public charity, you are generally eligible to take an immediate tax deduction. Then those funds can be invested for tax-free growth and you can recommend grants to virtually any IRS-qualified public charity. When you give, you want your charitable donations to be as effective as possible. Donor-advised funds (DAF) are gaining in popularity because they are one of the easiest and most tax-advantageous ways to give to charity. But it is important for donors to keep in mind that a donor to a DAF can only claim an income tax deduction for a charitable contribution to a DAF if the donor makes a completed gift and relinquishes dominion and control over the donated property. In making a gift to a DAF, the DAF will generally advise its donors in writing of the following: their donations to the fund are irrevocable and unconditional, the donations are subject to the exclusive legal authority and control of the DAF as to their use and distribution, donors cannot make donations subject to any material restrictions or conditions (such as reserving a right to control or direct distributions or "any other condition that prevents the DAF from exercising exclusive legal control over the use of contributed assets to further its exempt purposes, and the DAF retains final authority over the distribution of all grants and may decline or modify a grant recommendation that is inconsistent with the DAF’s program policies, or for any other reason. It is for this reason, that it is crucial for donors to understand that once a gift is made, the donor gives up most of the control over the asset, other than as an advisory grant maker, and has very little recourse in gaining access to the asset for use other than advisory grant making. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
August 6, 2021
The Weekly Scenario
The Weekly Scenario: Considerations for Trustees and their Deceased Loved Ones
What should a Trustee consider doing for a recently deceased loved one? Here are some items a Trustee should consider. 1. If a residence is owned by the Trust and will be vacant for an extended period of time, consider the following: Changing the locks. Remove valuables from the residence, make a detailed inventory of them and store them safely. Install an inexpensive security system that will call out to a security firm if there is a break-in. In colder climates, consider a temperature alarm to prevent frozen water pipes. Request postmaster to forward mail. Check for perishable items in the residence or storage unit. Decide whether to turn off some utilities (electricity, phone). Stop deliveries. Advise the homeowner's insurance agent that the residence will be vacant and make appropriate arrangements for insurance. If the property is in the trust (the trust needs to be named as the insured). 2. Determine immediate cash needs for any beneficiary and for immediate expenses and identify accounts where cash is immediately available. 3. Cancel charge accounts, credit cards and subscriptions. 4. Make certain that property and casualty insurance coverage continues on personal effects, cars and real estate. 5. If you have personal access or access as the Trustee to a safe deposit box, the box should be inventoried in the presence of a bank officer and only then should contents be removed. 6. Gather personal records, including checkbooks and statements and obtain copies of income tax returns for the last couple of years. 7. Contact individuals who owe money to the deceased and arrange for continued collection. 8. Gather all life insurance policies. 9. Contact the social security administration (if needed). 10. Check to see if there are pets or other animals needing care. The law in each state is different concerning the information given to beneficiaries and when the information must be provided. As early as possible, the person who is the fiduciary (Trustee or Executor) should obtain information about beneficiaries and heirs. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
August 3, 2021
Labor and Employment
Vaccine Mandates: Are the Tides of Public Opinion Turning and Will it Lead to Increased Mandates?
Dr. Anthony Fauci recently expressed his support for more local vaccine mandates for schools and businesses, which was swiftly followed by a barrage of state and local governments and healthcare companies mandating the vaccine. While businesses have always been able to require vaccination, many have shied away from doing so based on the practical and legal implications, which include providing religious and medical exemptions and preparing to enforce a mandatory vaccination policy even if it means terminating high performing employees. Based on these complications, many private businesses have been encouraging vaccination instead of mandating it. However, with more encouragement from federal, state, and local governments and public health officials, the tides of public opinion are turning, and more businesses may opt to mandate vaccination. That said, moving forward, regardless of guidance from governments, the CDC, and public health officials, business owners will still have to consider the practical realities of vaccine mandates and the potential pitfalls. One practical consideration for many employers has been the appetite for vaccination among their employees. When employers mandate vaccination, they have to be prepared to enforce the policy if an employee refuses to get vaccinated, which could cause them to lose top talent in a competitive job market where replacements are hard to find. Another potential pitfall to mandating vaccinations is the administrative costs associated with processing and vetting exemption requests, especially related to religious exemptions, which are often difficult to assess and determine validity. On the flip side, with the cold and flu season on the horizon, unvaccinated workers may miss substantial amounts of work for common cold symptoms. Just last week, after Dr. Fauci encouraged vaccine mandates, I commented on this subject in the Maryland Reporter (view the article here). Since that time, as the infection and death rates related to the delta variant continue to rise, vaccine mandates have rolled out at a rapid pace with vaccine mandates for New York City, California, and Veterans Affairs workers and a wide range of medical groups and long-term care employees. Many of these mandates have been partial mandates giving employees an interesting choice: get vaccinated or get tested for COVID-19 weekly. Providing a testing option encourages vaccination by putting the burden on employees to get tested weekly and reduces the administrative headache of drilling down on exemptions claimed by employees by providing an alternative to vaccination. While there has been an increase in vaccine mandates in the public sector that may result in increases in private business mandates, the change in public opinion does not eliminate the potential pitfalls and challenges private employers face when determining if a vaccine mandate is right for them. Accordingly, employers still have several things to consider before mandating vaccination and should be sure to have a comprehensive policy to ensure their practices are legally compliant.
July 30, 2021
The Weekly Scenario
The Weekly Scenario: Guardians and Trustees
Sometimes the people who are the most nurturing are not necessarily the best at handling money. Although the person you name as guardian of a minor child can also serve as Trustee of a trust established for the child, it may not be the best solution. The dual role of guardian and Trustee presents the potential for a conflict of interest. For example, you name your sister as guardian of your children and name her as Trustee of trusts established for their benefit. Would it be reasonable for her to use the $100,000 from the trust to add an addition on her home? Perhaps it would be reasonable. But what if she uses $600,000 to buy a significantly larger home when her current home is worth $300,000? These types of scenarios are avoidable when there is one person named to raise the children and another to manage the finances. The guardian then simply makes requests from the Trustee when funds are needed. But since the Trustee has discretion in these matters, it doesn’t hurt to give clear guidance to the Trustee so that your children will be cared for in the way you want them to be. Some things to consider: Can the guardian expand the size of their current residence in order to house your children? Should the guardian be given a home improvement budget or car budget? Can trust funds be used to pay for private school? Can the trust funds be used to take her kids and your kids on vacations? Still, for many people, the persons they choose to put in charge of their children (and their finances) are honest and trustworthy and they are comfortable in putting them in charge of both the kids and the money. It really comes down to the people you choose. 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 30, 2021
Intellectual Property
Not Forgetting Trademarks: Protecting your NFT Brand
To Read Part One of our NFT series, click here »» This latest installment in Offit Kurman’s NFT series looks at protecting NFT’s under trademark law. As of July 21, 2021, a search of the US Patent and Trademark Office (USPTO) database shows that 407 trademark applications have been filed that list “non-fungible tokens” as goods and/or services. Of these, 374 were filed on or after March 11, 2021, the date that news broke that the digital artist Beeple sold an NFT at auction for $63.9 million. Looking at these trademark filings, we see that some familiar names are planning to get in on the NFT action. Fender has filed four applications to register trademarks for NFT’s, including its well-known guitar brand STRATOCASTER. The Andy Warhol Foundation for the Visual Arts, Inc. seeks registration of the name of the famous pop artist for NFT’s. And Lion’s Gate Entertainment, Inc. filed an application to register the trademark JOHN WICK, apparently planning to create NFT’s associated with the successful movie franchise. If you’re entering the NFT space, it’s good to keep in mind that your NFT’s are products, and trademark protection is important just as with any other product you might launch. Below are a few best practices for your NFT trademark strategy: Conduct a clearance search. Especially with this rapidly exploding area, it is important to make sure that there is not already someone else creating or marketing NFT’s under the same or similar trademarks. Consider searching more broadly than just NFT’s. Remember that NFT’s can touch various areas and industries when conducting your search. The examples above involve a music company, an artist’s estate and a motion picture series. Because NFT’s can be used to represent, commemorate or give value to all kinds of goods and services, it will be good to think broadly when conducting a clearance search. Once the clearance diligence has been done, file an intent-to-use application quickly. This will reduce the risk that a third party could apply to register the same or similar mark or commercialize an NFT business under the same name before you secure your rights. Many others are employing this strategy – of the 374 filings since March 11th, 320 are based on an intent to use. Use a watch service to detect similar trademarks or domain names using your trademark. Such uses could be innocent, or could intentionally try to capitalize on your success if your NFT line takes off. A watch service will alert you to such uses and enable you to evaluate and take action quickly. Your Offit Kurman attorneys can help position you to be at the forefront of this new technological wave. If you have any questions, please contact Laura Winston at lwinston@offitkurman.com or 347-589-8536.
July 29, 2021
M&A Nuggets
M&A Nuggets: Laws Triggered by a Merger
As part of due diligence, purchasers investigate whether selling targets are in compliance with the myriad of laws governing a target’s historical business operations. Separate and apart from those laws, are laws that are actually triggered by a merger, that is, that would not apply but for the planned merger. Sellers and purchasers must be aware of these laws to determine whether they apply, and if they do, take steps to comply so that the merger is not delayed or prohibited. Here are four examples of laws triggered by a merger: The WARN Act, which stands for Worker Adjustment and Retraining Notification Act. This law requires employers to provide the United States Department of Labor with at least 60 days’ prior notice of any plant closing or mass layoff. The rule generally applies to employers with at least 100 employees when an event occurs that results in a layoff of at least 50 employees. Some states have their own version of the WARN Act. Any merger transaction that involves a plant closing or a mass layoff needs to be vetted to determine whether the WARN Act applies; The Hart Scott Rodino Act. The purpose of this law is to allow the government a period of time to determine that a merger will not violate anti-trust laws. The Act requires notice to be given to the United States Department of Justice and imposes a 30-day waiting period before a merger of a certain size can occur. Generally, if the merger involves a target with a value greater than $92 million or the purchaser and seller have assets or sales of at least $184 million and $18.4 million, the Hart Scott Rodino rules apply; Bulk Transfer Laws. These are state laws that require a buyer of a business that sells inventory to notify creditors in advance of a business sale. Although the Bulk Transfer laws were uniform across all states, many states have eliminated their Bulk Transfer laws. In states with Bulk Transfer laws, it is common for the parties to a merger transaction to agree to waive compliance with the laws. Tax Elections. Many significant tax issues arise in merger transactions. Some of these tax issues require agreements between the seller and purchaser and timely elections of tax consequences to be filed with the Internal Revenue Service. For example, the manner in which the purchase price is allocated in an asset purchase is usually agreed to and requires a common filing with the Internal Revenue Service. In a stock purchase, there is often an agreement to split the tax year into two short tax years, one tax year beginning on the first day of the year of the sale and ending on the closing date and the second tax year beginning on the day after the closing date and ending on the last day of the year in which the sale occurs. This split tax year agreement also requires a filing with the Internal Revenue Service. It is crucial that the seller and purchaser understand which “triggering” laws apply to a merger, so that timely notice under the laws is given, and that closing will not be delayed because of non-compliance. 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.
July 28, 2021
The Weekly Scenario
The Weekly Scenario: Should You Share Estate Planning Documents with Family Members?
The question as to whether you should share your estate planning documents with your immediate family is one that comes up fairly often. The answer depends on the personal choices and family dynamics of a client. In thinking through this issue at hand, it is important to consider that the primary purpose of an estate plan is to make it easier for the family when a person dies. The assumption for many clients is that family members should have copies of their documents. However, keep in mind there are certain drawbacks of giving copies of legal documents to family members. For one thing, what if the plan changes in the future? What if someone named in the document is later taken out or is in line to receive less in the way of an inheritance. Will this person contest the legitimacy of any later version of a Will? Moreover, would you want to be put in a position to have to explain your reasons for your own plan? The other side of the coin is that giving family members an ‘advance copy’ so to speak may avoid any surprises or conflicts later. There are many clients who are actually very comfortable with family members seeing their documents and financial information. In my experience, I generally tell clients to let family members know (at a minimum) that they have an estate plan and where the documents will be stored. I also like the idea of letting them know where to find bank account information, passwords to phones and tablets, family papers (marriage certificates, divorce orders, etc.) and of course, contact information for attorneys, accountants and financial advisors. Armed with this essential information, it will certainly make it easier for family members to carry out your wishes. 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 23, 2021
Healthcare
Stark & PORA Basics
In today’s video, we discuss the basics of federal Stark law, and the anti-kickback and fee-splitting prohibitions. Hi, I’m Michael H. Cohen, founding attorney of the Cohen Healthcare Law Group. We help healthcare industry clients just like you navigate healthcare and FDA legal issues so you can launch, or continue to scale, your health and wellness product or service. Ted is a medical doctor, he works in a hospital 3 days a week and the rest of his time he runs his specialized clinic. Let’s say that Dr. Ted accepts Medicare patients (So he’s bound to Medicare and Medicaid rules) and he participates in commercial insurance with several plans. Ted’s partner in the clinic has his own medical corporation, and that medical corporation contracts as an independent contractor with Dr. Ted’s medical corporation. Their clinic also subcontracts a billing agency and pays the agency on a percentage of collections. Dr. Ted has questions about referrals between his hospital practice and his private practice. So he asks about Stark and anti-kickback law and here are some basics. One: when does federal law apply, and what does Stark prohibit? Two: when do state self-referral prohibitions apply, and what do they prohibit? First, federal law applies whenever physicians accept Medicare or Medicaid patients. The federal self-referral law, known as Stark, prohibits medical doctors from referring Medicare or Medicaid patients to so-called designated health services, or DHS. DHS include many of the ancillary services that family physicians provide, such as clinical laboratory services, outpatient prescription drug services and family and occupational therapy and imaging services (e.g., MRI, CT, ultrasound). Stark has several exceptions. A big one is referral to the referring physician’s “group practice.” This includes referrals by the doctor to the doctor himself or herself, or someone in the physician’s group practice, or someone supervised by a medical doctor in that practice. Another common exception is known as in-office ancillary services, or IOAS. There’s a long complicated definition which we cover more on our blog: www.cohenhealthcarelaw.com/blog. Second, states have their own mirror-Stark laws, prohibiting what is known as self-referral. For example, California law contains prohibitions against self-referral in the Physician Ownership and Referral Act of 1993 (“PORA”), as well as California Labor Code Section 139.3, and some other statutes. California has its own definition of DHS. Third, it’s important to remember that where federal reimbursement monies are involved, federal anti-kickback law also can apply and it can apply to all practitioners, not just physicians. Fourth, self-referral prohibitions apply whenever a “referral” is made. This doesn’t necessarily require a referral in the sense of a phone call or written document. Enforcement authorities can look to the overall business model and conclude that there is something fishy, there’s a disguised unlawful referral arrangement. More typically, such a scenario would arise in a kickback situation rather than self-referral, which we’ll cover on a subsequent video. If you or someone you know could benefit from a Legal Strategy Session with one member of our Legal Team, let us know. Thanks for watching. Here’s to the success of your healthcare venture, we look forward to connecting with you soon. Testimonials
July 23, 2021
M&A Nuggets
M&A Nuggets: The Due Diligence Barrage - How to React
After the letter of intent for the sale and purchase of a business is signed, the potential purchaser will then deliver its due diligence list to the target company. The due diligence list can be voluminous. It is not unusual for a list to contain twenty pages with more than 200 specific requests. The topics covered include many areas, from financial to tax to corporate and operations. The target’s owner may be inclined to attempt to handle the due diligence list on its own. It is crucial, however, that the target’s advisors be brought in upon receipt of the due diligence list. Here is why: Due diligence lists often are a purchaser’s attempt to “shoot for the moon”, requesting details that may not be needed for time periods that may not be needed. In fact, the due diligence list is negotiable. Your advisors can guide you on which items the potential purchaser should be asked to remove from the list; For the reasons discussed below, it is important that an organized system be created by which each request and answer to it is linked. Your advisors can assist you to set up that system; Documents provided in response to the due diligence requests usually contain information that must later be disclosed in the representations and warranties section of the purchase agreement. It is important for your advisors to be able to determine early on what disclosures in the purchase agreement will need to be made; and In that regard, documents to be provided in due diligence may contain a surprise or two, since many of the documents may be old and/or never have been reviewed. For example, in one transaction I handled in 2019, one of the target’s vendor contracts contained a right of first refusal in the vendor to purchase the target. These kinds of surprises need to be learned about and dealt with soon in the sale process. By asking for the assistance of your advisors early on, the due diligence process can be made much more manageable, resulting in a substantial savings of time and money. 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.
July 21, 2021
Labor and Employment
COVID-19 “Long-Haulers” and Workplace Accommodations
Employers spent the better part of 2020 and the beginning of 2021 evaluating how to prevent employees from contracting COVID-19 and address COVID-19-positive employees. Now, as employees return to work, employers face new requests from employees who had COVID-19 weeks or months ago but have not fully recovered. These individuals, typically called" long-haulers," often suffer from lasting physical and psychological issues from their illness. With little currently known about long-haulers, the problems and ailments long-haulers face are likely to impact the workplace for the foreseeable future. COVID-19 long-haulers deal with a host of ailments, including shortness of breath, debilitating fatigue, sluggish mental capacity and memory loss, and dizziness. As one can imagine, these symptoms may inhibit an employee's performance or attendance. As a result, employers should consider ways to address these issues and remain compliant with applicable state and federal laws. If an employee expresses concern regarding long-haul COVID-19 symptoms impacting their work performance, employers should consider whether the employee's challenges trigger company obligations under the Americans with Disabilities Act (ADA). While there's little precedent regarding whether COVID -19 long-haulers ailments are a condition covered under the law, employees who request accommodations because of long-haul symptoms will likely qualify for accommodation. The definition of "disability" under the ADA is intentionally broad, and the ADA does not provide a specific list of what conditions are covered. Instead, individuals meet the definition of "disability" if they have "a physical or mental impairment that substantially limits one or more major life activities." While the ADA does not likely cover an employee who contracts COVID-19 and fully recovers within the standard recovery time of two weeks, if an employee has lingering COVID-19 symptoms that limit their ability to perform their job duties, they likely qualify for coverage under the ADA. Similarly, long-haulers who ask for leave may be entitled to it under the Family Medical Leave Act (FMLA). The FMLA defines a serious health condition as an illness, injury, impairment, or physical or mental condition that involves inpatient care or continuing treatment by a health care provider. A serious health condition also includes impairment of more than three calendar days plus two or more visits to a health care provider. An employee suffering from long-term COVID-19 ailments is likely to meet the definition of a serious health condition and may qualify for leave, intermittent or continuous, under the FMLA. Ultimately, as employees return to work, employers should be mindful of handling requests from employees around COVID-19 related illnesses and challenges to ensure they are compliant and do not inadvertently or improperly deny employee requests.
July 16, 2021
The Weekly Scenario
The Weekly Scenario: Documents You Should Have Before You Travel
But Particularly if You Fall into a Specific Risk Group No one likes to think of worst-case scenarios before a trip, but there are certain estate planning documents you should have in place before you leave. Like purchasing trip cancellation insurance, making some arrangements ahead of time will provide peace of mind while you are away. Some of these documents become even more critical if you are a person that falls into what I refer to as a category that could be construed as riskier. Last Will and Testament It is important if you have assets to make sure you have a current and legally binding Will that appoints someone to settle your affairs, designates who will receive property, and names guardians for any minor children. If you are an individual who is not married or does not have children, dying intestate (without a Will) can have more drastic consequences because the assets are more likely to pass to unintended family members. HIPPA Authorization Because of the HIPPA Privacy Rule, you'll need to give consent for a traveling companion, friend, or family member to receive medical information should anything happen to you. Durable Power of Attorney A Durable Power of Attorney gives an individual the ability to make decisions on your behalf if you become unable to do so. The document covers financial and legal decisions (usually not medical). Health Care Proxy or Advance Medical Directives Also known as a durable medical power of attorney or advance medical directive, a health care proxy allows your designee to make medical treatment decisions on your behalf if you are unable to do that yourself and establishes a point person for medical communications. If you are not married or do not have adult children, the problem is not having someone for whom the law of the certain state or country would recognize as having the ability to make these decisions. Having a document in place becomes all the more important. Guardian Designation If you have children younger than 18 or are responsible for adult family members who can't care for themselves, it is important to name a guardian. While it would be better to have a full estate plan in place, often naming a trust as the recipient of financial assets for minor children, at a minimum, you should have a responsible person (i.e., a person you trust) named who could serve as guardian. Proof of Parentage Rights If you've crossed the border with a minor child, officials in many countries are vigilant about preventing child abduction. When traveling overseas with a minor child, have proof of relationship such as their birth certificate, or travel and medical consent letters if you are not the child's parent or guardian. Same-sex couples who have families through surrogacy or adoption should finalize parentage rights before traveling to countries that might not be as friendly to same sex-couples. Updated Beneficiaries If you haven't updated your will in years, it might not reflect your current wishes about beneficiaries, especially if you're divorced. If you have a minor beneficiary named on a life insurance policy or retirement plan account, you need to know that the property will be managed by a guardian unless a trust is established to receive those proceeds. Financial and Social Media Account Login Information Make sure someone you trust has login information for financial, social media, and other online accounts. It is not a bad idea to write out a plan of action for social media accounts (keep active, close, etc.) Happy Travels! 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 16, 2021
Intellectual Property
It’s a New Game: Pennsylvania Statute Adopted on College Athlete Compensation for Name, Image and Likeness
On June 30, 2021, Governor Tom Wolf signed legislation to allow college athletes in Pennsylvania to earn compensation for the use of their name, image, and likeness ("NIL"). The new law, adopted as part of Senate Bill 381 ("SB 381"), was signed on the same day the NCAA approved a related policy reversing its long-held prohibition against such NIL activity. The new Pennsylvania statute, along with similar laws in other states and the NCAA policy reversal, follows years of mounting pressure from athletes. These reform initiatives reached a clear turning point with the unanimous antitrust decision by the U.S. Supreme Court in National Collegiate Athletic Association v. Alston on June 21, 2021, affirming an injunction against NCAA rules that had limited the education-related benefits schools may offer student-athletes. The NCAA's June 30 policy allows students who participate in intercollegiate athletics to engage in NIL activities consistent with the laws of the state in which their school is located. Those attending school in a state without NIL laws can still participate without violating the NCAA's NIL rules. Other non-NCAA athletic conferences may issue their own rules as well. However, Pennsylvania's new statute does not include those who take part in club or intramural sports or professional sports outside of intercollegiate athletics. SB 381 returns the individual Right of Publicity to college athletes, which was originally denied by prior NCAA regulations. With these regulations set aside, athletes can now take advantage of the same rights enjoyed by other public figures. SB 381 provides much-needed guidance in Pennsylvania for institutions of higher education and for athletes and their potential representatives in this brand-new and unprecedented era of student-athlete endorsements and compensation. Essential analysis and practical takeaways for athletes and schools are presented below. COLLEGIATE ATHLETES SB 381 states that "a college student-athlete may earn compensation for the use of the college student athlete's name, image or likeness." However, athletes should be cautious when pursuing opportunities, as there are specific rules and limitations under this new law. The statute includes detailed provisions about disclosure required by athletes before signing potential NIL deals; avoiding NIL compensation in exchange for participation or commitment to a school; avoiding product and service categories banned for use of NIL; avoiding conflicts with current school sponsorships; hiring professionals for assistance; and bringing a lawsuit if necessary. Under SB 381, athletes must disclose any potential NIL deals "at least seven days prior to execution of the contract to an official of the institution of higher education, who is designated by the institution of higher education." NIL compensation cannot be "provided in exchange ... for a current or prospective student-athlete to attend, participate or perform at a particular institution." This provision is intended to avoid transforming collegiate athletics into some form of a "pay-to-play" scheme. By way of restriction, the law provides that athletes "may not earn compensation . . . in connection with a person, company or organization" associated with these product and service categories: - Adult entertainment, - Alcohol, - Casinos and gambling, including sports betting, - Tobacco and electronic smoking products, - Prescription pharmaceuticals or - Controlled substances Furthermore, athletes may not engage in NIL activities and contracts that "conflict with existing institutional sponsorship arrangements at the time." For example, a school may be able to prohibit an athlete from engaging in an NIL agreement with one athletic shoe company when the school has a prior sponsorship arrangement with a different athletic shoe company. Schools may also prohibit a student's NIL activities based on other considerations, such as conflicts with "institutional values." In addition, schools "shall have policies that specify" the NIL activities in which athletes "may or may not engage." In addition to NIL compensation paid on a fixed-fee basis, athletes may also earn royalty payments. SB 381 requires a party that produces a college team jersey, video game or trading cards "for the purpose of making a profit" to make a royalty payment to each athlete whose NIL or "other individually identifiable feature" is used. It is important to note that payment for royalties or endorsements shall not affect the athlete's eligibility, scholarship, or grant-in-aid. College athletes can hire professional representation for their NIL dealings. These professionals can be: (1) An athlete agent meeting state registration requirements under 5 Pa.C.S. Ch. 33; (2) A financial advisor acting under Pennsylvania law; or (3) An attorney admitted to practice law by a court of record of the Commonwealth. However, "a person that represents an institution of higher education may not represent a college student-athlete in a business agreement." This language in the Commonwealth's new law needs clarification, but some may interpret this to mean that an individual representing the school in some capacity cannot also represent an athlete of that same university in their NIL dealings. These issues regarding potential conflicts for law firms in particular and whether such conflicts can be waived are yet to be determined. Athletes also maintain their right to pursue a private civil action for any violation of SB 381's NIL provisions, and they may receive costs and reasonable attorney fees, in addition to damages, if they prevail. COLLEGES AND UNIVERSITIES Pennsylvania colleges and universities ("institutions") and athletic associations and conferences, including the NCAA, are now prohibited from preventing an athlete from earning NIL compensation. An institution itself cannot be prevented by an association or conference from participating in intercollegiate athletics due to an athlete's NIL dealings. Institutions are not required "to identify, create, facilitate, negotiate or enable opportunities" on behalf of athletes to earn NIL compensation, but they can choose to do so. In addition, institutions are not required by SB 381 to allow athletes to use the school's "name, trademarks, service marks, logos, symbols or any other intellectual property," but again, they can choose to do so. This will open the door to opportunities for institutions to share in a revenue stream should they elect to license the use of their intellectual property as part of an athlete's endorsement campaign. Institutions may prohibit an athlete's involvement in NIL dealings that conflict with existing institutional sponsorship arrangements at the time of the athlete's disclosure. Similarly, institutions can prohibit NIL dealings that conflict with "institutional values." Institutions of higher education "shall have policies" that specify the NIL activities in which athletes "may or may not engage." As discussed above, prohibited NIL activities could include, at the very least, adult entertainment, alcohol, casinos and gambling (including sports betting), tobacco and electronic smoking products, prescription pharmaceuticals, or controlled substances. Schools also have the right to expand this list in accordance with their values and codes of conduct. In addition, schools maintain the right to establish and enforce academic standards and requirements, team rules of conduct or other rules of conduct, disciplinary rules applicable to all students, and policies regarding participation in intercollegiate athletics, such as NCAA rules. Schools must designate "an official of the institution of higher education" to receive notice from students disclosing a possible NIL contract. Also, "any person" who sells merchandise using an athlete's NIL must pay royalties to the athlete. This includes sales of jerseys, cards, or other merchandise that uses an athlete's name, image, or some other feature of identity. While the use of the term "any person" is slightly ambiguous, we believe that this is intended to include institutions of higher education. PRACTICAL TAKEAWAYS Athletes thinking about profiting from their NIL should consider contacting a licensed attorney and/or other professionals to assist them with the process. Endorsement agreements are often long, complicated documents that may contain language that works against the athlete's interests if not carefully reviewed. In addition, students will need assistance to ensure they are abiding by state law, school rules, and NCAA policies. Athletes may also benefit from professional representation if they want to negotiate for the right to use the logos and other intellectual property of their school or conference. Colleges and universities will need to closely address and monitor this issue. In considering opportunities for NIL compensation, an athlete who deems it to be cost-effective may further benefit from seeking federal trademark protection for his/her name, signature, nicknames, logos, and the like. Similarly, athletes should consider registering internet domain names based on such categories. Legal counsel well-versed in the costs and processes associated with intellectual property laws and practices can help to make these economic determinations and strategic filings. Institutions should consider drafting specific NIL rules, including those required by SB 381, and updating other relevant policies. Effective written policies will provide necessary guidance for athletes and protect the interests of the school. Ongoing training for staff and monitoring of NIL activities will also protect the school's interests in the event of a dispute. Policies should identify the official at the school who will be responsible for reviewing and approving contracts disclosed by athletes and address the circumstances under which contracts will not be approved. In order to protect its intellectual property, an institution should also consider expanding its portfolio of registered trademarks and logos to include protection for product categories that are likely to be the subjects of athlete NIL endorsements. Although institutions are not required to facilitate NIL opportunities for students, it will likely benefit the institution to find appropriate ways to assist athletes in such activities. Schools may want to consider relaying such opportunities to their athletes and suggest prospects for mutual participation in these deals. SB 381 constitutes a significant development for collegiate athletes in their longstanding efforts to protect and benefit from their Right of Publicity. However, there are some outstanding questions that remain, including: Will institutions be subject to the statutory provisions requiring royalty payments for the sale of merchandise using athletes' NIL? Can institutions charge athletes a royalty or a flat fee for the use of the institutions' trademark, logo, and other intellectual property in conjunction with the athletes' endorsement deals? What are the parameters of the conflicts provision stating, "a person that represents an institution of higher education may not represent a college student-athlete in a business agreement"? What effect will this have on lawyers and law firms, and can these conflicts be waived? Is there a transparency requirement for these NIL contracts, and must they be disclosed to the public? When a student discloses a potential NIL contract at least seven days prior to its execution, as required by SB 381, what will happen if the school fails to review the contract within this time? Athletes and institutions, as well as companies con-templating endorsement deals with students, should consider working with attorneys and other professionals who have broad experience with the various interrelated aspects of these issues, including the state and federal laws for higher education, intellectual property, sports law, and other relevant subjects. In short, the game has changed in a big way for both college athletes and their educational institutions. We are monitoring these emerging issues and will continue to report on material developments. As these matters evolve over time, individuals and organizations should consult with counsel. 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.
July 15, 2021
Business
Employer Restraints on Employee Competition Under Attack
In many employment relationships, particularly those involving employees with management roles, customer contacts or specialized knowledge, employers have sought to restrain the employee from competing with the employer’s business after terminating employment. These so-called “Covenants Not to Compete” have always been subject to court-imposed restraints in order to be enforceable – the covenant may not last for an unreasonable length of time following termination of employment, and the geographic scope of the covenant must be reasonably related to the potential harm to the employer’s business. In recent years, however, an increasing number of states have enacted statutory limitations and, in some cases, bans on Covenants Not to Compete on employees. In 2019, Maryland enacted a law that prohibits the enforcement of Covenants Not to Compete against workers earning less than $15 per hour, or $31,200 annually. This year, Virginia enacted a similar ban on enforcement of such covenants for workers earning less than the average weekly wage of workers in Virginia, $1,204 per week, or $62,608 annually. Similar laws exist in other states, including Colorado, Idaho, Illinois, New Hampshire, Oregon, Rhode Island, and Washington. Significantly, in 2021, the District of Columbia enacted a very broad law that will take effect this fall that will render unenforceable Covenants Not to Compete in all employment agreements entered into by private employers operating in the District of Columbia (with limited exceptions for certain categories including religious or nonprofit organizations and casual babysitters). The law will, therefore, effectively ban employers from requiring employees to enter into agreements that “prohibit the employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee's own business.” The effect of this law, therefore, is broader than that of the typical Covenant Not to Compete in that it also would render unenforceable so-called “anti-moonlighting” prohibitions that are often contained in employment agreements or employment handbooks. The law is prospective in effect, so existing Covenants Not to Compete are not impacted. Further, the law specifically carves out Covenants Not to Compete executed in the context of the sale of a business. The law also affirms that other restraints against employees from “disclosing the employer's confidential, proprietary, or sensitive information, client list, customer list, or a trade secret” are not included within the scope of the law. Employers should consult with legal counsel knowledgeable in the laws of the local jurisdiction where they operate before entering into employment agreements that contain Covenants Not to Compete in order to ensure that such agreements are enforceable.
July 14, 2021
Family Law
Why Would I Pay Alimony If My Soon To Be Ex-Spouse Has a Job?
Most people understand that when there is a divorce, one party sometimes has to pay alimony to support the other party. But the details of who pays alimony, and why, can be a bit fuzzy. I deal with divorce proceedings every day, and a common question I am asked is, “Why would I pay alimony if my soon to be ex-spouse has a job?” The short answer is: There is no formula for alimony in Maryland, so a party may have to pay alimony even if their spouse is working 40 hours a week. The long answer is that there are over 10 factors that the court has to consider when determining who pays alimony and how much. Things like the length of the marriage, each party’s income, the age of the parties, the physical and mental health of the parties, the living standards of the parties, and the cause of the breakup of the marriage are all taken into consideration—which means the court ultimately has great discretion in determining how much alimony is to be paid and for how long. Should the payee have a job, but not be able to meet their needs on that salary, the payor will likely be ordered to pay alimony to supplement those needs, or to pay alimony until he/she can become self-supporting—whether that be through additional education or more time in the work force. Of course, the payor will also need to be able to meet his/her own needs while supporting the ex-spouse. The court is not supposed to order the payor to pay more than he/she can afford, because the payor needs to be able to meet personal living expenses as well. To this point, I have experienced cases where a judge orders a payor to pay more than they can afford, which just leads to more legal fees in an appeal or motion to modify alimony. Even so, divorcing parties should be aware that the court will view alimony payments as more important than saving for retirement or going on vacation, and a judge will likely not order a payor to put away money for these types of expenses instead of financially supporting the payee. Navigating divorce and alimony payments can be a bit sticky; as always, it’s best to work with an experienced attorney to help you get the best outcome for your specific situation. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
July 13, 2021
Family Law
Should You Consider a Collaborative Divorce?
A collaborative divorce—or the legal process in which a couple enters a formal agreement to work together, out of court, to settle the terms of a divorce—can be an excellent choice for spouses who are on good enough terms with one another to be able to hash out a compromise. This process usually involves a combination of mediation and negotiation to reach an agreement. One must retain attorneys who are collaboratively trained. Courts in every state encourage couples to opt for collaborative divorce, or a similar process, whenever possible. Even when litigation is filed, most Courts require some type of mediation before a trial date can be set. If an agreement can be reached on some or all of the issues, the divorce process is generally less painful for everyone involved. In every collaborative divorce is a collaborative agreement; one of the fundamentals of this agreement is that, if the collaborative process is not successful and the parties elect to proceed with litigation, the parties are not able to continue on with the representation of their chosen collaborative counsel. This requirement is an incentive for the parties to work harder during the collaborative process, as starting over with new counsel can be both expensive and emotionally taxing. As a result, some are willing to proceed with a similar process, called an informal settlement. The informal settlement does not require a change of counsel if the collaborative process is not productive. While this is not a true collaborative process, it can proceed in a similar manner. In either event, experienced collaborative attorneys have the skills to assist the parties in creating a “win-win” situation that may allow areas of agreement that are not available in the litigation process. Generally, in a collaborative divorce, a financial neutral is incorporated into the team from the start. This mechanism provides both parties with knowledge that an independent expert is gathering the data, reviewing it and preparing it in a way that will be easily understood by all parties. The basis for trust is significantly increased when a financial neutral is involved, and that factor alone significantly impacts the probability of successful resolution. Often a coach is also a part of the team, as emotions can run high, and having someone involved who has the skills to help de-escalate the situation and assist the parties in articulating their goals and concerns in a non-threatening way can be invaluable. A collaborative divorce is just one of many options for a process that may lead to a resolution without the necessity of litigation. In almost every case, there is mediation, negotiation, and, in recent years, arbitration, which will assist those going through the divorce process in arriving at a resolution without the financial and emotional expense of a trial.
July 12, 2021
The Weekly Scenario
The Weekly Scenario: Setting Up Special Needs Trusts
Planning for beneficiaries with special needs can be a challenge. While navigating the requirements for both IRA beneficiaries and trusts has never been without pitfalls, the more recent requirements of the SECURE Act have added even more wrinkles. The goal of the Special Needs Trust is to protect the funds for a person with special needs while not jeopardizing any government benefits to which the individual may be entitled. The trustee can make distributions to the beneficiary with special needs for vacations, food, housing and other personal items to improve and enhance their lives. The goal is not to jeopardize the current and future potential benefits. Under the SECURE Act, beneficiaries with special needs who qualify as disabled or chronically ill are eligible designated beneficiaries (often referred to as “EDBs”) and can still take advantage of the stretch IRA. Under the SECURE Act, there are certain rules that specifically preserve the lifetime stretch for beneficiaries who are chronically ill or have a disability through a trust called a Multi-Beneficiary Trust (MBT). As the name implies, the MBT may have multiple beneficiaries of the trust, in addition to the person with a disability. These other beneficiaries must be designated beneficiaries but do not have to be an eligible designated beneficiary. Examples of designated beneficiaries include other children or siblings (but not a charity or an estate). For example, if Mark creates a special needs trust for the benefit of his daughter with a disability and names the trust as beneficiary of his IRA, and the trust provides that any remaining funds from the IRA be paid to a charity, the trust would not qualify as a multi-beneficiary trust. As such, the minimum required distributions will not be permitted to be stretched over the child’s life expectancy (instead, the 10-year rule would be applicable). However, while these multi-beneficiary trusts are beneficial from a stretch point of view, special needs trusts can be problematic from an income tax standpoint. Because trust tax brackets are highly compressed (reaching the highest income tax rate at fairly low levels), funds retained in the trust will be subject to high trust tax rates. It is for this reason that it is beneficial to explore exchanging assets like traditional IRAs for more tax-efficient assets like Roth IRAs and life insurance. Employing alternative strategies can mitigate the tax bite while providing a source of funding for special needs trusts. 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 9, 2021
Intellectual Property
Summer School for Intellectual Property
Universities Must Prepare Student-Athlete Endorsement Policies in Response to New NCAA Rules On June 30, 2021, the National Collegiate Athletic Association (“NCAA”) officially adopted a uniform interim policy suspending previous NCAA name, image and likeness (“NIL”) rules for all incoming and current student-athletes in all sports. The move would allow athletes in all NCAA divisions to profit from endorsements, their signatures, public appearances, and other business ventures for the first time in over a century. Background College student-athlete’s ability to receive full compensation has been at the forefront of statutory, litigation and political initiatives for the last several years. In addition to the class action antitrust lawsuit that culminated in the U.S. Supreme Court’s recent ruling in NCAA v. Alston, several states have taken legislative action to address student-athlete endorsements. California’s Fair Pay to Play Act passed in 2019 and is set to become effective on January 1, 2023. New Jersey’s NIL law will become effective in 2025, but efforts are underway to move up that date. Indeed, several other states have also taken up the baton with more immediate effect: similar endorsement laws in Alabama, Florida, Georgia, Mississippi, and New Mexico already went into effect on July 1, 2021. The NCAA’s Board of Governors had previously proposed expanding its NIL rules in April 2020, but the Divisions failed to take action. Apparently, the abrupt implementation on June 30, 2021, of the new interim policy was likely prompted by the recent outcome in Alston, along with concerns that the state-by-state approach could give rise to further litigation and complications for recruitment and compliance. The NCAA has signaled that this expansive new policy is only temporary and that it intends to pursue a federal solution with Congress that would provide clarity on a national level. The New Rules The new NCAA policy provides the following guidance to college athletes, recruits, and member schools: Individuals can engage in NIL activities that are consistent with the law of the state where the school is located. Colleges and universities may be a resource for student-athletes regarding state law questions. College athletes who attend a school in a state without an NIL law can engage in this type of activity without violating NCAA rules related to name, image and likeness. Individuals can use a professional services provider for NIL activities. Student-athletes should report NIL activities, consistent with state law or school and conference requirements, to their university. Additionally, students are allowed to sign with agents or other professional representatives to help them acquire endorsement deals with the following caveat – students cannot stipulate that the agents would represent them in future negotiations outside of the NCAA. Some restrictions still remain in effect. NIL compensation cannot be contingent upon enrollment at a particular school, nor can the school compensate an athlete in exchange for the use of the student’s NIL. Compensation for athletic participation or achievement, or pay-for-play, remains prohibited, as affirmed by the U.S. Supreme Court in NCAA v. Alston. Next Steps for Colleges and Universities The change in NCAA policy means that higher education institutions nationwide will have to accelerate their response over this summer in time for the fall athletic season. Such preparation may be especially important, as the NCAA policy encourages student-athletes to turn to their schools for information about their state’s NIL law. Schools in states that have adopted NIL laws may have the benefit of such state rules as a guideline, but all schools will have to confront some common issues: Whether to permit the student-athlete to use the school’s trademarks in endorsements and, if so, what kind of reasonable restrictions should be put in place? Would the school require an approval process for the endorsements? How do the NIL rules affect the school’s other policies (for example, its social media use policy) or the school’s existing relationships with sports retailers? What new resources should be made available to help the school and the students navigate the legal and compliance issues related to student endorsements? While some schools, such as Louisiana State University, will allow students to use its official logos and facilities in endorsements so long as the athletes ask for written permission, not all schools will adopt such a broad policy. Schools may want their policies, training, and related communications on this issue to reflect possible complications and disputes. For example, how will the school approach a situation where a student enters into an endorsement agreement for products or approach that could give rise to further litigation and complications for recruitment and compliance? The NCAA has signaled that this expansive new policy is only temporary and that it intends to pursue a federal solution with Congress that would provide clarity on a national level. For this summer, at least, schools have their hands full with a significant intellectual property homework assignment. 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.
July 6, 2021
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
Healthcare
Can Physicians Legally Do Health Coaching?
In today’s video, we talk about how physicians can tackle the legal and regulatory issues that often arise with health coaching. I’m Michael H. Cohen, founding attorney of the Cohen Healthcare Law Group. We help healthcare entrepreneurs just like you navigate the very complex healthcare and FDA legal issues so you can launch, or continue to scale, your health and wellness service or product. And we’ve helped over a thousand clients in recent years. Health coaching as we know is a popular way to deploy all the gifts and skills that many people can bring to help clients in need of better health, be it physical, mental, or spiritual, environmental. And today, there are some large professional organizations devoted to health coaching and they are expanding the legal boundaries around what health coaches can do. The challenge is this. Back in the 1880’s, the States decided that they would license practices involving healthcare or health and wellness, and that anyone who said they were practicing “medicine” had to have a license from the State to do so. One practitioner and his name was “Dent” challenged these laws, the case went all the way up to the Supreme Court and he did not make a dent. The Court actually affirmed the State’s right to license medicine, and to decide who can and cannot get a license. That decision still holds today. The problem is that the definition of practicing “medicine” is very broad, and includes anything that could be considered diagnosis, diagnostic, treatment of any health conditions. So it’s very broadly written and interpreted that way. Many of the legal definitions in different states of “practicing medicine” do not depending on whether or not the practitioner charged a fee for their service. If you find some newfangled technique to help people get over this or that, and you think it’s miraculous when you limit yourself to family and friends, it’s still possible you might have crossed the line into the practice of “medicine.” These broad statutory definitions create a legal peril for the charge of “practicing medicine without a license.” This is where all my healthcare legal research started. This peril can affect at least two different audiences. One, if you’re a health coach and you’re not licensed, you could be at risk of unlicensed medical practice or practice of psychology or even possibly nutritionist and dietetics. But, if you’re licensed in your state but not others, and your client is in that other state, then you could be at risk of unlicensed practice of medicine in that State. Some of our clients are licensed providers, such as medical doctors, psychologists, and chiropractors. They present a strategic question: is it better to continue their coaching under their licensed practice—and try to get a license (typically for MDs) in the remote states where they want to offer telehealth services? I would say by in large, yes, because there are many vendors that will help you get a license in those states. But another idea is to have a hybrid model where they see the patients as a licensed provider in their home state, and then style themselves as a health coach in States where they are not licensed. This has some pros and cons. Using a hybrid model requires a bit of skill and savvy, and, an understanding of the legal and regulatory risks and how to mitigate them. I had someone say minimize, but we don’t minimize – we mitigate. Here are three of some risk mitigation strategies we might use. One: if you are functioning in a health coaching mode only, avoid diagnostic categories and language—such as, depression and obesity—so speak in coaching language, like talking about habits, motivation, and goals. Two, even if licensed, for example as an MD or a chiropractor or psychologist, prominently disclaim your role, often times with an asterisk or box on the Consent or Disclosure form or website bio or all of the above so that you qualify your use of a professional title such as “doctor.” Three, limit the kinds of services you offer, so that they do not cross the line into diagnosis and treatment of disease. For example, reviewing and commenting on lab tests. Health coaches want to do that all the time but I would consider that a clinical function in the eyes of a regulator. Whereas telling someone to keep a food diary, is just telling them to keep a diary. Thanks for watching. Here’s to the success of your healthcare venture, we look forward to speaking with you soon. Contact us today to learn how the Cohen Healthcare Law Group can help with your legal needs. Our team is here to provide experienced guidance and practical solutions. Testimonials
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
Page 40 of 44
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