Copyright Office Implements Mass Registration For Short Online Literary Works

Highlights

  • The new Group Registration for Short Online Literary Works (GRTX) permits up to 50 short online literary works to be registered simultaneously
  • GRTX permits a single registration certificate, at a much lower cost than previously
  • GRTX applies to online content only, such as articles, blogs and social media posts

The United States Copyright Office recently implemented a new group registration process for registering multiple, short online literary works under a single copyright registration.

This process – referred to as Group Registration for Short Online Literary Works (GRTX) – is designed for those who regularly publish content online, such as articles, blogs and social media posts; but not the likes of emails, podcasts or audiobooks.

The new GRTX can include between two and 50 works within a single $65 copyright application. The process offers a significant cost savings, as previously 50 works would cost more than $3,000 in application fees.

The GRTX requirements include the following:

  1. the works need to be first published online (or simultaneously with a physical form publication)
  2. the works must have been published during the same three-month period
  3. the works must be between 50 and 17,500 words
  4. the works may not be works made for hire
  5. the GRTX registration only applies to the text of the short literary work

If registration is granted, the holder will receive a single registration certificate and registration number for the entire group of works.

Law clerk Nick Rivera contributed to this alert.

© 2020 BARNES & THORNBURG LLP

 

ARTICLE BY Jonathan P. Froemel of Barnes & Thornburg LLP
For more articles on copyright law, visit the National Law Review Intellectual Property section.

Inclusivity and High Performance Begins with Psychological Safety

A workplace where employees believe they can speak up candidly with ideas, questions, and concerns, and even make mistakes without fear of reprisal or adverse repercussions, contributes to inclusivity and can improve performance. In such a work environment, employees feel comfortable asking questions, admitting what they do not know, or expressing their work-relevant thoughts and feelings. This construct is called psychological safety.

According to Lisa H. Nishii, Ph.D., Associate Professor of Human Resource Studies and Director, International Programs, in the School of Industrial Labor Relations of Cornell University, with regard to psychological safety:

The issue to think about here is if team members can’t bring themselves to speak what’s on their mind — that is they censor themselves, then they won’t experience inclusion, nor will the group benefit from their perspectives. If team members don’t trust each other, then they’re going to waste time and energy thinking about what they should say, and what they shouldn’t say, and wonder about the true intentions of their peers when they’re interacting with them.

In comparison, when employees feel free from worrying about repercussions, how they will be perceived, or what people will think of them, they are able to be more engaged and connected in the workplace. They spend less time and energy being stressed or anxious, can create more mental space to think creatively, share their unique perspectives, and are more actively engaged in problem solving.

Psychological safety is important for all employees to feel included and is particularly important for employees who have been historically underrepresented in a particular field or workplace. I recall an early experience as an African American attorney working in a predominantly white law firm. On the first day, I filled out paperwork in a large conference room decorated with portraits of the founders of the firm — all white men. I was introduced to the office manager and head of the class action practice group — all white. I was then provided a firm manual on trends in class action litigation including photos of the authors — all white. One of the initial messages conveyed to me from seeing these images was that I did not belong. These initial messages, compounded with seeing few African Americans at the firm and even fewer in leadership positions, created an environment where I did not feel safe to ask questions, fully engage, or share my viewpoint or perspective — not because of a lack of skill or talent, but because my environment did not feel safe to authentically show up in.

Psychological safety assists in creating an inclusive environment. Inclusion enhances performance and retention, which furthers a company’s ability to meet its goals and financial targets. However, in order for organizations to get the benefits of inclusion, employees from underrepresented groups need to feel comfortable presenting their authentic selves. If an employee does not feel welcome or included, the employee will engage, if at all, out of obligation and not with the uninhibited feeling of being a part of a psychologically safe organization.

Here are six tips to create psychological safety for employees in the workplace, particularly for employees who have been historically underrepresented:

1. Understand Stereotypes and Preconceptions, and Conduct a Diversity and Inclusion Assessment

We all have conscious and unconscious biases. Unconscious biases are more concerning because, by definition, we are not fully aware of them. Unconscious biases are beliefs about certain groups of people that individuals form outside their own conscious awareness. A critical step in creating psychological safety is to understand one’s personal biases, along with those of the organization.

Therefore, an initial step in creating psychological safety is discussing bias, as well as conducting anti-bias training. Additionally, conducting a diversity and inclusion assessment can provide your organization a data-driven understanding of the current workplace demographics and culture around diversity and inclusion. Weldon Latham, founder of the unique Jackson Lewis Corporate Diversity Counseling Group, has been representing Fortune 200 companies and conducting diversity and inclusion assessments for over 20 years. He advises:

Implementing diversity initiatives in a vacuum can actually be harmful to an organization. A better approach is to conduct a diversity, equity, and inclusion (“DEI”) assessment of key metrics and cultural indicators, and prepare a DEI Strategic Plan that will inform the development of effective initiatives.

2. Empathize and Be Curious

Put yourself in the shoes of a new employee and try imagining what they are going through. This is even more important when the incoming employee is of a different race, age, gender identity, sexual orientation, ability, or status different from the majority of employees in the same or similar role. Organizations might be tempted to apply a one-size-fits-all approach to creating teams or assigning supervisors without understanding the potential for individuals who are underrepresented to feel excluded. You may need to empathize with the experience of an employee who finds themselves doubted or judged because of personal characteristics. This might alter how you create teams or assign supervisors.

As a result, curiosity becomes important. According to dictionary.com, curiosity is a “a strong desire to know or learn something.” As it relates to diversity, curiosity is having a strong desire to learn about the experiences of others to create an environment where employees feel seen and heard, and uninhibited to share their perspectives.

Empathy and curiosity in the workplace include taking the time to ask employees about their ideal supervision: the style of communication (email or call), type of feedback (direct or example), and frequency of checking in (daily or weekly). It does not mean accommodating all of these requests, but listening and trying. This not only builds trust but encourages employees to “buy in” or feel engaged if they feel they have had some say-so in their work experience.

3. Onboard with Intentionality

An important step in mitigating cultural barriers occurs at the start of employment. Michael D. Watkins stated in his Harvard Business Review article, “7 Ways to Set Up a New Hire for Success,” effective onboarding “brings new employees up to speed 50% faster, which means they’re more quickly and efficiently able to contribute to achieving desired goals. Effective onboarding also dramatically reduces failure rates and increases employee engagement and retention.”

Often employers believe in hiring talent and providing training over time. But making efforts to help employees feel welcome and valued upfront will build confidence and belief that they belong. It will also reduce stress and anxiety and create an initial feeling that it is safe to engage or add value. Moreover, if an organization lacks diversity, careless onboarding can heighten feelings among underrepresented employees of not belonging.

4. Be Consistent

Litigation often results when communication and behavior are not aligned. Make sure your actions in the workplace match your messaging. Over the past several months, employers have released statements about racism and made various commitments to diversity and inclusion. Similarly, more employers are requiring implicit bias training. Public statements and training, however, must result in changes in workplace behavior, otherwise you lose credibility with employees.

Similarly, some workplaces have “unwritten rules” on achieving success. This runs counter to an inclusive environment because there is inconsistency between written metrics for performance and promotion and the realities of the workplace. If an inclusive environment was in place and functioning, there would be no need for “unwritten rules.” Until that is the case, knowing the “unwritten rules” or what you are “up against” at a minimum empowers an individual to make more informed decisions about navigating their way in the workplace.

Psychological safety ultimately involves trust, which takes time to build and work to keep. If an employer’s actions around diversity and inclusion are inconsistent with its messaging to employees or to the public, the employer will lose credibility. Employees, particularly those who are underrepresented or who have been marginalized, will feel less safe in the workplace because of these inconsistencies.

5. Develop Opportunities for More Interpersonal Interactions

Employees need to have more opportunities to interact organically to form social bonds and trust over time. I can recall as a junior attorney speaking with a white senior attorney whom I was starting to work with more. She asked about my weekend. I responded that I went to a concert. She asked, who did I see? I felt uncomfortable saying “Public Enemy” because I felt she might not know them or might judge me in a way that would negatively impact our working relationship. Instead, I answered “a band I used to listen to in college.” As we worked together, we were able to get to know one another more and I was able to share more about myself. Through this rapport, we both realized we had more in common than we may have initially perceived. As I built social ties, it was easier to ask for help, acknowledge when I did not know something, or challenge a strategic decision.

When management takes the time to build an understanding of other people, it becomes more comfortable to speak up. It is helpful for workplaces to think of ways to foster and support positive, healthy interactions among employees. This may include collaborations across teams, informal discussion at periodic team meetings, or setting boundaries and expectations for employee interpersonal engagements that are informed by inclusion.

Moreover, if employees feel more comfortable in the workplace, they are likely to discuss any disputes internally and seek to resolve them cooperatively.

6. The Value of a Diverse Pool of Employees

When you create a work environment where employees see a representation of themselves in varying positions within the workplace, they are more likely to feel comfortable being themselves. One way to help achieve this is to increase the diversity of the pool of candidates considered for positions. The Rooney Rule in the National Football League and the Mansfield Rule adopted by numerous law firms are two examples of ways to increase diversity within all levels of an organization.

Diversity and inclusion is a journey. Like most journeys, a well-crafted vision is key to its success, but be wary of legal traps. Failing to think strategically about diversity can result in employees feeling unsafe in the workplace. A well-crafted diversity and inclusion strategy fueled by data from a diversity assessment creates more employee engagement, less employee turnover, and, importantly, helps reduce stress, anxiety, and fear that may result in litigation.

Jackson Lewis P.C. © 2020
For more articles on the legal industry, visit the National Law Review Law Office Management section.

Four Tips to Retaining & Sustaining Your Team’s Motivation During COVID-19

It’s no surprise the novel COVID-19 pandemic is upending the lives of employees who are struggling to focus and stay engaged at work as fears of becoming unemployed or ill loom. As partners grapple with staff changes, juggling client and colleagues’ expectations and adjusting to a new work environment, now more than ever, they’ll need to step in and navigate the new reality of the workplace during this global crisis in order to maintain their employees’ morale. Here are a few ways to keep your team motivated and engaged during these unprecedented times:

  1. Celebrate the big and small wins: No small effort goes unnoticed. Try celebrating small wins, such as a successful call with a potential client, a project being finalized ahead of schedule, or brainstorming a creative idea that piques the client’s interest. Notify other team members as well so everyone can share in the celebration. The big wins almost always receive recognition but getting into the habit of showing appreciation for the small victories will keep staff optimistic and productive.
  2. Proactively assist with other projects: Being buried in projects makes employees feel overwhelmed, stressed and anxious. If you notice an assignment is taking them longer than usual, offer to support certain elements of the project or provide suggestions on how to streamline the process. Another helpful solution is extending deadlines and pulling in other team members that can contribute in a meaningful way. This not only fosters a sense of collaboration, but it creates a healthy manager-employee relationship that survives trying times.
  3. Conduct regular check-ins: With the simple touch of a button, you can connect with people in an instant via FaceTime, Zoom, or Skype. By scheduling and consistently checking-in with your colleagues every week, you allow them the opportunity to voice their concerns and strategize next steps without back and forth emails and text. It also allocates time for human interactions and closeness to help diminish feelings of isolation and loneliness.
  4. Laughter is the best medicine: Who says work must be boring? If you see an article that relates to your industry and it has an interesting or humorous angle, share it. Laughter is the best medicine in hard times and can serve as a stress reliever. Every time you come across something positive, routinely send it around as a “thought you might like this!” to solicit a laugh or two.

Every day presents new opportunities and new challenges. While there’s no clear answer as to when things will return to normal, here’s one thing employers should never forget: a community-driven experience always enables individuals to go the extra mile.

© 2020 Berbay Marketing & Public Relations
For more articles on the legal industry, visit the National Law Review Law Office Management section.

Senate Election Preview

Control of the US Senate is never inconsequential. However, control of the Senate at the end of this election cycle seems to be significantly more consequential than previous cycles. If former Vice President Joe Biden is elected president, his ability to deliver on the Democratic agenda will depend on Democrats taking control of the Senate, and the margin by which they do so. If President Trump is reelected, his administration’s ability to function normally in a second term would improve if Republicans maintain control of the Senate and are able to approve his nominees.

HISTORICAL CONTEXT

Every Senate election cycle, and every individual election within an election cycle, is what academics would refer to as an independent event. Every six years for a given Senate seat, each campaign and its outcome is a function of the individual candidates, the actions of their campaigns, and the current circumstances surrounding those candidates and campaigns. History is important to provide context, but the outcomes are independent from the history.

Nonetheless, history tells us something about odds, and historic experience is illuminating as we look to predict potential 2020 Senate outcomes, because presidential victories, driven by state-specific Electoral College results, tend to align with Senate results too. For example, if a presidential candidate carries Nebraska, chances are high that the Senate candidate of the same party also will win in Nebraska. Going back through election history, four specific trends are valuable for considering the Senate outcome in this election cycle. This is not to say these trends predict the outcome in any specific race, but rather each example speaks to how each outcome would fit, or not, within trends over the last two decades or longer.

  1. If Biden wins the presidential election, the White House would change party ownership. The last time the White House changed party ownership and the new owners didn’t also control the Senate was the election of Richard Nixon in 1968. If Biden wins and the Senate is not also under Democratic control, it would be the first time in more than 50 years that an election produces a split White House and Senate.
  2. A president that wins reelection does not lose the Senate. This is not to say that a president winning reelection must flip the Senate. Richard Nixon and Bill Clinton won reelection while the Senate remained under control of the opposition party. Since the Civil War, how many times has a president running for reelection lost control of the Senate in the same election? Never. Trump winning reelection and Republicans losing control of the Senate would be a first.
  3. In 2016, Republican Senate candidates won every state that President Trump won. Where Trump lost, the Republican candidate lost. The last Republican to win a Senate race when the Democratic candidate for president won that same state was Susan Collins in Maine in 2008. The last Republican to defeat a Democratic incumbent in a presidential election year was John Thune over Tom Daschle in 2004. No Republican Senate candidate has defeated a Democratic incumbent while the Democratic presidential candidate won the same state in the last 20 years. If Biden wins a state, history favors the Democrats holding or flipping the Senate seat.
  4. In 2012, four Democratic Senate candidates won states that Mitt Romney won, although none of them defeated an incumbent Republican senator. The last time a Democratic defeated an incumbent Republican senator while the Republican presidential candidate won the state was Mark Begich over Ted Stevens in 2008, and prior to that Mel Carnahan over John Ashcroft in 2000. For Democrats to take decisive control of the Senate (a margin of two or more seats), they will need to win seats that run counter to outcomes over the last 20 years.

With this historical context in mind, below we provide additional context for the Senate seats that could decide how the politics in the Senate will function in 2021.

LIKELY REPUBLICAN

Democrat Doug Jones won election to the Senate from Alabama with a surprising special election victory over the highly controversial Republican candidate Roy Moore. In a presidential election year, with Republicans fielding a significantly less controversial candidate, Tommy Tuberville, Alabama is the Senate seat most likely to change parties in the 2020 election. Count this as a likely Republican pick-up.

LEANING DEMOCRATIC

The three most endangered Republicans in the Senate are Susan Collins (Maine), Cory Gardner (Colorado) and Martha McSally (Arizona). Biden is highly likely to win Colorado and Maine. Thus, for Gardner and Collins to survive will require significant ticket splitting. While McSally has the advantage of Trump being the favorite in Arizona, she is running for election as an appointed incumbent who has consistently polled behind throughout the race. If Republicans win any of these three Senate seats and pick up Alabama, Democrats gaining control of the Senate is unlikely.

THE ONES THAT DECIDE THE MARGIN

If Biden wins the White House and Democrats win the three toss-up races while simultaneously losing Jones in Alabama, one of the following seats must go to the Democrats for them to take functional control of the Senate : Iowa, Montana or North Carolina. These three states are all considered highly competitive. Accordingly, for Democrats to take control of the Senate and expand their working margin for 2021, they will have to defeat Republican incumbents in three states that President Trump won in 2016. At the presidential level, Iowa and North Carolina are toss-ups. The better Biden does in those two states, the more plausible it is for the Democrats to upset the Republican incumbent. For the Democrats to defeat Republican incumbent Steve Daines in Montana in a presidential year would be something atypical in the last generation, as Montana has consistently voted Republican in presidential elections.

THE LANDSLIDE

What does the bottom falling out look like for Republicans in the Senate? If Biden clearly wins the White House, taking as many electoral votes as Obama did in 2008 (somewhere around 365), and is competitive in close races in typically red states, other Republican incumbents could be in danger. John Cornyn (Texas), David Perdue (Georgia) and Lindsey Graham (South Carolina) are all in potential jeopardy in this scenario. But it is worth remembering that, as discussed previously, in the last 20 years only two Republican senators have lost reelection in a presidential election year in which the Republican presidential candidate wins their state, and both of those instances occurred under unusual circumstances.

NOT COMPLETELY OFF THE TABLE

There are two races on each side that at least warrant a passing comment because the outcome is not the certainty that we see in other Senate races that are considered safe seats. On the Republican side, the open seat in Kansas and, of course, Mitch McConnell’s seat in Kentucky are seats Democrats dream of carrying on November 3. While not impossible, those Senate seats changing hands seems improbable. Alternatively, in a world where Republicans have a better day than conventional wisdom might expect, Democrats would be concerned about Gary Peters (Michigan) and Tina Smith (Minnesota). Of the four mentioned here, Peters is the most plausible upset because of the potential that Trump could win Michigan.

A RUNOFF TO WATCH

It is highly unlikely that the winner of the Georgia special Senate election will be decided on November 3. Absent the unlikely occurrence that one of the six candidates wins a majority, it will necessitate a runoff election. The outcome of that runoff will determine the final Senate margin and will occur in the aftermath of the general election, which will make the politics of that vote an event unto itself.

© 2020 McDermott Will & Emery
For more articles on the election, visit the National Law Review Election Law / Legislative News section.

“Is You Is or Is You Ain’t:” Membership in an LLC

The New Jersey Superior Court, Appellate Division case Giordano DeCandia v. Anthony T. Rinaldi, LLC d/a The Rinaldi Group and Anthony Rinaldi, (N.J. App. Div., Oct. 5, 2020) per curiam, is about whether the plaintiff was or is a member of the LLC, and the economic consequences of that determination. The Appellate Division affirmed the rulings of the trial court (in a bench trial), except for reversing one of the defendants’ counterclaims. The case is most important for two reasons: first, it underscores the potential for chaos resulting from the uncertainties of oral versus written claims; and second, it reveals that the New Jersey judiciary, even at the intermediate appellate level, still finds a limited liability company (even 27 years after the first NJ LLC statute was adopted) a strange and challenging creature. The critical issue of membership is nicely captured by the rather famous old jazz song written by Louis Jordan and Billy Austin and first recorded on October 4, 1943, just over three weeks after your author was born. As its title invokes, when uncertainty abounds, it is difficult to have more than an ephemeral relationship.

Membership in an LLC

Rinaldi had a construction management and general contracting business in New York and New Jersey. In 2003, he formed the LLC as a manager-managed LLC, with himself as both the sole member and the manager. Plaintiff DeCandia began working for the LLC in 2011, with a compensation package of a salary plus a 10% ownership interest, with the ability (based on the amount of work the plaintiff brought in) to go to 20% of “net profits on that work.” The plaintiff signed an operating agreement on February 14, 2011. The Capital Contribution schedule attached to that 2011 agreement stated that the “plaintiff’s ownership interest is performance-based rather than through capital contributions.” The plaintiff received an LLC membership certificate reciting the arrangement. Rinaldi later testified that “profit-sharing is a prevalent and customary compensation mechanism within the commercial construction industry.” It is worth noting that the LLC’s comptroller also testified that the parties advised of the arrangement and that she had a similar profit-sharing deal. On September 25, 2013, the parties signed an amended operating agreement (the “2013 agreement”), adding two more members as the company grew, and giving them similar percentage interests. The plaintiff received an increase to a 20% interest, and a replacement LLC membership certificate reciting the new terms. The old certificate was voided.

In 2015, Rinaldi and the plaintiff began negotiating a buy-sell agreement, to buy out a deceased member’s interest from the surviving spouse, in case either Rinaldi or the plaintiff died. The Court notes that the initial draft of the agreement said that plaintiff would own “twenty percent of the common stock of the LLC.” On October 19, 2015, the parties, two other LLC “employees” (the Court’s term), and the LLC’s accountant met to discuss the buy-sell agreement, tax implications, and financial liabilities related to being (what the Court calls) “an equity partner.” Plaintiff, per the accountant, purportedly said that he was interested in “profits, not taxes.” The Court also reports, without any clarifying explanation, that plaintiff “wanted to avoid any personal liability on the LLC’s bonds.” The plaintiff may have been referring to payment and performance bonds, which are usual in the construction business, as opposed to debt instruments. In that meeting, Rinaldi disclosed that the LLC was under criminal investigation by the New York City Borough of Manhattan District Attorney after the NY Department of Buildings found that numerous safety violations by the LLC caused death at a construction site. Testimony asserted that the plaintiff became frightened that his LLC membership certificate might expose the plaintiff to criminal liability. Rinaldi told the plaintiff that if he was scared, he should resign and turn his LLC membership certificate over to the LLC’s attorney. Shortly after, the plaintiff did so, without signing the certificate or providing any other “explanatory writing.” No buy-sell agreement was ever entered into with the plaintiff. The Court states that after that October meeting, the plaintiff received his salary plus bonuses, but no “profit-sharing.” The plaintiff never sought to recover his membership certificate.

By March 2017, things had deteriorated to the point that Rinaldi terminated the plaintiff. The plaintiff, apparently anticipating that deterioration had contacted a competitor of the LLC in 2016. On the plaintiff’s last day with the LLC, he sent his wife the LLC’s proposed budget for a job it was bidding on; she forwarded the budget to the competitor, which submitted a rival bid. The plaintiff then met with the executives of the potential customer and urged them to hire the LLC’s competitor. The employment agreement plaintiff signed on April 28, 2017, recited that he did not have an ownership interest in any competitor of his new employer. On September 15, 2017, the plaintiff sued the LLC, and Rinaldi, seeking a declaratory judgment that he was a 20% owner of the LLC and other relief. Defendants counterclaimed that the plaintiff had breached his common law duty of loyalty as an employee AND his duty of loyalty as a member of the LLC. The trial court held against the plaintiff on all claims and granted the defendants’ counterclaims. The Appellate Division upheld the trial court’s rulings on all but the counterclaim for breach of the duty of loyalty as a member of the LLC. That statutory obligation applies to members of a member-managed limited liability company, but the LLC was manager-managed so that the duty applied only to managers; Rinaldi was the sole manager. The plaintiff’s efforts to assert equitable claims relating to minority oppression and the like failed because, as both the trial court and the Appellate Division found, the plaintiff’s double-dealing gave him “unclean hands.”

“Is You Is or Is You Ain’t”

Carefully written documents could have resolved most of the factual ambiguities. But both trial and appeal courts found sufficient basis for concluding that the plaintiff had voluntarily withdrawn from the LLC, one of the acts of dissociation that ends membership. Given the trial, the Court’s determination that the plaintiff was not a member or had withdrawn as a member, it is not clear how the trial court could have found that the plaintiff had violated a duty of loyalty owed by a member of a limited liability company. Even more troubling in both opinions (beyond the occasional inaccurate language, e.g., limited liability companies do not have “common stock;” a member of a limited liability company is not an “equity partner”) is the finding that the concept of a contingent percentage interest in an unincorporated business was mere compensation and did not result in plaintiff owning a membership interest in the LLC. That is simply a misstatement of the law. A person may become a member of a limited liability company with a present, vested interest or with a contingent, earning-based interest. Or as it appears from the recitals noted in the Appellate Division opinion, both. The plaintiff’s original deal was:

  • salary;
  • 10% membership interest; and
  • contingent 10% “profit-sharing” interest based on the work plaintiff brought in

Ultimately, as both courts held that plaintiff had given up “whatever ownership interest he may have held in the LLC,” the issue was moot. But the language in the Appellate Division opinion might well allow a future court to find that someone who is in fact a member of a limited liability company in New Jersey is not a member at law – a troubling risk and a reason to consider forming an unincorporated entity under the law of a jurisdiction other than New Jersey.

©2020 Norris McLaughlin P.A., All Rights Reserved
For more articles on corporate law, visit the National Law Review Corporate & Business Organizations section.

How Risky Is Tossing Your Old Servers? Maybe $60,000,000 Fine

We all have them. Old computers sitting around in storage, never to be used again. Broken servers that have passed their prime. Laptops abandoned for their newer, shinier versions.

And what do you do with them? If these are business computers and you were considering tossing them into the trash can or hauling them to the landfill, you could be courting serious risk for your company. Improper disposal of data holders can lead to embarrassment, lawsuits and fines.

There are environmental issues, of course.  The FTC publishes a notice on disposal  of computers that states: “Most computers contain hazardous materials like heavy metals that can contaminate the earth and don’t belong in a landfill. So what are your options? You can recycle or donate your computer. Computer manufacturers, electronics stores, and other organizations have computer recycling or donation programs. Check out the Environmental Protection Agency’s Electronics Donation and Recycling page to learn about recycling or donating your computer.”

But the data exposure is another ballgame entirely. We were reminded of this fact last week when the Office of the Comptroller of the Currency, a lead regulator for national banks, fined Morgan Stanley Bank and its Private Bank $60 million for risk management issues related to the closing of two wealth management data centers.

The American Banker reported “The OCC found that the bank did not take proper precautions in dismantling and disposing of outgoing hardware that contained sensitive customer data and failed to properly supervise the vendors Morgan Stanley tasked with wiping customer data from the old equipment before it was resold.” The OCC reported in its press release on the fine, “Among other things, the banks failed to effectively assess or address risks associated with decommissioning its hardware; failed to adequately assess the risk of subcontracting the decommissioning work, including exercising adequate due diligence in selecting a vendor and monitoring its performance; and failed to maintain appropriate inventory of customer data stored on the decommissioned hardware devices.”

But the OCC investigation was not the only attack on Morgan Stanley’s computer disposal procedures arising from the decommissioning of these data centers. Two lawsuits have also been filed by Morgan Stanley clients and former clients who were notified that the data center closing placed their information at risk. The lawsuits claim that unencrypted private financial data remained on the decommissioned computers after they left the bank’s possession and that a software flaw left previously deleted data on the computer hard drives. These putative class action suits have not yet specified damages.

As Morgan Stanley can now attest, termination/destruction hygiene is a crucial part of any information technology program. And like many aspects of modern computing and ecommerce, if safe computer destruction is not part of your company’s core competence, then you are likely best served by hiring professionals to perform the task for you.  But make sure you know what you are getting.

Computer recycling, destruction and refurbishment involve a full removal of unencrypted data from the drives and storage units. We all know that simple deletion of an item, does not necessarily remove the item itself, just the ease of access to it – like boarding up the door of a house.  The house is still there, just harder to enter. Your vendor handling destruction should be able to attest to writing over the important drives or otherwise destroying the data or drives themselves.

As stated on the U.S. Homeland Security website, “Do not rely solely on the deletion method you routinely use, such as moving a file to the trash or recycle bin or selecting “delete” from the menu. Even if you empty the trash, the deleted files are still on device and can be retrieved. Permanent data deletion requires several steps.” Homeland Security promotes full physical destruction of the device to prevent others from retrieving sensitive information off of a decommissioned computer.

It also promotes overwriting, in which strings of one and zeros are written over the data to completely obliterate it.  The site suggests using either of the following:

  • Cipher.exe is a built-in command-line tool in Microsoft Windows operating systems that can be used to encrypt or decrypt data on New Technology File System drives. This tool also securely deletes data by overwriting it.

  • Clearing is a level of media sanitation that does not allow information to be retrieved by data, disk, or file recovery utilities. The National Institute of Standards and Technology (NIST) notes that devices must be resistant to keystroke recovery attempts from standard input devices (e.g., a keyboard or mouse) and from data scavenging tools.

Either of these options can help assure that your company meets its obligations for proper disposal of outdated computers.

The end of a computer’s life can be just as dangerous as its active use for exposing sensitive data. Your company needs a set of written policies and programs to establish that computers are remove in a legally compliant manner. Fines, lawsuits and significant customer conflict may follow if you don’t get this right.

Copyright © 2020 Womble Bond Dickinson (US) LLP All Rights Reserved.
For more articles on tech, visit the National Law Review Communications, Media & Internet section.

Amazon Ruling Impacts Prop 65 Issues

The 2020 Prop. 65 Clearinghouse conference marked another year of thought-provoking discussion on the current state of Proposition 65 regulations and litigation.  Although the Act is nearly 35 years old, trends in enforcement litigation and defenses are continuously evolving.  The Prop. 65 Clearinghouse does an excellent job of combining perspectives from the various stakeholders and litigants in the field.

Among the panels at this year’s conference, discussing topics from acrylamide litigation to warnings on marijuana products, was an excellent and lively discussion on the affirmative defense under the compelled speech doctrines of the First Amendment.  Briefly mentioned in that discussion was whether we may see an emergence of other protections from the Constitution invoked as defense to Prop. 65 actions.  Due Process and Commerce Clause were briefly mentioned among those other potential areas where we may see further constitutional defenses.

This discussion brought to mind other areas where federal law may preempt California’s Prop. 65.  In particular, and on the heals of the California Court of Appeal’s August 2020 decision in Bolger v. Amazon, the applicability of the federal Communications Decency Act of 1996.  To be clear, Bolger was not a Prop. 65 case.  However, the decision did briefly touch an area of federal preemption that can be used as a defense to Prop. 65 actions brought against Amazon and other online third-party seller platforms.

In Bolger, a woman was severely hurt following an explosion of a replacement laptop battery she purchased on Amazon from a third-party seller.  Amazon raised a number of defenses, including immunity from liability under title 47 U.S.C. section 230 – part of the Communications Decency Act (CDA).

The CDA is extremely important to the free flow of information on the internet as it shields online content platforms from being held liable as the speaker or publisher of third-party content.  Plaintiffs pursuing lawsuits based on state law “may hold liable the person who creates or develops unlawful [online] content, but not the interactive computer service provider who merely enables that content to be posted online.” (Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc. (4th Cir. 2009) 591 F.3d 250, 254; see also, HomeAway.com, Inc. v. City of Santa Monica (9th Cir. 2019) 918 F.3d 676, 681.)

The Bolger Court found that the CDA did not protect Amazon from strict liability for the battery purchased on its website because speech was not the issue.  Liability was not rooted in a failure to adequately warn, for example.  The Court stated that Amazon’s liability in the case did not turn whether Amazon was classified as a speaker/publisher of content on amazon.com that had been provided by the third-party seller.  Instead, Amazon was found liable in Bolger because of its role in the transaction itself that was more akin to that of a “conventional retailer” and the Court subjected Amazon to strict liability as it would have for any other “conventional retailer.”  (In a future CMBG3 post, we will be discussing the ramifications of that retailer label, as well as the split among courts around the country on the issue.)

From a Prop. 65 perspective, the take-away from seemingly unrelated cases like Bolger and HomeAway.com is that CDA immunity may extend to lawsuits where a plaintiff is seeking to pursue a state law cause of action (i.e., enforcement of California’s Prop. 65) against an online platform for content provided by another.  In other words, the CDA could shield a company like Amazon from content-based lawsuits stemming from the alleged absence or inadequacy of a Prop. 65 warning that the third-party seller either neglected to post on the product page, or failed to provide the proper warning under Prop. 65.

For the third-party seller, not only should this be a reminder to review your obligations under regulations like Prop. 65, but also to read your vendor agreements with Amazon, Etsy, Walmart, Shopify and the like.  To keep the theme on Amazon, the Amazon Business Solutions Agreement includes indemnity provisions and regulatory compliance provisions (that specifically call out Prop. 65 compliance) that every vendor should understand.

©2020 CMBG3 Law, LLC. All rights reserved.
ARTICLE BY Gilliam F. Stewart of CMBG3 Law
For more articles on Prop 65, visit the National Law Review Environmental, Energy & Resources section.

“Can’t Hold Us” Liable: Macklemore & Ryan Lewis Win Affirmance in Copyright Suit

The US Court of Appeals for the Fifth Circuit affirmed a grant of summary judgment on the issue of copyright infringement and an award of attorneys’ fees against the plaintiff under the Copyright Act. Although the Court noted that it lacked jurisdiction to review sanctions against the plaintiff’s attorney, it observed that counsel went beyond “vigorous representation.” Batiste v. Lewis, Case Nos. 19-30400, -30889 (5th Cir. Sept. 22, 2020) (Clement, J.).

Batiste, a local musician, sued Macklemore & Ryan Lewis, an internationally famous hip-hop duo, for copyright infringement. Batiste alleged that the duo sampled his songs without authorization. As support, Batiste submitted the expert report of a musicologist, Milton, but Milton later admitted that Batiste had conducted the analysis and written the report, and that Milton did not even have access to the necessary software. The district court excluded the report, which Batiste then sought leave to resubmit in his own name. The district court denied leave because Batiste had not disclosed himself as an expert and because the new report was untimely. The district court subsequently granted the defendants’ motion for summary judgment, finding that Batiste had failed to submit sufficient evidence of Macklemore and Lewis’s alleged access to Batiste’s work or of probative similarity between Macklemore and Lewis’s works and Batiste’s. The district court then awarded fees to Macklemore and Lewis under the Copyright Act (17 USC § 505) and made Batiste’s attorney (Hayes) jointly and severally liable for the fees award as a sanction under 28 USC § 1987. Batiste appealed.

Addressing the district court’s summary judgment of no infringement, the Fifth Circuit considered Batiste’s proofs as to access and similarity.

Batiste tried to prove access through “widespread dissemination” and “chain of events” theories. The Court held that Batiste’s evidence of widespread dissemination was insufficient because it only established “quite limited” dissemination of Batiste’s music. Batiste’s chain of events theory—under which Macklemore and Lewis allegedly accessed Batiste’s work by playing a concert at a venue near a record store that sold Batiste’s music—raised only a “bare possibility” of access and was therefore also insufficient.

On the issue of similarity, the Court explained that because of Batiste’s failure to show access, he needed to show “striking similarity” to withstand summary judgment. The Court rejected Batiste’s argument that “overwhelming evidence of access” obviated any need for him to show similarity. The Court compared the allegedly infringing songs to Batiste’s and found them insufficiently similar for a jury to find striking similarity. The Court also rejected Batiste’s invitation to adopt the US Court of Appeals for the Sixth Circuit’s ruling in Bridgeport, which held a showing of similarity unnecessary in some circumstances. The Fifth Circuit noted that Bridgeport has been widely criticized, and pointed out that Bridgeport considered the issue of substantial similarity (which dictates whether factual copying, once established, is legally actionable), whereas the issue in this case was probative similarity (which raises an inference of factual copying).

Batiste challenged the award of attorneys’ fees as erroneous absent a finding of frivolousness or bad faith. The Court rejected Batiste’s argument as inconsistent with the Supreme Court of the United States’ 2016 decision in Kirtsaeng (citing and quoting its 1994 decision in Fogerty), which list frivolousness or bad faith among other non-controlling factors that district courts may consider in exercising discretion to award fees.

Finally, the Court noted that that it lacked jurisdiction to consider the sanction against Batiste’s attorney Hayes, because Hayes was not listed as a party on the notice of appeal. The Court nonetheless excoriated Hayes for his role in the submission of the Milton report and “remind[ed] Hayes of his ethical and professional obligations as a lawyer and advise[d] him to take those obligations seriously,” stating, “We certainly do.”

© 2020 McDermott Will & Emery
For more articles on copyright infringement, visit the National Law Review Intellectual Property section.

Ten Estate Planning Tips as We Emerge from a Pandemic and Head into a Presidential Election

No one can say that 2020 has been an ordinary year – from the outbreak of COVID-19 in the first quarter of 2020 to the death of Supreme Court Justice Ruth Bader Ginsburg to the upcoming Presidential election.

So, amidst such an unusual year, why not think about estate planning? These times provide an exceptional backdrop to engaging in thoughtful consideration about planning, and the economic environment provides unique opportunities.

Here are ten estate planning tips worth considering, right here, right now, during the final three months of 2020:.

Planning with Continued Low Interest Rates.

The Federal Reserve’s decision to keep interest rates historically low, even at the risk of inflation, has created a fertile environment of estate planning freeze strategies which utilize the IRS’s published interest rates. The Grantor Retained Annuity Trust (or “GRAT”) and the Charitable Lead Annuity Trust (or “CLAT”) are two techniques which, when most successfully deployed, allow for the transfer of wealth at a reduced gift tax cost and provide that the future appreciation on the assets transferred passes without exposure to the individual’s estate tax. The GRAT pays a defined sum back to the creator for a fixed number of years, and the remainder passes to family; the CLAT pays a fixed sum to a named charity for a defined number of years, and then the remainder passes to the creator’s family. The current applicable Federal interest rate for determining the gift tax value of these techniques is currently 0.4%, having dropped from 2.2% in February. Normally a GRAT or CLAT is most successful when a client transfers an asset which has significant appreciation potential, such as a closely-held entity where the owner expects a successful sale in the future. However, funding a GRAT with securities (or swapping them into an existing GRAT, as described below), given the relatively depressed and volatile capital markets and the low interest rates, means that more long term growth resulting from the rebounding stock market will be able to be passed to family.

Lower Values in Commercial Real Estate.

If your commercial real estate holdings have recently decreased in value, this could be an ideal time for making a gift of interests in these assets to family. When gifts are made in the form of interests in limited liability companies or limited partnerships, discounts continue to be appropriate for lack of marketability and lack of control even on top of lower real estate appraised values. The result is that owners of commercial real estate may be in a position to move quickly by transferring that property now to family trusts before the value rebounds in coming years. Such transfers may be most effective in the form of an outright gift or a gift to an irrevocable trust which is not considered to be owned by the creator for income-tax purposes or perhaps using promissory notes to family members.

Checking the Existing Basic Estate Plan.

Now is the time to review your will or your revocable living trust agreement (or both) to see if they still accurately reflect your wishes.

Testamentary Provisions.

Reconsider whether inheritances should be outright or placed in trust for the benefit of children and more remote descendants. Parents have a unique ability to provide meaningful asset protection for children by utilizing trusts for their benefit, to shield children from claims in divorce and other predatory maneuvers. Simple wills can overlook nuances that perhaps now during this period have become magnified, particularly in younger families struggling economically and emotionally with the pandemic. Review and reconsider choices for executors, trustees and guardians.

Testamentary Tax Strategies and the 2020 Presidential Election. Tax strategies and language contained in the will need to be reviewed as the Presidential election approaches and in its aftermath. Most sophisticated estate plans are framed around optimizing an individual’s estate tax “applicable exclusion amount” (or “AEA”) using a credit shelter trust, and his or her generation-skipping transfer (“GST”) tax exemption amount using a “dynasty” or descendants’ trust. Attorneys draft for these strategies in wills or living trusts using a formula meant to maximize the allowance. For many wills, after the Tax Cuts and Jobs Act of 2017 that formula was impacted by the increase of the AEA and the GST exemption from $5,000,000 to $10,000,000. (Increased for inflation, that amount is $11,580,000 today.) Barring Congressional action, the AEA and the GST exemption is set to retreat to $5,000,000 (again indexed for inflation) on January 1, 2026.

Clients and their advisors should evaluate these formulas on a case-by-case basis, with an eye towards the 2020 Presidential election. Vice President Biden has spoken of his intention to repeal the 2017 Tax Cuts and Jobs Act, which, presumably, means restoring the AEA and the GST exemption to the $5,000,000 level, as indexed. A long-standing Democratic agenda item has been to restore the AEA to the Clinton-era $3,500,000. Curiously, the Trump campaign lacks a definitive statement either to eliminate the Federal estate tax or even take decisive action to make permanent the exemption increases in the Tax Cuts and Jobs Act. The one secure tax take-away is that there is no telling what Congress and the President will do in 2021 and the years following, and so having the flexibility in a will or living trust to optimize the wealth tax environment, should death occur during this period of uncertainty, is essential.

How is this accomplished? Avoid or revisit formula clauses for credit shelter trusts where a surviving spouse is involved. These clauses might result in an unexpected and disproportionate benefit passing to a trust which is not exclusively for a spouse’s benefit. Better planning suggests drafting to set up a marital trust for the surviving spouse to hold the estate’s financial assets, which, through elections made during the period of administration and the ability to divide it into different shares, can provide the same benefits of planning with the AEA but offer more flexibility to achieve the best tax strategy overall.

Check Advance Directives and Durable Powers of Attorney.

Usually an integral part of the basic estate planning package, advance directives for health care and durable powers of attorney tend to gather dust as years wane. Unlike wills, which only take effect at death, these documents state an individual’s wishes regarding financial decision-making and health care decision-making while he or she is alive but unable to act or express intentions. These documents should be reviewed and refreshed at least every ten years, even if there is no change.

 Advance Directive for Health Care.

Different practitioners may use different forms, but at its core, this documentation sets out wishes about health care decisions and end-of-life views (end-of-life decisions are sometimes set out in a separate document known as a living will), and the appointment of a health care representative to act as the agent to make medical decisions including end-of-life decisions (sometimes set out in a separate document known as a health care proxy or proxy directive).  Are these choices and wishes still accurate? Is the agent’s information up to date?  Have the wishes been discussed with the agent? If the pandemic has taught many families one thing about estate planning, it has stressed the importance of having this document prepared, properly executed, and having the agent informed and ready with decision-making knowledge and resolve.

Durable Power of Attorney.

A durable power of attorney as created by most practitioners immediately grants authority to an agent to conduct business or financial transactions in the name of the individual who executes it. That being said, these documents can often be the most difficult to use. Many banks and financial institutions will insist on their own forms, whenever possible. In view of these hurdles, these documents should be reviewed and updated, if necessary, to avoid a costly confrontation with an uncooperative bank representative should the need arise to have them implemented. Check the names and addresses of the named agent. If there are co-agents, can they act independently or is unanimity required? Is there a power in the agent to make gifts? Is there authority to deal with digital assets? What is the relationship between the agent and the named executor in the client’s will?

Check Existing Estate Planning Strategies.

Individuals should take stock and review their other irrevocable strategies implemented in years past which may be impacted by the current economic and political climate. Existing life insurance trusts, spousal lifetime access trusts (described below), dynasty trusts, GRATs, qualified personal residence trusts, and charitable trusts, to name the most common, all may be accomplishing a desired goal of minimizing a client’s exposure to estate tax, but they need care and feeding, and a proper audit from time to time is essential. For example:

Insurance Trusts. Are Crummey notices being sent faithfully to trust beneficiaries in the case of insurance trusts where transfers are being made to the trust to pay premiums? Are the trust provisions still desirable? Are the successor trustees still acceptable? Are beneficiary designation forms up to date?

GRATs. Is the property in an existing GRAT subject to volatility such that it might be appropriate to freeze the fluctuation by having the creator substitute the property for a less volatile asset class (like cash) having an equivalent value? Have the required GRAT payments been made faithfully as prescribed in the trust agreement? If a GRAT has terminated, has the remaining property been transferred to the beneficiary of the remainder?

Dynasty Trusts and Spousal Lifetime Access Trusts. Are the provisions in the governing instruments regarding trust benefits and distributions and trustees still desirable? How are the assets performing? Is there an opportunity to do income tax planning for an asset otherwise excluded from the creator’s estate by swapping it out, as described above with the GRAT?

In many instances, upon reviewing these existing strategies, clients or their counsel have identified concerns or issues which need immediate attention, either because the provisions are no longer desirable or the technique has lost its purpose relative to size of his or her estate. Many states, including New Jersey, have adopted in one form or another, the Uniform Trust Code, which can help practitioners address changes needed to outdated or out-of-touch trusts. Decanting, combining or merging may also present viable options.

Renegotiate Family Loans.

Intra-family loans can often be a pragmatic solution for individuals looking to transfer wealth using the technique of an estate freeze.  The transfer itself is not a gift, but the value of the transfer is frozen at the time it takes place, meaning that the expected return of the principal amount is fixed by the value of the loan, whereas the asset or funds in the hands of the borrower is allowed to appreciate free of estate tax. For example, assume in 2015 a parent lends $1,000,000 to a child to purchase a home. If the parent had the child sign a promissory note and mortgage with a market rate of interest, no gift occurred. In October 2015, the applicable Federal interest rate (i.e., the minimum rate the parent must charge to avoid characterizing the loan as a gift) was 2.44%. In October 2020, the AFR for the same term loan is 1.12%. By refinancing the indebtedness, the child can lower his/her payments of interest by more than half. And if the parent is forgiving the interest as part of an annual gifting program, the annual gift tax cost has dropped from $24,400 to $11,200. Consideration should be given, however, to determine if refinancing to a lower rate and the benefit which the child realizes is, itself, a taxable gift. This may be avoided if the child pays to the parent the points associated with the adjustment to the lower interest rate at the time of the refinancing.

Using (or Losing) Your AEA before 2021 (or 2026).

As mentioned above, the AEA is currently $11,580,000 per person and, absent any legislative overhaul, will continue to be adjusted for the next five years with inflation and then disappear, reverting to the base amount of $5,000,000. Neither candidate seems to have mentioned gift, estate or GST taxes directly in any public discourse, but the Biden tax platform does include ending the income-tax benefit of the step-up in basis on appreciated property at death. The step-up at death currently allowed under the tax laws offers pragmatic and economic benefits for all taxpayers, regardless of affluence. Although not entirely clear as yet, a Biden administration agenda item appears to suggest that previously-unrealized gains are to be taxed at an individuals death, regardless of whether they are sold. Similarly, if Republicans were to revive their efforts at full-blown estate tax repeal, it is likely that the measure would follow the pattern of the repeal which occurred in 2010, namely that outside of an exemption, most of a decedent’s assets would not be allowed a step-up in basis.

Sunsetting and “Clawback.”

Putting aside these possibilities, the enhanced AEA will, absent any legislative action, sunset on January 1, 2026, thereby eliminating a meaningful amount of tax-free wealth which an individual can pass to family.  Individuals planning for this increasingly-likely situation are being encouraged to make taxable gifts immediately which use their AEA (i.e., gifts of up to $11,580,000 for individuals or $23,160,000 for married couples). In addition, the IRS has confirmed that taxpayers who make such gifts during this period will not be penalized even if the base amount of the AEA reverts to $5,000,000 as a result of the sunset in 2026.  Prior concerns of this “clawback” have discouraged gifts in the past, but with this pronouncement, there is no downside for making the gifts today and, potentially, no time like the present.

Techniques.

While any irrevocable family dynasty trust can be effective to make a lifetime gift of AEA, the most pragmatic technique which keeps the assets within the creator’s reach is the spousal lifetime access trust (or “SLAT”). SLATs are appealing for married individuals because, when properly set up, SLAT property remains accessible to the creator of the trust through their spouse as the beneficiary. However, the growth on the assets in the SLAT not consumed is passed on to the lower generation without further exposure to estate tax. Obtaining a policy of insurance on the life of the beneficiary (in an irrevocable trust) can be a way to insure for the creator that the death of the spouse-beneficiary does not compromise the access to funds otherwise being enjoyed by the couple prior to the creation of the trust. Spouses can set up SLATs for each other, but care must be taken to avoid the IRS’s “reciprocal trust doctrine” and the “step transaction doctrine,” both of which can cause undesirable consequences.  Clients who are considering the technique but not sure if or when they want to pull the trigger should take steps now to prepare for the eventual transfer of assets by making a substantial gift to the spouse who may not have sufficient assets in her or his own name, in order to enable that spouse to create the gift. In this way, there is a meaningful amount of time which has passed and allows the gift to “cure” in the hands of the spouse before being moved into a trust. Just how much should be considered to be placed in the trust? The answer will vary from client to client and will likely depend upon resources outside of the SLAT, but ultra-high net worth couples are advised to take a large bite of their unused exemption, using the SLAT, while it is still available.

Don’t Forget about the GST: Are Existing Trusts Being Optimized?

Many family wealth portfolios already have in existence trusts which provide benefits in the form of income, savings or potential future educational funds for children. Such trusts may have been created by parents or grandparents or even by the clients themselves during the last “fiscal cliff” estate planning crisis of 2012. Many of these trusts present challenges and opportunities for multi-generational wealth planning which, in this dynamic tax environment, require attention. Many individuals are unaware of the impact of the Federal generation-skipping transfer (or “GST”) tax, which, when applicable, creates an additional tax of up to 40% on transfers which land in the laps of beneficiaries who are two or more generations removed from the creator of the trust. In reviewing these trusts clients should be aware of the following:

“Grandfathered Trusts.”

Is the trust even subject to the GST tax? In general, any trust which was already in existence and irrevocable prior to September 25, 1985, enjoys the status of being a so-called “grandfathered trust,” meaning it is not subject to the tax at any point. Trusts of this nature should be carefully administered to avoid potential unintended exposure to the tax resulting from the exercise of certain rights or powers by beneficiaries or the modification of the terms (using certain statutory techniques or judicial actions). Such actions have the potential to cause the trust to be subject to the tax.

“Non-Exempt” Trusts Fully Subject to the Tax.

As wealth from “the greatest generation” passes down to baby boomers, many sophisticated estate plans have irrevocable trusts that are literally GST tax ticking time bombs. These trusts were created with an individual’s wealth which, at the time of transfer, exceeded his or her GST exemption amount available. By definition, these trusts upon termination will suffer the full blow of the 40% GST tax, thereby depleting the wealth otherwise intended to be passed to the family. Trustees have a fiduciary duty to minimize all taxes – including GST taxes – consistent with the intent of the creator. In many cases there are options available which should be considered at this time, particularly in the face of potentially shrinking estate tax exemptions. For example, assume the principal trust beneficiary is a child of the creator who has personal assets which fall below the AEA. Here, a trustee might do well to consider making a large principal distribution to the beneficiary to enable him to create a SLAT or a dynasty trust using the beneficiary’s own AEA so the trust escapes both the GST tax as well as estate tax when the beneficiary dies. Another strategy might include granting the beneficiary a testamentary general power of appointment which changes the impact of the GST tax and causes the trust to be included in the beneficiary’s estate for estate tax purposes.

Capital Gain Taxes and GST-Exempt Trusts.

Apart from the GST tax planning opportunities and obligations, trustees should also consider the fact that many generational trust strategies may be victims of their own success in another way:  appreciated assets – particularly in GST-exempt trusts such as dynasty trusts – may be harboring large unrealized gains. Family members may be pleased to receive appreciated assets free of GST tax, but that good feeling may soon dissipate if the appreciated asset is sold and the individual is subject to income tax on a large, long-term capital gain. Such gains by definition are not stepped up (as they are in the case where the underlying assets are subject to estate tax) because they bypass the beneficiary’s estate. Trustees, therefore, need to consider strategies which might be employed to minimize the potential gain. Unlike the GST strategies above, these income tax-driven techniques are more complex and need to be vetted against the individual variables of a client’s tax picture.

Strategize about Business Succession and Long-Range Planning.

The national lock-down which began in March not only locked down the economy, but it created a unique environment for business owners to stop and reflect about their enterprises and the future. Is this the time to liquidate a business? A division? Sell certain assets to raise cash and redeploy in a different line of products or services? Professional advisors are essential because they can help provide perspective and options. And if a business owner is looking to stay the course and transition the business to the next generation, an important consideration will be the fitness of the family to continue the legacy in the “new normal.” Business succession experts and consultants are well aware of the expression “shirtsleeves to shirtsleeves in three generations,” meaning an entrepreneur’s ability to have a business thrive multi-generationally is a direct function of the ability of the family members in the next generation to work hard, continue to innovate and adapt to new challenges.

Consider State Estate and Income Tax Effects on Your Domicile.

One of the unintended silver linings of the past six months has been the surprising ease with which certain businesses can conduct their operations in a remote capacity. The increased reliance on web-based video conferencing technology has revolutionized the way employees can accomplish tasks. The long-range effect of this shift in employment platforms may be that companies no longer need employees to remain in a centralized locale. Indeed, many individuals fled their homes and urban apartments to take refuge in the Berkshires, the Jersey Shore and Florida, where they continue to work productively. If business in the post-pandemic age permits migration, individuals now have a unique opportunity to re-evaluate their domicile in terms of tax and estate planning. Florida, for example, affords the benefits of no state income or estate tax and a generous homestead exemption. New Jersey has – for the moment – repealed its estate tax but has retained its inheritance tax. Residing in other jurisdictions could have other benefits. This may be the time to consult a tax advisor to determine if shifting domicile creates an overall tax reduction. In so doing, clients need to remember that a residence maintained in a former domicile renders them vulnerable to tax challenges by that jurisdiction. A legal domicile is a factual consideration made up of a series of intent-driven indicators which go beyond an individual’s physical presence in a jurisdiction. Factors include the individual’s driver’s license, voter registration, club and religious affiliations and the like. If social contacts relating to the former domicile become more prevalent, that state might be able to prove that the individual ultimately intended to return to that jurisdiction and negate even a temporary change in domicile. Here again, a legal advisor can assist in advising which steps are best to accomplish the desired result.

Conclusion

Neither the pandemic nor the upcoming Presidential election promises us any certainty anytime soon. In the midst of this climate, it is important to remember that certain opportunities for shifting wealth down to lower generations may be expiring within the next few years. The pandemic and its effect on the economy continue to keep interest rates at historic lows, which make this an ideal environment to engage in all aspects of estate planning, from the simple to the comprehensive. Now is the time to take stock of what is driving your estate planning, to think through existing choices and options with the help of legal and financial advisors, and then decide how best to optimize the strategies going forward.

© Copyright 2020 Sills Cummis & Gross P.C.
For more articles on estate planning, visit the National Law Review Estates & Trusts section.

Toward a More Expansive View of Mentoring

Mentoring has increasingly been recognized as a critical ingredient of success in many endeavors in individuals’ lives. In many instances, however, mentoring tends to be depicted as a relationship where a senior leader takes a junior professional under their wing and imparts the “formula” for success. Thus, mentoring programs often focus on pairing each junior employee with one senior person who is designated as their mentor.

Our firm’s mentor surveys and interviews indicate that while such pairings can lead to desired outcomes, investing in building and maintaining a more expansive view of mentoring is likely to be even more effective. Cultivating a shared understanding that each individual can be an effective mentor in their area(s) of comparative strength encourages long-term mentoring relationships that emerge and evolve organically, and enables an organization to make the most of its mentoring resources.

While there is widespread consensus that mentoring is critical to the long-term success of an organization, defining mentoring is more challenging than it seems at first glance. When asked, each of our firm’s leaders defined it slightly differently, as a “process,” “form of leadership,” “opportunity,” “mindset,” “set of actions,” or “ability,” among other things. Realizing all of these responses are valid, we find it helpful to focus not on what mentoring is but rather on the behaviors that are involved in effective mentoring. We organized our approach by segmenting mentoring into four distinct elements—feedback, opportunity creation, connections and counsel, and role modeling. We discuss each of these in turn, including specific recommendations for both mentors and mentees from our mentor surveys and interviews.

Feedback

Mentors play a critical role in recognizing positive contributions, offering specific coaching on work-product or delivery, and providing direct, clear, and actionable feedback to mentees. Assigned evaluator roles for performance review purposes can be the basis for mentoring relationships to take hold. However, our data indicate that the most effective mentor relationships are not based on an assigned evaluator role. Many of our survey participants indicated that working together on projects provided the best opportunity for feedback. To take advantage of that opportunity, a mentor should “give real-time feedback, discussing what is the best way to handle a given situation and why.”

Opportunity Creation

In developing future leaders, it becomes increasingly important for mentors to proactively identify opportunities that not only enable the firm to serve its clients or customers in the best possible way but also align with mentees’ career plans and create “stretch roles” to accelerate their career development. It is valuable to “be explicit when you are providing an opportunity to an individual. For example, when you would like to staff an individual on a project that will help them develop expertise in given area, don’t just ask them to work on the project—explain why this is an opportunity.” Mentees benefit greatly from a targeted approach to opportunity creation: “Think of providing specific opportunities to specific people … for example, staff individuals on repeat projects with the same clients so that they can develop client relationships.”

Mentors should not see their role as limited to personally offering opportunities to mentees but rather take a broader perspective. For example, they should “watch out for opportunities for their mentees, inform them of opportunities they may not be aware of (because mentors have a more firm-wide view than mentees), and make the connections they may need to take advantage of such opportunities.”

Mentees have to share this responsibility, in part by being specific about what opportunities they are interested in, such as opportunities involving a particular topic, a stretch role, or a particular client. This allows the request to have “the benefit of triggering a memory when an opportunity arises, rather than leaving it to chance for a mentor to make the connection.”

Effective opportunity creation can also take the form of the mentor sharing their network with the mentee, making introductions, and/or creating visibility for others who do not have exposure to the mentee. Mentors should “help others around the organization get to know their mentees, their strengths and their contributions.”

Mentees should “ask their mentors for ideas and help in creating connections to other potential mentors.” In this context, the emphasis on the importance of female-to-female mentoring represented the only discernable distinction in comments we received from female and male participants in our mentor surveys and interviews. As one female survey participant commented: “I need female mentors to ask about things such as how to assert myself while being genuine.”

Connections and Counsel

Mentees often seek information about how to navigate the organization and career development in general, or a complicated situation in particular. Acting as a thought partner in providing career counsel that is both specific to the individual and actionable is critical to the development of future leaders: “Rooting for an individual and helping them with specific problems is great, but not sufficient. Your mentees also need partnering to help them think through their career goals and how to achieve those goals.”

In addition, mentors should “remember that just telling mentees the variety of things they can do to advance in their careers is not sufficient. Mentees need help figuring out how to prioritize the various things they can do. Mentors should ask questions that identify areas where their mentees ‘don’t know what they don’t know.’ They should share what they can to demystify how things work, with a client or expert, within the firm, or within our industry.”

This involves “recognizing and sharing patterns mentees may not see. One of the benefits of experience is pattern recognition. Often, the things mentors take for granted due to experience are very illuminating when shared with mentees who have less experience.” As a corollary, mentees “should be specific in asking questions that mentors can react to, as opposed to broad questions like ‘what should I do with my career?’, which is hard to respond to in a meaningful way.”

Role Modeling

Role modeling as a mentor is most effective when it goes beyond leading by example. In its most complete form, role modeling includes actively mentoring future mentors, rather than assuming that mentees will naturally invest time in mentoring others. Senior leaders can explicitly ask those in managerial roles to “talk to their team members who have management responsibilities about expectations and strategies for mentoring on teams.” Leaders can “create a culture of accountability for mentoring on teams by regularly asking about how team members are doing and how the team can be effective together in developing each other.”

In addition, one of the most powerful levers for effective mentoring—and one that can be used without much incremental investment of time—is providing opportunities for mentees to learn through observation or osmosis. A quick follow-through that makes the observation explicit is all that is required. For example, “after a client call or meeting, take a few minutes to explain why you handled things as you did to enable your mentees to learn how to serve the client in the best way possible so that they can benefit from the wisdom you have developed through experience.”

In parallel, mentees should “identify the opportunities to learn through osmosis and recognize that as an opening. When you observe something you want to emulate, ask the mentor how they thought about it, prepared, and learned how to become skilled at the behavior you observed. When you have gained insight from observing a behavior, acknowledge the value and describe why it was helpful. This will encourage mentors to be more explicit in the future.”

It is rare for any one mentor to be equally adept across the four elements discussed above. As one survey participant suggested, “The bottom line is that mentoring is not a one size fits all. We should all ‘mentor’ in a way that is natural and comfortable—and perhaps stretch a little beyond that.” This suggests that a single mentor will rarely be able to fulfill a mentee’s needs across all four elements. The experience of another survey participant highlights the importance of cultivating a network of mentors with different experiences and styles who each excel at different elements of mentoring:

I’ve had multiple excellent mentors. For example, I learned a lot about the nature of our work from Alice. Being in the room and watching her interact with clients has been extremely helpful. Also, she thinks aloud and it was very helpful to learn how she thinks. But Alice is not a good business development mentor. She says “just go have lunches.” She’s not helpful to me about how to navigate the firm, who I should be connected to, and how to most effectively connect with them. Bob is great at that. He tells me the specific things I can do. He thinks a lot in advance, then provides clear direction and targeted advice about next steps.

The recognition that different people excel at different elements of mentoring prevents viewing individuals as either categorically strong or categorically weak mentors. Instead, it allows an organization to make the most of the comparative strengths of each individual, expanding overall mentoring capacity and the pool of potential mentor relationships.

Segmenting mentoring elements into four discrete areas is not the only way to broaden the available set of connections. Our mentor surveys and interviews also highlight the importance of peer and “reverse” mentoring relationships. Connections among peers are critical to integrating new staff and creating a sense of shared affiliation with the firm, which supports retention. We see enormous value accruing to those who “initiate and maintain peer mentoring relationships; building trust-based relationships with colleagues who have similar experiences benefits their careers in the short and long term.”

“Reverse” mentoring refers to instances where someone more senior identifies a mentor who is less senior to them. Senior leaders of our firm often identify reverse mentors as part of their mentor network and suggest that input from junior colleagues enables them to become better leaders.

Cultivating a well-established mentor-mentee relationship requires mutual awareness of the connection as a precursor to commitment by both parties. While our surveys show extensive mentor relationships identified by both mentors and mentees, the connections are not consistently named as such by both parties. We refer to instances where an individual identifies someone as a mentee and the mentee identifies the individual as a mentor as a “matched pair.”  However, we also find a substantial incidence of “unmatched pairs,” suggesting that all too often, the connection between a mentor and mentee is left unstated. This may be in part because not every individual views mentoring in the broad terms described above. Especially in those situations, both mentor and mentee would benefit greatly from a shared understanding of available mentoring opportunities.

The solution is simple, but often will not happen without being prompted. Mentors should tell mentees that they see them as a mentee, explain why, and share how they can act as a mentor, which may include things the mentor has already been doing on the mentee’s behalf, but did not naturally think to share. Similarly, mentees should explicitly tell mentors that they see them as a mentor, explain why, and indicate which specific elements of mentoring they would appreciate mentoring from them.

In sum, focusing on cultivating a network of mentors who play different roles based on natural strengths and expanding our view of who can be a mentor is likely to be much more effective in realizing our highest potential, for both developing people and building firms with strong mentoring cultures.

Note: The quotes used in this article have been redacted to preserve anonymity and edited for clarity. The views expressed in this article are solely those of the authors, who are responsible for the content, and do not necessarily represent the views of Cornerstone Research.

Copyright ©2020 Cornerstone Research
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