ABA Second Annual Electronic Discovery & Digital Evidence Workshop Feb 18-19 San Francisco, CA

The National Law Review is a proud supporter of the ABA’s  Second Annual Electronic Discovery and Digital Evidence Practitioners’ Workshop Feb 18-19 in San Francisco, CA.

This practitioners’ workshop will provide in-depth and hands-on education for in-house and retained counsel who are involved in (or who expect to become involved in) litigation involving electronic discovery and digital evidence. Executives and other litigation stakeholders from large and small public and private organizations will also gain invaluable insights on how best to prepare your technical staff and information systems to respond to requests for electronically stored information (ESI). Addressed to intermediate and advanced ESI litigation practitioners, the workshop will be taught by our faculty of leading federal magistrate judges, ESI litigation practitioners, forensics experts, and technology thought leaders, all of whom have significant experience in managing all aspects of ESI litigation. This workshop is unique in that its scope is much broader and deeper than traditional e-discovery courses that address only basic ESI concepts.

The curriculum consists of case studies, a mock trial, keynote sessions and panel discussions with luminaries in the field, and small workshops for practitioners, technologists, and forensic experts. We expect the entire program will be both illuminating and entertaining. Topics will range from ESI search trends and developments to emerging digital evidence issues and ethics to evidentiary issues from a criminal perspective. The sessions will address the key rules from the Federal Rules of Civil Procedure that impact on e-discovery. There will also be plenty of time for interaction with three federal magistrate judges and for networking at the receptions at the end of each day. 

The Conference will be held at the University of California – Hastings College of Law and  mandatory continuing legal education (MCLE) accreditation has been requested from all states that require continuing legal education.  15.25hours of CLE credit including 1.0 hours of Ethics credit have been requested from those states recognizing a 60-minute credit hour and  18.3 hours of CLE credit including 1.0 hours of Ethics credit have been requested from those states recognizing a 50-minute credit hour.

Click Here for More Information and to Register.

When Is Research Misleading?

Sue Stock Allison, the Managing Director of The Brand Research Company, as Sister Company to Greenfield / Belser Ltd.  was recently the National Law Review’s recent Business of Law Guest Blogger.  Sue shared five key things for Law Firms to keep in mind when performing opinion research.  

Sometimes, when it comes to opinion research, what you see is not necessarily what you get. For instance, focus group moderators can inadvertently (or purposely) create bias among recipients. Or when questioned about buying habits or intentions, people may tell questioners what they want to hear, rather than what they actually feel.

I can’t count the number of times I’ve cautioned against considering all research valuable or even accurate. But there are ways to ensure that your findings are sound when undertaking research among your clients, your organization members or your markets.

Here are five tips for making sure the research your firm is using is useful:

1. Know your Goals

I know you’re thinking, “Of course, we need goals!” but, alas, research can be initiated for nutty reasons. My personal favorite: “Everyone else is doing it.” That everyone else is doing it may make initiating a new study an excellent recommendation, but you still must match your research goals to your business goals. Do you define success by a measurable return on the research investment, or do you just want to touch your most loyal clients? Are you trying to guide or justify a specific marketing expenditure or, more loosely, gauge awareness in a particular market? Knowing what you want to achieve is crucial to obtaining the data you need. Detailing the specific information you want to know, even using hypothetical statements of finding, can help you to make your objectives clear. In this case, the cart (what you wish to carry away from the research) truly comes before the horse.

2. Fully Define Your Target Audience

Do you put stock in those general market studies that “rank” your business better or worse than others? Syndicated studies are great gossip and provide fodder for your website’s homepage

(“We’re #1 in reputation for excellence for the third straight year!”), but there is limited value in being considered number one for anything if those who provide the ratings do not purchase or even influence the purchase of your services.

When conducting research, or using research conducted by someone else, you need to ensure that respondents include individuals whose opinions you really need to know. Do you want to know what your top 25 clients think, your clients with the highest potential or your clients who seem to be fading away? Are you looking for guidance from prospects for a specific service, in a specific geographic area, or from a certain type of business? If existing research was conducted among exactly the right group of individuals–excellent! If not, you’ll need to conduct your own research to get what matters to you.

3. Select the Best Methodology

As popular as they are, focus groups are one of the most misused research methodologies. They are a qualitative research method, statistically invalid, which necessarily makes them ill-suited for drawing conclusions about habits or actions. Whether you conduct one session with 10 individuals or 10 sessions with a total of 100 individuals, they are never conclusive. Focus groups are, however, an excellent way to come up with ideas about proclivities or intent that can later be tested with quantitative surveys. Focus groups can help you discover undetected problems with an ad campaign, potential challenges of a new service offering, or the usability of a website design. But when you want to understand what is most important among a number of choices, what really drives client loyalty, or how to best position your business in a market—these objectives require a quantitative method that can provide the metrics you need.

4. Ask the Right Questions the Right Way

Another common problem with focus groups and other forms of research is how easily respondents can be led to particular responses, and how hard it is for them to accurately assess and report their own motivations. When you develop your discussion guide, in-depth questionnaire or survey instrument, you need to make sure the questions are not leading, that your respondents are not primed to answer in a particular way. (In fact, when conducting focus groups, I often ask participants to write down their initial impressions before discussion even begins.) For telephone or in-person interviews, make sure your interviewers are skilled in the techniques that will bring even subconscious motivations to the surface.

5. Interpret with Caution

How do you know if your findings are truly reliable? Even if you’ve clearly laid out your goals, comprehensively defined your target, picked the best methodology, designed an effective research instrument, and used excellent interviewers, the results can still be misleading if your interpretation of the findings is flawed. Reliable interpretation begins with proper analysis of the data, which requires understanding how the target population was selected and ensuring that your resultant data includes the information needed to feed your conclusions. Perhaps the most common problems are conducting quantitative analyses with too few responses, or having a response rate that is too low–both of which beg the question: How do the non-respondents differ from those who are included in the research?

So, is research misleading? It certainly can be, but by using these guidelines, you can take the necessary steps to ensure that your research will more accurately provide the information you need.

©2011 Greenfield/Belser Ltd.

 

Agencies Issue Additional FAQs on Health Care Reform and the Mental Health Parity Act

Recent featured guest blogger at the National Law Review Penny C. Wolford of Ford & Harrison LLP – brings to our attend the recent actions by Departments of Health and Human Services, Labor and Treasury regarding the implementation of the the Patient Protection and Affordable Care Act (“health care reform”) and the Mental Health Parity and Addiction Equity Act.  Of most note to employers is: 

Right before the holidays, the Departments of Health and Human Services, Labor and Treasury issued additional Frequently Asked Questions (FAQs) regarding implementation of the Patient Protection and Affordable Care Act (“health care reform”) and the Mental Health Parity and Addiction Equity Act. The guidance of most note to employers is as follows:

1. Automatic Enrollment in Health Plans: The agencies clarified that the automatic enrollment requirement of health care reform does not become effective until the agencies issue regulations on the requirement. The Department of Labor indicated that it intends to issue regulations on the automatic enrollment requirement sometime before 2014.

2. 60-Day Prior Notice Requirement for Material Modifications: Health care reform requires group health plans to provide notice of modifications to participants no later than 60 daysprior to the date on which the modification becomes effective. The agencies clarified that group health plans are not required to comply with the 60-day advance notice requirement until standards for the requirement are issued by the agencies.

3. Dependent Coverage of Children to Age 26: Health care reform prohibits group health plans from making distinctions based upon age in dependent coverage. (For example, charging a higher premium for adult children than for minor children would be a prohibited distinction.) The agencies clarified that health care reform does not prohibit distinctions based upon age that apply to all coverage under the plan. Therefore, in answer to the specific question posed in the FAQs, the agencies determined that it is permissible for a group health plan that normally charges a co-payment for physician visits that do not constitute preventive services, to charge a co-payment to individuals age 19 and over, including employees, spouses, and dependent children but waive the requirements for those under age 19.

4. Grandfathered Health Plans: The agencies clarified that a fixed amount cost-sharing, other than a co-payment, that is based on a percentage-of-compensation formula, will not cause a plan to lose grandfathered plan status as long as the formula remains the same as that which was in effect on March 23, 2010, even though the actual cost-sharing may change as a result of a change in the employee’s compensation.

5. Mental Health Parity Act: The agencies issued several answers to questions on the Mental Health Parity Act, including: (a) confirming that a small employer exempt from the Act is an employer with 50 or fewer employees; (b) stating that a contracting health care provider can request and is entitled to receive the plan’s criteria for medical necessity determinations; and (c) explaining that plans can apply for the increased cost exemption under the Act if costs under the plan have increased at least 2 percent in the first year that the Act applies to the plan (the first plan year beginning after October 3, 2009), or at least 1 percent in any subsequent plan year (generally, plan years beginning after October 3, 2010.) The exemption lasts for one year and allows the plan to be exempt from the requirements of the Act for the following year. Plans can apply for the cost exemption by following the exemption procedures described in the 1997 Mental Health Parity Act regulations.

6. Wellness Programs: Along with health care reform and the Mental Health Parity Act, the agencies also addressed a few FAQs on HIPAA and wellness programs. Most notably, the Department of Labor explained that under health care reform, the maximum reward that can be provided under a HIPAA wellness program will increase from 20% to 30%. The increase will not occur under health care reform until 2014. However, the agencies intend to propose regulations using regulatory authority under HIPAA to raise the percentage for the maximum reward that can be provided under a HIPAA wellness program to 30% before the year 2014.

Employers’ Bottom Line

The agencies continue to define the landscape of health care reform even for the first round of requirements that have already gone into effect or will be going into effect for employer‑sponsored plans beginning on or after the first plan year following September 23, 2010. Employers should keep an eye out for additional guidance and make a good-faith effort to comply with existing guidance with an understanding that additional adjustments may be necessary as further guidance and clarifications are issued.

© 2011 Ford & Harrison LLP

FDA Commissioner Margaret Hamburg Key Note Speaker NYSBA Annual Meeting Food, Drug & Cosmetic Law Section Lunch Jan 27th

The National Law Review would like to you know that the New York State Bar Association Food, Drug & Cosmetic Law Section is featuring FDA Commissioner Margaret Hamburg MD as their luncheon keynote speaker on Thursday January 27th as part of the NYSBA’s Annual Meeting being held at the Hilton New York in New York City from Jan 24th-29th. The lunch will be held on Thursday January 27th in the Trianon Ballroom on the 2nd floor. For Tickets and More Information, Please Click Here

Arizona Employers Must be Ready for New Medical Marijuana Use Law

From featured guest blogger at the National Law Review Dinita L. James of Ford & Harrison LLP, a great overview of Arizona’s Medical Marijuana Use Law: 

Almost two weeks after the polls closed, Arizona became the 15th state in the nation to allow the use of marijuana for medical purposes. Proposition 203, or the Arizona Medical Marijuana Act, appeared unlikely to pass early on election night. However, after the early voter and provisional ballots were finally counted, the tally put the yes votes ahead by a mere 4,341 votes out of the nearly 1.7 million cast.

The election results became official November 29, 2010. The Arizona Department of Health Services (ADHS) has 120 days from that date to promulgate regulations implementing the law. According to information from the ADHS, the agency will publish an informal draft of the regulations by December 17, 2010 and a formal draft by January 31, 2011. The agency has stated that it expects to issue final regulations by March 28, 2011. Thus, by spring of 2011, Arizona employers need to have reviewed their drug-testing and employment discrimination policies to ensure they comply with the new law.

What Does the Law Provide?

Generally, the law permits medical marijuana cardholders (which includes qualifying patients, designated caregivers, and nonprofit medical marijuana dispensary agents) to possess, transport and, in some situations, cultivate an allowable amount of marijuana for medical use. Significantly for employers, the law prohibits discrimination against medical marijuana cardholders and registered qualifying patients.

Discrimination Prohibited: The law provides that employers may not discriminate against a person in hiring, termination or by imposing any term or condition of employment or otherwise penalize a person because of that person’s status as a medical marijuana cardholder, unless a failure to do so would cause an employer to lose a monetary or licensing related benefit under federal law or regulations. As noted above, medical marijuana cardholders may include not only patients, but also designated caregivers and nonprofit medical marijuana dispensary agents. Thus, the law creates a new category of individuals protected from discrimination.

The law also prohibits discrimination against a registered qualifying patient based on that person’s positive test for marijuana unless the patient was impaired by marijuana on the employer’s premises or during the hours of employment. While the law does not require an employer to permit an employee to ingest marijuana at work or to work while under the influence of marijuana, it also states that a registered qualifying patient is not considered to be under the influence of marijuana solely because that person tests positive for marijuana metabolites in an amount that is insufficient to cause impairment.

Who is a Qualifying Patient? A qualifying patient is a person who has been diagnosed by a physician as having a debilitating medical condition. Debilitating medical conditions include diseases such as cancer, HIV/AIDS, Hepatitis C, amyotrophic lateral sclerosis (Lou Gehrig’s disease), Crohn’s disease, and other conditions that result in certain symptoms such as wasting syndrome, severe and chronic pain, severe nausea, or severe and persistent muscle spasms. For a qualifying patient to receive a registry identification card, the patient must submit written certification from his or her physician stating that in the physician’s professional opinion the patient is likely to receive therapeutic or palliative benefit from the medical use of marijuana to treat or alleviate the patient’s debilitating medical condition or symptoms associated with the debilitating medical condition.

ADHS will establish a process for issuing photo ID cards for qualified patients, designated caregivers, and authorized agents of dispensaries. The law requires the ADHS to act on applications for ID cards within 10 days and to issue photo ID cards within 5 days after approving an application. Thus, based on the time-frame given by the ADHS, employers can expect to see medical marijuana ID cards by mid-April 2011 and should be prepared to comply with the law by that date, at the latest.

Employers’ Bottom Line:

The law presents employers with a number of issues, some of which may be clarified after the ADHS issues its regulations. Zero-tolerance and pre-employment drug-testing policies likely will present the most challenges under the new law in light of the prohibition of discrimination against qualifying patients based on the presence of marijuana metabolites insufficient to cause impairment. Because there is no accepted testing standard for determining impairment due to marijuana use, this determination will by necessity be subjective unless the state issues regulations defining a standard to be used under the law.

© 2011 Ford & Harrison LLP

The Great Recession’s Effects on Law Firm's Business Development

This past week’s Business of Law Guest Blogger at the National Law Review was Christine Barth of Troutman Sanders LLP.  Christine provides some interesting insights on how firms of different sizes are reacting to business development challenges given the economy.  

The severe financial loss confronting Corporate America, due to the Great Recession, has also taken a tremendous toll on law firms.  The law firm marketing department has felt the impact — perhaps even more acutely than some other departments, in terms of resource strain.  Not only have our ranks been thinned, but “lawyers with downtime” often translates into increased demands on the marketing department.  I have witnessed a trend of renewed interest in strategic planning at several firms.  Considering the tendency of many law firms for “shotgun marketing,” the more limited the funds, the more crucial it is to have the focus that strategic planning brings.   I was curious about what my fellow legal marketers were seeing trend-wise and what they were doing differently, as a result of the recession. So – I asked them.

The marketing director of a small firm, just shy of 30 lawyers, told me, “we got back to the basics,” describing client-focused efforts such as increased client interviews, face-to-face contact between clients and attorneys, and expressions of gratitude to clients for choosing to do business with the firm.  This director prodded the lawyers at her firm to become increasingly involved with marketing initiatives, and encouraged them to be “more top-of-mind about marketing” by interacting with their clients, in person, on a frequent basis, and by becoming “marketing savvy” about what services their firm could cross-sell to these clients.

To accomplish this increased lawyer involvement in business development, the marketing director put together an informal program, creating two “100 Day Teams.”  Each team was comprised of six attorneys, all of whom varied in both age and practice area.  The teams were pitted against one another – the winning team being the one that could bring in the most new business with clients, either by recruiting new clients or by expanding work within existing client relationships.  The teams traveled coast-to-coast.  The results? An education for associates and a refresher course for mid-level to senior lawyers on how to bring in business, which they did – both teams successfully expanded business within existing client relationships and managed to bring in six new clients.  Their marketing director explained that the lawyers involved in this client pursuit “really lived the ‘talk,’” and remembered that “communication was key” when it came to business expansion.  She also noted that the lesson has since stuck, and the attorneys have “continued to walk the walk, which is making a difference” to the bottom line.

Another marketer at a large AmLaw Global 100 firm described more structure being put around initiatives that would get their lawyers face-to-face with clients.  One initiative, in particular, required each practice group to visit a target number of clients within a specified timeframe, with the primary goal of learning about the issues and concerns clients were facing during the downturn.  The marketing department created briefing materials on each client in advance of the visit for the attorney team.  Due to the compressed timeframe of the project, paralegals assisted the marketing team with the briefing materials.  When the program wrapped up, they had completed more than 170 visits to 143 companies.  Each visit team submitted a report detailing the visit and any needs the client may have raised, which was then compiled into reports highlighting all follow-up items and opportunities.

The marketing director at another small firm described how “at the moment the recession strangled the mortgage industry and bludgeoned investment banking,” his firm had already embarked on a solid social media initiative.  Acknowledging that social media is not well understood by most law firms, his goal was to “fit business development into time that falls between files, rather than try to wring out of a time starved practice the commitment to attend industry groups, speak expertly on legal topics and circulate in conferences and receptions.”   It wasn’t that their firm no longer encouraged those traditional marketing efforts; they just wanted “lawyers to make the most of at-desk downtime, too.”  He also mentioned moving to more online advertising than traditional advertising “so that could point to their participation in social media.”

As I asked around, some tactics were indeed universal.  Firms have slimmed down advertising budgets and are more carefully considering sponsorships and how those sponsorships can be leveraged.  Overall, my less than scientific poll revealed firms doing more with fewer dollars, but not skimping when it comes to face-to-face client efforts.

Originally published in the Fall 2010 issue of LMA Practice Marketing Newsletter Copyright 2010 Legal Marketing Association –The Virginias Chapter

The author  gratefully acknowledges the assistance of Fiona Carmody, an intern in the firm’s marketing department and student at University of Richmond in the preparation of this article.

©2010 LMA Virginias. All rights reserved.

 

Managing the complex landscape of IP Business Strategy – Global IP Exchange Feb 28 – Mar 2 Amelia Plantation Resort, FL

The National Law Review is proud to be a sponsor of the 5th Annual Global IP Exchange which will bring together a group of leading IP strategists from some of the largest corporations across all industries. You will have the opportunity to debate and strategize with peers at our interactive sessions and participate in one-on-one meetings with leading solution providers. Benchmark with your peers, gain practical advice and leave the Exchange with new ideas and strategies to take back to the office.  

With the re-draft of 2009 Patent Reform in the works and the landmark June, 2010 Bilski ruling, the IP landscape is set to change significantly over the next few years……and about time, too. Join us this February to hear how Global IP Executives are adapting their IP strategies to mitigate risks, balance litigation costs and raise the value of their IPR through social media.

The 5th Global IP Exchange™ will bring together a group of leading IP strategists from some of the largest corporations across all industries. You will have the opportunity to debate and strategize with your peers at our interactive sessions and participate in one-on-one meetings with leading solution providers.

To ensure the Exchange offers the highest degree of relevancy for attendees, only senior executives responsible for IP management and strategic planning within their corporation are invited. This exclusive format allows you to connect with those peers whose insights you respect most – through exceptional networking, business meetings and strategic information sharing sessions.

The 5th Global IP Exchange™ will take place Tuesday March 1st – with pre-conference workshops on Monday February 28th.  The Conference end Wednesday March 2nd and is located at the Omni Amelia Plantation Resort on Amelia Island Florida.  For More Information and to Register:  Click Here:

 

FTC’s Recent Proposal for Protecting Consumer Privacy Online-"Creepy" is the new "Cool" and How to Make Sure It Stays That Way

From David A. Broadwin of Foley Hoag LLP – some predictions about how the FTC and Congress are going to handle information tracking issues.

The other day at Mass TLC’s Mobility Summit I had a brief conversation with Mark Herrmann (an entrepreneur here in Boston) that touched on the FTC’s recent proposal for protecting consumer privacy online.  We were talking about the “do not track” proposal and the consensus in the tech industry that it just won’t fly.

Mark’s comment:

“It is creepy that ‘they’ can and do track you out in the net, but ‘creepy is the new cool.’”

There is just no question that some people accept the fact that they are being tracked and fed targeted online advertising.  It is not just OK by them; it’s a value add.  I don’t disagree.

But, for anyone who has read “1984” (and even a lot of people who haven’t) the notion of being tracked is creepy.  There are a lot of these folks – perhaps a significant majority of the U.S. population – that feel this way.

In 2011 the FTC and Congress are going to pay attention to these concerns. It is good politics.

Prediction #1:

Legislation in this area will be one of the few places where we will see bipartisan consensus in the next Congress.

Why: No Congressperson wants to be opposed to consumer privacy, and they all want to have supported some legislation that passed, when running in the next election.

Mark (and others) made the point that if you really end tracking, you will end Facebook.  So, whatever happens it won’t be that.  However, the political snowball is rolling down the mountain – there will be regulatory activity around consumer privacy.

The only question is: What will be the nature and scope of the activity?

The big boys (those with well established businesses that either make money or have ready access to capital) are going to be lobbying hard for a regulatory framework that does not dent their current business model.

Prediction #2:

The big boys will fight anything that disrupts tracking and they are going to win this battle – no one in Congress wants to run on the platform that they put Facebook (or others) out of business.

But the big boys are going to have to trade something.  The easy things for them to trade are procedural protections for the consumer.

  • The FTC wants the industry to adopt “privacy by design” principles.  This means that companies should adopt internal processes to promote consumer privacy and security protections into their daily practices and to consider privacy issues at every stage of design and development of products and services.
  • The FTC wants the industry to make consumer data more available to consumers.  This means allowing for increased consumer access to data collected.

Prediction #3:

The big boys will trade lots of procedural protections for the consumer to prevent substantive regulation that will directly affect their business models.

Why: The big boys can afford the administrative burden implicit in procedural protections.  It is just a matter of more money, more people and more oversight.  A company that is well established and profitable or that has easy access to capital can afford to write the code, hire an army of new engineers, consultants, lawyers etc. and create an entire Department of Privacy Compliance and Protection.

In fact, to the extent that having to do all that makes it harder for start-ups, it may even be helpful to the established companies.

Some folks I talk to have expressed real concern about this looming regulatory push and how it might affect the entire ecosystem for digital media start-ups.

There is still a chance to influence the inevitable regulation that is upcoming and I am working on assembling a group of industry leaders to do just that.  I recently sent out a letter (here’s a link) to people I thought might be concerned enough to actually do something.

Read it and let me know what you think.

Copyright © 2010 Foley Hoag LLP. All rights reserved.

Congress Finally Resolves Estate Tax Uncertainty: But Only for Two Years!

Very Comprehensively written article by Michael D. Whitty and Igor Potym of Vedder Price P.C. – so much good Year End Tax Information we thought we’d include it here too:  

As part of a compromise to extend the income tax rates in effect from 2003 to 2010 (sometimes described as the “Bush tax cuts”) and unemployment benefits, Congress has finally resolved uncertainties in the estate, gift, and generation-skipping transfer (“GST”) taxes.  The new law makes the most significant changes to these taxes since 2001, including a generous increase in exemptions and a significant reduction in tax rates for 2011–2012.  In order to take advantage of some one-time wealth transfer opportunities, action is required before the end of 2010. For nearly all high-net-worth persons, the next two years will bring extraordinary estate planning opportunities.  Unfortunately, and contrary to many media claims, 2011 and 2012 will also bring added complexity and uncertainty.  Surprisingly, estate planning for married persons with estates of less than $10,000,000 may actually be more complicated than planning for married persons with larger estates.  Accordingly, all estate plans should be reviewed early in 2011 to determine whether the plan will work as intended under the new tax laws.  Persons who would like to discuss how the new estate, gift, and GST tax laws affect their specific situations and existing estate plans should call a member of the Estate Planning Group of Vedder Price P.C.

Executive Summary

The following is an executive summary of the most notable effects of the new law; a more detailed discussion of each can be found inside this Bulletin:

  • Income Tax Rates Continued for 2011–2012. The 2010 income tax rates are continued for two more years, including the preferential 15% tax rate for long-term capital gains and qualified dividends.
  • Estate Tax Made Optional for 2010.  The estate tax, which had been repealed for 2010, was reinstated effective January 1, 2010, but the executor for a person dying in 2010 may elect to opt out of the estate tax and apply carryover basis instead.
  • Transfer Tax Exemptions Increased, Tax Rate Reduced.  The lifetime exemption amount for transfer taxes—the estate tax, gift tax, and GST tax—is set at $5,000,000.  These increases are effective in 2010 except for the gift tax exemption, which remains $1,000,000 until 2011.  The tax rate on estates, gifts, and generation-skipping transfers above these amounts is 35%.
  • Generation-Skipping Transfer Tax Rate Is Zero for 2010. For all of 2010 (including the balance of the year), the GST tax rate is zero.
  • Unused Estate Tax Exemption Transferable to Surviving Spouse.  Beginning in 2011, the unused estate and gift tax exemptions of the first spouse to die may be transferred to the surviving spouse for both gift and estate tax purposes.
  • Bullets Dodged. The new legislation did not include recent proposals to reduce or eliminate the effectiveness of several of the most advantageous estate planning techniques.
  • Direct Gifts from IRAs to Charities Reinstated for 2010–2011. In 2008–2009, IRA owners over age 70½ could make direct distributions from their IRAs to charities and exclude the amount from income while treating it as part of their required minimum distribution.  The new law extends that option through 2011.  Because so little time remains in 2010, a special rule permits taxpayers to make such a transfer in January 2011 and treat it as if it had been made on December 31, 2010.

The “Tax Relief, Etc.” Act of 2010

The bill passed by Congress and signed by President Obama on December 17, 2010, H.R. 4853, was titled the “Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010” in its final form.  (It had previously carried other names, including the “Middle Class Tax Relief Act of 2010.”)  For simplification, this Bulletin will refer to it as the “2010 Tax Act” or “the Act.”

The bill went through many changes in the last month prior to enactment, and includes some unexpected provisions while excluding other provisions that had been expected.  As a result, some of our recommendations from prior bulletins have changed.  Please contact a member of our Estate Planning Group for confirmation before acting on our prior recommendations.

The benefits of the Act may be temporary, however.  All of the tax changes included in the Act will expire on or before January 1, 2013. Without further action by Congress, the estate, gift, and GST tax rates and exemptions applicable on January 1, 2001 will return on January 1, 2013.  Additional legislation in late 2012 or early 2013 seems likely, but it is impossible to predict the details of that legislation.

Income Tax Rates Continued for 2011–2012

The Act continues the 2009 income tax rates through 2012, including the preferential 15% tax rate for long-term capital gains and qualified dividends.  Apart from other changes discussed later in this Bulletin, these changes include:

  • Withholding of Social Security tax from wages and self-employment income for 2011 decreased by two percentage points (with the gap made up from general federal revenues)
  • AMT “relief” for most taxpayers through 2011
  • Ability to deduct state sales tax as an itemized deduction through 2011
  • Enhanced business capital investment deductions and research and development credits

Summary of Changes to Transfer Tax Rates and Exemptions

2009 2010 2011–2012 2013 (if no action)
Tax: Exemption Rate Exemption Rate Exemption Rate Exemption Top Rate
Gift $1,000,000 45% $1,000,000 35% $5,000,000 35% $1,000,000 55%
Estate $3,500,000 45% $5,000,000 [1] 35% $5,000,000 35% $1,000,000 55%
GST $3,500,000 45% $5,000,000 0% $5,000,000 35% $1,400,000 [2] 55%
Notes: [1] Executors for decedents dying in 2010 may opt out of estate tax, into carryover basis.
[2] The GST exemption shown for 2013 is a projection, as it would be $1,000,000 indexed for inflation.

Estate Tax Made Optional for 2010

Under the 2001 tax act, the estate tax had been gradually eased, and was then repealed for one year only, 2010.  The new Act reinstates the estate tax and stepped-up basis (used for measuring capital gains) effective January 1, 2010.  This default rule benefits most estates that are too small for estate taxes but benefit from having stepped-up basis automatically apply to all assets.  However, the executor of a 2010 estate may elect to opt out of the estate tax and instead apply carryover basis (where the heirs take the decedent’s basis).  (See the item below regarding due dates.)

Transfer Tax Exemptions Increased, Tax Rates Reduced

The Act resets the estate tax exemption to $5,000,000 per decedent, effective January 1, 2010 (up from $3,500,000 in 2009).  The exemption for the GST tax is also $5,000,000 effective January 1, 2010.  The Act also increases the gift tax exemption to $5,000,000 to re-unify it with the estate tax exemption, but that change is delayed until 2011.  These exemption amounts are also adjusted for inflation, beginning in 2012.  However, all of these exemptions will revert to $1,000,000 in 2013 unless Congress takes additional action.  The Act sets a 35% tax rate on estates, gifts, and generation-skipping transfers above the exemption amounts.  This compares favorably with the 45% top rate that applied in 2009, and the 55% rate that would have applied in 2011 if Congress had not acted (and will apply in 2013 if Congress fails to take additional action).

The Act also changes how prior taxable gifts are taken into account in gift and estate tax calculations, by applying the tax rates for the year in question rather than the year of the prior gifts.  In our October 2010 Bulletin, we described how the transition in the gift tax rates and exemption from 2010 to 2011 would allow some donors who had already used all of their gift tax exemption to make a modest additional tax-free gift of $36,585 in 2011.  The Act’s changes in the gift tax rate, exemptions, and calculations of taxes on prior taxable gifts will eliminate that effect for 2011, but will allow much more extensive tax-free gifts.

Due Dates for 2010 Returns, Disclaimers

To prevent unfairness, the Act extends the due date for all estate and GST tax returns affected by the Act until September 17, 2011, nine months after the date of enactment (as that date falls on a Saturday, the effective date will be September 19, 2011).  The due date for related tax payments is also extended to the same date.  The deadline for qualified disclaimers (an affirmative election to decline a gift or bequest, treated under federal law as if the disclaimant had predeceased the transfer) is also extended to September 17, 2011.  However, the due date for 2010 gift tax returns was not extended.

Generation-Skipping Transfer Tax Rate Fixed at Zero for 2010

The Act sets the GST tax rate at zero for all of 2010 (including the balance of the year after enactment).  This means that gifts, bequests, trust terminations, and trust distributions to grandchildren made this year will face no GST tax.  If the transfer was made to a trust for a grandchild, the GST tax consequences are more tricky.  Neither the transfer to the trust nor a future distribution to the grandchild will be subject to GST tax. However, future distributions from the trust to great-grandchildren or younger descendants will be subject to GST tax unless the trust is made exempt by allocation of the transferor’s GST exemption.  In addition, a transfer in 2010 to a typical generation-skipping trust that benefits children, grandchildren, and younger descendants will not be exempt from GST tax in the future unless the trust is made exempt by allocation of the transferor’s GST exemption.  If you have already made or plan to make gifts to grandchildren in 2010, contact a member of our Estate Planning Group to discuss the effects of the new Act, including reporting requirements and tax elections.

Unused Estate Tax Exemption Transferable to Surviving Spouse

Beginning in 2011, the unused estate tax exemption of the first spouse to die may be transferred to the surviving spouse by an election filed with the first spouse’s estate tax return.  This may require the filing of an estate tax return in cases where a return would not otherwise be required.  The surviving spouse may use this transferred exemption for lifetime gifts as well as for bequests at death.  Only the unused exemption from the last deceased spouse will apply, and the death of a subsequent spouse will reset the identity of the last deceased spouse.  However, lifetime gifts could use a predeceased spouse’s exemption before the death of a subsequent spouse changes the amount of exemption available.

For planning purposes, transferability of the unused estate tax exemption of the first spouse does not eliminate the value of so-called credit shelter trusts and QTIP trusts as part of the estate plan.  As one example, the new law does not allow the unused GST tax exemption of the first spouse to be transferred to the surviving spouse.  The credit shelter trust and QTIP trust are two tools to avoid wasting the first spouse’s GST tax exemption.

Bullets Dodged

The Tax Reform Act of 2010, in its final form, did not include recent legislative proposals (some of which had already passed in the House or Senate, but not both) to reduce or eliminate the effectiveness of several of the most attractive estate planning techniques.  The final legislation did not include recent proposed legislation to reduce or eliminate valuation discounts on intra-family transfers of non-operating partnerships and LLCs, to impose a 10-year minimum term on grantor retained annuity trusts (commonly known as GRATs), or to require taxpayers to use a consistent basis for estate and income tax purposes.

Direct Gifts from IRAs to Charities Reinstated for 2010–2011

In 2008–2009, IRA owners over age 70½ could make direct distributions from their IRAs to charities of up to $100,000 per year and exclude the amount from income, while treating it as part of their required minimum distribution.  The new law extends that option through 2011.  Because so little time remains in 2010, a special rule permits taxpayers to make such a transfer in January 2011 and treat it as if it had been made on December 31, 2010.

Roth Conversions

The new Act did not change the rules regarding Roth IRA conversions, discussed in prior Bulletins.  The only thing that expired in 2010 was the election to report the tax over the following two taxable years (2011 and 2012).  Conversions in 2011 will still work as in 2010, except that the taxable income has to be recognized entirely in 2011.

The New Law’s Effect on Estate Planning

The fundamental principles and priorities of estate planning will remain the same.  However, the effect and relative value of certain specific techniques have changed.  Some opportunities have been improved, others have disappeared, and still others remain but have decreased in relative importance.

As noted at the opening of this Bulletin, the new tax laws create extraordinary estate planning opportunities for high-net-worth individuals.  Additionally, the new tax laws will impact the basic estate plan of nearly all persons with significant assets.  Estate planning for married persons with combined estates of less than $10,000,000 will be particularly complex, given the possibility that the estate, gift, and GST tax exemptions will revert to only $1,000,000 per person in 2013.

Time for Action

A few of the opportunities described in this Bulletin have an absolute expiration date:  December 31, 2010. Others may expire as soon as December 31, 2012.

© 2010 Vedder Price P.C.

Other Super Year-end Tax and Estate Planning Articles:

FEDERAL TAX NOTICE:  Treasury Regulations require us to inform you that any federal tax advice contained herein (including in any attachments and enclosures) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service.

European Parliament Adopts Resolution on Corporate Social Responsibility

Update from this week’s guest blogger at the National Law Review from Foley Hoag LLP.  Tafadzwa Pasipanodya discusses how a Corporate Responsibility Mandate would actually work.  

A resolution adopted by the European Parliament on November 25, 2010 increases the likelihood that the days of CSR as a purely voluntary initiative are numbered. Approved by a margin of 480 votes to 48, the resolution on corporate social responsibility in international trade agreements calls on the European Commission to include a CSR clause in all of the European Union’s trade agreements.

Such a clause would require, inter alia, companies to publish “CSR balance sheets,” report on due diligence, and seek free, prior and informed consultation with local stakeholders.  The proposed CSR clause would also provide for monitoring and judicial cooperation in pursuing and punishing breaches of CSR commitments.  More generally, the resolution also calls on the Commission to reinforce its promotion of CSR in multilateral trade policies and to conduct sustainability impact assessments before and after trade agreements are signed.

According to its explanatory note, the resolution was drafted in recognition of the reality that for “ordinary people throughout the world, the expansion in international trade is justified only if it contributes to economic development, to job creation and to improved living standards.”

The note provides moral, socio-economic, and political justifications for Europe to address CSR in the context of its trade agreements:

  • First, European companies enjoying the benefits of trade must be asked to conduct themselves in a socially and environmentally responsible manner in developing countries and elsewhere.
  • Second, “non-compliance with CSR principles constitutes a form of social and environmental dumping” in developing countries to the detriment of companies and workers in Europe, who are required to meet more stringent social and environmental standards.
  • Third, the EU’s trade policy must be consistent with and complimentary of its other foreign policy priorities on matters such as environmental protection and development aid.

Many of the EU’s international trade agreements already address social and environmental concerns. The significance of the proposed CSR clause is that it would place an onus on companies – not just the State parties to the trade agreements – to act in a socially and environmentally responsible manner.  Also, while recent trade agreements concluded by the EU with South Korea, Colombia and Peru vaguely mention the State parties’ intent to promote CSR, the proposed CSR clause would require specific actions by companies.  Among the proposed requirements for the CSR clause are the following:

  • Companies would be required to publish CSR balance sheets in two or three year intervals in order to reinforce transparency and reporting and encourage visible and credible CSR practices;
  • Companies would be required to conduct due diligence in order to identify and prevent  “violations of human and environmental rights, corruption or tax evasion, including in their subsidiaries and supply chains”;
  • Companies would be required to commit to “free, open and informed prior consultation” with local and independent stakeholders prior to commencing a project that impacts a local community.

The resolution envisions that other provisions enforcing implementation of CSR would accompany the CSR clause.  It recommends, for example, that in addition to establishing appropriate investigatory mechanisms, State parties should be willing to “name and shame” companies in serious breach of their CSR commitments.  The resolution also foresees judicial cooperation and training as a means of facilitating judicial redress for victims of inappropriate corporate conduct.

The European Parliament’s resolution is a non-legislative act and thus not enforceable.  It is now up to the European Commission to decide whether to incorporate the Parliament’s proposals into binding legislation.  Although some companies will balk at any attempts to limit the voluntary nature of CSR, others, especially those that already seek to operate in a socially and environmentally responsible manner, may welcome the prospect of all companies being required to operate by the same rules in the context of particular trade agreements

Copyright © 2010 Foley Hoag LLP. All rights reserved.