Tag: Family Law

What Constitutes “Reasonable” Compensation For Private Foundation Insiders?

Private foundations are created as independent legal entities for solely charitable purposes, and many are run by unpaid family members and other volunteers. But what happens when a private foundation wishes to pay officers, directors or trustees, who are also family members of the individual funding, the foundation?

Because private foundations are “private” as opposed to public charities, there are strict rules around paying family members. Specifically, Section 4941 of the Internal Revenue Code prohibits any financial transaction between a private foundation and a “disqualified person” or an “insider,”[i] – generally the donor and the donor’s family – as it may constitute “self-dealing,” which is deemed a misuse of charitable assets. Family compensation would seem to fall directly under this restriction. However, there is one notable exception to this rule: compensation paid for “personal services” to carry out foundation affairs is permissible, provided that the services rendered are “reasonable and necessary” to carry out the exempt purposes of the foundation, and the compensation is “not excessive.” What constitutes “reasonable” and “not excessive” compensation may vary widely, depending on underlying facts and circumstances.

The services provided to the foundation must be “necessary” for the foundation to carry out its tax-exempt purpose and “personal” in nature. Although the IRS has not specifically defined “personal services,” the regulations cite examples such as investment management, legal and banking services. And, they include professional and managerial services rendered by an insider in his or her capacity as an officer, director, trustee or executive director of the foundation.

The services provided to the foundation must also be “reasonable.” Public charities can more easily determine whether compensation paid to an insider is “reasonable” because there are specific IRS regulations that define unreasonable compensation for public charities called “excess benefit transactions.” Private foundations, however, do not have clear-cut guidelines but will often defer to the regulations that public charities follow. The standards set forth in the regulations require that compensation should be what “would ordinarily be paid for like services by like enterprises under like circumstances.” This depends on the individual’s job title and description, the skill or knowledge required to perform the duties, the amount of time needed to fulfill the functions required, and the salaries paid for comparable positions. In practice, many foundations compare their proposed compensation amounts to what other for-profit and non-profit companies and organizations pay to similarly qualified individuals with comparable levels of responsibility.

Some factors to be considered:

(i) the size of the organization;

(ii) the employment history of the candidate and any special qualifications (e.g., licenses and certifications);

(iii) the geographic location of the foundation (some regional markets pay more than others);

(iv) the specific job responsibilities and duties;

(v) the time commitment; and

(vi) the total value of the compensation package, including benefits.

It is highly recommended that the compensation of foundation insiders meet the following requirements:

(i) the compensation is approved in advance by an authorized body of disinterested individuals such as the independent board members;

(ii) the authorized body obtains appropriate comparable data prior to making its determination as to reasonableness; and

(iii) the authorized body concurrently makes its determination and adequately documents the basis for that determination, all without the participation of the individuals whose compensation is being set.

Conflicts of interest frequently arise when setting compensation or benefits for officers, directors or trustees of private foundations. As such, the IRS requires that private foundations adopt a conflict of interest policy to help ensure that when actual or potential conflicts of interest arise, the organization has a process in place to resolve the conflict and assure that the affected individual will advise the governing body about all of the relevant facts concerning the situation. A conflict of interest policy is also intended to establish procedures under which individuals who have a conflict will be excused from voting on such matters.

States also have rules around conflicts of interest. In New York, a conflict of interest policy for private foundations became mandatory after the passage of the New York Non-Profit Revitalization Act of 2013.[ii]

A private foundation’s conflict of interest policy, among other things, must include the following:

(i) a definition of the circumstances that constitute a conflict of interest;

(ii) procedures for disclosing a conflict to the board;

(iii) a requirement that the person with the conflict not be present to vote on matters giving rise to such conflict;

(iv) a requirement that existence and resolution of a conflict be properly documented;

(v) procedures for disclosing, addressing and documenting related party transaction; and

(vi) a requirement that each officer, director and key employee submit to the secretary of the foundation prior to initial election of the board, and annually thereafter, a written statement identifying possible conflicts of interest.

The penalties for disregarding the compensation rules are severe. If foundation insiders fail to meet the “personal services” and “reasonable and necessary” requirements, the foundation will be subject to substantial fines. The foundation is assessed a penalty equal to 20% of the portion of compensation that is considered unreasonable. And each foundation manager who agrees to pay the unreasonable compensation could be personally liable for a penalty equal to 5% of the unreasonable compensation. On top of these penalties, the violation must be corrected, which could require returning the portion of the compensation deemed unreasonable to the foundation, along with interest. If all of this is not corrected in a timely manner, the IRS may impose additional taxes on the foundation, currently 100% of the amount of the unreasonable compensation. Similarly, an additional tax of 50% may be imposed on any foundation manager who refuses to correct the violation.

The good news is that a private foundation may pay its insiders for their foundation work as long as it follows the rules and takes all necessary steps to remain in compliance.

[i] A “disqualified person” or “insider” is any of the following: (1) foundation managers (officers, directors, trustees or persons with similar powers); (2) substantial contributors and individuals or entities with a 20% or greater interest in an entity that is a substantial contributor; (3) the family members of all such individuals; (4) certain entities partially or wholly owned, directly or indirectly, by disqualified persons; and (5) certain government officials.

[ii] The Non-Profit Revitalization Act of 2013 was signed into law by Governor Andrew M. Cuomo on December 18, 2013, and became effective on July 1, 2014.

© 1998-2020 Wiggin and Dana LLP

For more information, see the National Law Review Financial Law section.

What is a Holographic Will?

When a loved one passes, questions may arise as to who possesses the Decedent’s Last Will and Testament. If a formal document exists that was validly executed and was drafted by an attorney, chances are that the document is a valid Last Will and Testament unless a challenge is levied against it. What may become problematic is when a handwritten document in the testator’s own handwriting is discovered. The question then becomes if this handwritten document is a valid Last Will and Testament of the Decedent. In general, a handwritten instrument of this nature is called a Holographic Will, and may be enforceable provided certain requirements are met.

Typically, Courts often do the best they can to accept as a Last Will and Testament a writing by the Decedent where it is clear that the Decedent intended the instrument to be their Last Will and Testament. That is because the Courts would rather enforce the wishes of the Decedent than to allow the document to be invalidated based upon a mere formality. Perhaps the least formal of all Last Wills and Testaments which may be admitted to Probate is a document called a Holographic Will. These documents are relatively simple and are akin to something that a Decedent wrote on a piece of notebook paper and signed. The requirements of a Holographic Will are set forth below.

In general, pursuant to New Jersey S.A, 3B:3-2B, a Will can be considered a Holographic Will and admitted to Probate if the signature and the material portions of the document are in the Decedent’s handwriting. The Holographic Will must have all material testamentary provisions in the handwriting of the testator and also must be signed by the testator. What this means is that the provisions in the Will which dispose of the Decedent’s property must be in their own handwriting and not the handwriting of another. Further, the Will must be signed by the Decedent and not another party. As noted, this is a very simple instrument and is akin to a piece of notebook paper upon which a Decedent described how to transfer his/her property.

Provided the Will meets the requirements of a Holographic Will, it may be admitted to Probate and the Decedent’s Estate may be distributed in this regard. Different things could occur if not all the Decedent’s property is disposed of pursuant to a Holographic Will, however, that is best left for another blog. The purpose of this blog is to merely highlight one potentially type of valid Last Will and Testament which is informal in nature.

COPYRIGHT © 2019, STARK & STARK

Article by Paul W. Norris of Stark & Stark.
For more on wills & testaments, see the National Law Review Estates & Trusts law page.

Mental Illness in Family Law & Divorce

According to the National Institute of Mental Health,

Not surprisingly, mental health issues come up in the context of a divorce in a variety of ways. They arise when mental health issues contribute to the breakdown of the marriage or relationship. For instance, a partner may suffer from a condition which causes him or her to behave in ways that are detrimental to the relationship. This can manifest itself in aggression, narcissism, and self-centered behavior to the detriment of the other partner or children, excessive spending impacting family finances, to engaging in dangerous behavior with a partner, and/or their children.

What happens when someone believes that their partner’s actions are caused by a mental illness? After a complaint for divorce has been filed, or other court process started, attention needs to be focused to the behavior, and steps should be taken to:

  1. Ensure that children are safe;
  2. Assets of the marriage are protected; and
  3. A plan is created to provide treatment options if children are involved.

If a spouse or partner is suffering from mental illness to the extent that he or she cannot make rational decisions, the court has a variety of options to protect that person, both personally and his or her property. The court can appoint a guardian for the person, particularly if the illness is so extreme as to cause a person to be incompetent.

If the litigant is ill, but not to the point of incompetency, the court can appoint a Guardian Ad Litem.

If a partner or spouse’s illness is creating a risk of assets being dissipated, a court can freeze accounts, and limit access to funds. A court may allow a third party to make payments on behalf of a litigant such as rent, etc.

There is little question that difficult issues arise when a parent suffers from mental illness. The courts, acting in the best interests of children, must make sure the child is safe, while at the same time safeguarding a parent’s rights to have a relationship with a child. When custody is an issue and one parent is alleging that the other suffers from a mental illness, the court will typically order an evaluation by a licensed mental health provider with experience in custody cases. The court may enter an order limiting, or prohibiting contact with the children pending the outcome of the evaluation. Then, depending on the outcome of the evaluation, the court may order therapy, medication, or other recommended treatment as a condition to parenting time. While the parent is undergoing treatment, the court can order supervised parenting time to make sure the children see the parent, but also making sure they are safe.

If substance abuse is part of the illness, there are options to make sure a child is not with a parent who is intoxicated. In addition to random drug testing, which the court can order as a condition of parenting time, there are devices, similar to mini breathalyzers to detect alcohol and certain other substances. These can be carried on someone’s person, in a pocket or purse, and they will be sent a random text instructing them to blow into it. A report will then be sent to the custodial parent, who can take steps to protect the children.

Sometimes, a child will suffer from a mental illness and the parents may differ as to the existence of the illness or for its treatment. This often results in a health care provider refusing to treat in the absence of agreement. In that case, either parent can petition the court for assistance, and an order allowing treatment.

COPYRIGHT © 2019, STARK & STARK.

This post was written by Jennifer Weisberg Millner of Stark & Stark

Read more about Divorce & Family Law on the National Law Review’s Family Law, Estate Planning and Personal Injury Legal News page

Amazon 2-Day Free Shipping to Serve Divorce Papers: The Bezos Divorce through the Lens of New Jersey Law

Earlier this month, Amazon founder Jeff Bezos and his wife Mackenzie announced their plans to divorce, setting off speculation as to what would occur with their estimated $138 billion in net worth.

From a first glance, you may assume that the Bezos divorce would be much more acrimonious and hard fought than a case involving the typical John and Jane Doe case as the thought may be that there is more to fight for financially.

However, wealth in these incredibly high net worth cases actually removes many of the most challenging issues in divorce like payment of legal and expert fees or trying to continue the lifestyle for both parties with insufficient income from both parties to same to occur. The world’s richest couple will not have these challenges.

Instead, high net worth divorces have a whole different set of challenges that middle-class families typically do not need to consider.

First, the logical step-wise process in any division of assets and debts in a divorce is to ascertain, account for and value all of the assets and debts owned by either or both parties. For the Bezoses and other high net worth divorcees, this will likely be a complex, incredibly time-consuming process.

Beyond typical assets like cash, brokerage accounts, and retirement assets, parties like the Bezoses likely have ownership interests in many separate enterprises, corporations, partnerships, subsidiaries, investment trusts, along with extensive real estate, private equity holdings, and even art and jewelry collections all of which need to be accounted for and valued. Trusts and incredibly complex ownership structures will need to be investigated, digested and analyzed.

The Bezoses are going to need all sorts of professionals supervising and drafting documents to make sure that any kind of asset transfer will be well drafted and will protect both parties. If we do find any details about the Bezoses settlement (which I expect to remain private, as further outlined below), it will not likely be completed for years to come.

The most expensive part of the divorce process is not likely to be legal fees, but rather fees and costs for experts and appraisers who must figure out how to divide up the largest tranche of personal assets in the world.

Privacy is paramount in cases dealing with prominent figures and celebrities such as the Bezoses. Millions are chomping at the bit to hear about what they have, how it will be divided, and whether the fight will get ugly. In fact, this blog relies on the assumption that those of you reading this have at least some interest as to their personal lives and the theater of their divorce.

For this reason, it is very unlikely that the Bezos divorce ever sees a courtroom. It’s all but guaranteed that the divorce will be resolved through a private negotiated settlement, mediation or a private arbitration, or some combination all held behind closed doors with gag orders and strict confidentiality.

Lastly for this article, Jeff Bezos’ majority stakeholder status at Amazon brings about its own challenges, as would any high net worth divorcee with controlling interest in a business enterprise. Since the vast majority of Bezos’ wealth is tied up in his ownership stake in Amazon, which he started after marrying his wife, providing for equitable distribution may need to become creative.

Jeff and Mackenzie Bezos are based in the state of Washington, which is a community property state. This means that each spouse equally owns all of the assets either party has acquired over the course of their marriage, including their corporate shares. This differs from equitable distribution states like New Jersey, where division of the assets and debts of spouses are determined by a host of statutory factors meant for a fair allocation, which may not be an equal allocation.

Jeff Bezos, according to Forbes, owns 16% of Amazon, by far the largest shareholder. With major stockholders in a divorce, you want to be sure to effectuate division of the assets in such a way that does not divest control from that shareholder. For example, in the Bezos case, Mackenzie may be entitled to 50% of the total shares (remember, they live in a community property state where 50/50 splits are the presumption).

However, if 50% of Jeff Bezos’ shares are conveyed to Mackenzie and she liquidates a portion, shareholder control of Amazon could be significantly affected and the Bezos may lose their controlling stake. This could stagnate the family fortune which would benefit the Bezos’ children and legacy, which is unlikely to be MacKenzie’s goal or desire.

Instead, what is more likely is that Mackenzie will get “constructive ownership” of 50% of the shares, with Jeff retaining control of the business enterprise. Mackenzie will get the dividends from her portion of the shares and if there is a liquidity event, she might get bought out, but there would not likely be an actual transfer that would divest the family of control of Amazon.

There also may be a division based on exchanging values, meaning that perhaps an agreement is made wherein Mackenzie receives a much larger share or the entirety of other assets that would equal the value of her potential portion of her 50% right to the Amazon shares. However, this option appears to be less likely given that the majority of the Bezos net worth is tied to their Amazon holdings. Depending on how diversified they are, perhaps Jeff can convey more of some other assets and less of Amazon.

Time will tell whether we will ever know the result of the Bezos divorce, but we can be assured that the world will be watching to see what we can in regard to the world’s highest net worth divorce on record.

 

COPYRIGHT © 2019, Stark & Stark.
This post was written by Louis M. Ragone of Stark & Stark.

Three Critical Legal Documents Every Parent Should Get in Place Now to Safeguard Their Adult Children

As a parent, you might not fully appreciate that when your child turns 18 years of age, at least in the eyes of the law, you no longer have certain inherent rights related to medical and financial details about your adult child. For this reason, you’re strongly advised to get three simple legal documents in place to ensure you’re able to intervene on behalf of your adult child in the event your child is injured, becomes ill or is otherwise incapacitated.

These situations aren’t easy to think about, but imagine the following scenarios:

  • Your 19-year-old son, while away at college, is involved in a severe car accident and is rushed to the hospital unconscious.

  • Your unmarried 25-year-old daughter, while vacationing with friends in Hawaii, is unconscious in the hospital following a jet-skiing accident.

  • Your newly divorced 30-year-old son is hospitalized after suffering a brain hemorrhage and is put into a medically induced coma.

In each scenario, when you find out that your adult child is in the hospital, you immediately call for details about your child’s condition. You are horrified when the nurse says, “I’m sorry, but I am not authorized to provide you with any information or allow you to make any decisions.”

Here are insights about the three legal documents that would be prudent to have in place on behalf of your adult child before another day goes by.

1. HIPAA Authorization Form (for Authority to Speak with Healthcare Providers)

HIPAA, or the Health Insurance Portability and Accountability Act of 1996, exists for good reason; it is a federal law that safeguards who can access an adult’s private health data. If you call or visit the hospital to inquire about your adult child, as in the above scenarios, healthcare providers are prohibited by law from revealing health information to you – or anybody else – about your child; healthcare practitioners could face severe penalties if they violate HIPAA laws.

This illustrates why a HIPAA authorization, signed by your adult child and naming you as an authorized recipient, is so critical. It gives you the ability to ask for and receive information from healthcare providers about your child’s health status, progress, and treatment. This is particularly important in the event your adult child is unconscious or incapacitated for a period of time. Without a HIPAA authorization in place, the only other way to obtain information regarding your child’s health would be to go to court.

2. Healthcare Power of Attorney (for Medical Decisions)

If your adult child signs a Healthcare Power of Attorney naming you his/her “medical agent,” you will have the ability to view your child’s medical records and make informed medical decisions on his/her behalf. Without this document or a court-appointed guardianship, healthcare decisions concerning your child’s diagnosis and treatment will be solely in the hands of healthcare providers. While this is not always a bad thing, a physician’s primary duty is to keep the patient alive. So, a healthcare provider might not pursue a risky or experimental course of treatment at the risk of exposure to liability.

Keep in mind that doctors prefer to see one medical agent named rather than multiple medical agents. The concern is that multiple medical agents may not agree on the medical course of action to take on behalf of the incapacitated adult. As a best practice, it’s prudent to name multiple agents in priority order with single authority; for example, the adult child’s mother might be listed first as the medical agent; if the mother is unable or unwilling to serve in that capacity, the second person listed—say the child’s father—would be empowered to step in.

3. General Durable Power of Attorney (for Financial Decisions)

If your adult child were ever incapacitated, you would also benefit greatly from having a General Durable Power of Attorney in place, where you were named as the “agent” authorized to make financial decisions on his/her behalf. This would allow you as the named agent to manage bank accounts, pay bills, sign tax returns, apply for government benefits, break or apply for a lease, and conduct similar activities relating to your child’s financial and legal affairs. Otherwise, you will not be able to assist your child in managing his or her financial affairs without a court-appointed conservatorship.

Important Considerations

There are some important considerations to keep in mind regarding these documents:

  • Update these forms yearly. Be prepared to have your adult child re-sign and re-execute these documents every couple of years. This is especially critical for Powers of Attorney. The institutions where you would be most likely to use these documents – such as hospitals and banks – might refuse to honor them if they perceive them to be outdated.

  • These documents are only as good as the institutions that will accept them. Making sure these documents are properly executed is half the battle; whether they will be accepted by the involved institutions is the other half of the battle—one you don’t have complete control over.

  • These documents can be revoked at any time by your adult child either orally or in writing. Your adult child retains control of the ongoing validity of these documents; therefore, your best bet is to maintain a trusting relationship with your child so he/she sees the benefit of giving you the access and control these documents afford.

  • For adult children attending college at an out-of-state university, parents will want to execute separate documents in both the student’s home state and college state. If your daughter is from Denver but is attending college in Los Angeles, you’ll want one set of documents prepared under and governed by Colorado law and a second set of documents prepared under and governed by California law.

Copyright © 2019 Ryley Carlock & Applewhite. A Professional Association. All Rights Reserved.

ABLE Accounts: What They Are and What They Mean for Your Family

Individuals with disabilities and their families have many options to set aside funds without jeopardizing eligibility for means-tested government benefits. However, until recently most of the available options require the person with a disability to lose control over his or her own money.  With the 2014 enactment of the Stephen J. Beck Achieving a Better Life Experience (ABLE) Act, people with disabilities can once again control some of their own money and retain a sense of autonomy. While ABLE accounts will not replace other forms of planning that are available to and recommended for people with disabilities, there are definite advantages to adding the ABLE account into an overall plan.

The Basics

ABLE accounts are tax-deferred savings accounts that are closely modeled on 529 education savings plans. While ABLE is a federal program, much like 529 education plans, each state is responsible for crafting and administering its own program. Some states only allow residents to enroll, while others welcome out-of-state residents. It’s important to consider not only whether an ABLE account is appropriate, but also which state’s program best suits your situation.

To be eligible for an ABLE account, a person must be diagnosed, before age 26, with a disability that would entitle him or her “to benefits based on blindness or disability under Title II or XVI of the Social Security Act.” Once eligibility is determined, the individual or a third party (e.g., the disabled individual’s parents, siblings, or friends) can establish and fund an ABLE account.

Contributions and Account Limits

In any given year, the aggregate cash contribution from all donors (including the beneficiary him/herself) cannot exceed the annual gift tax exclusion amount ($15,000 for 2018). ABLE accounts accept cash only. Stocks, bonds, investments, and real estate cannot be contributed.

In addition to the annual contribution limits, as of January 1, 2018, the Tax Cuts and Jobs Act of 2017 authorizes an employed ABLE account beneficiary to contribute an amount up to the lesser of (i) his or her compensation or (ii) the poverty line for a one-person household ($12,140 for 2018). In order to be eligible for this additional contribution the individual cannot also contribute to an employer-sponsored defined contribution plan, such as a 401(k). Since the earned income contribution can be made in addition to the aggregate cash contribution, the total possible contribution for 2018 is $27,140.

Starting this year, a new funding option is available that allows individuals to “roll over” assets from a 529 plan into an ABLE account. While this is certainly a boon for families who initially set aside funds in a 529 account for a beneficiary who cannot use it, the funds rolled over cannot exceed the standard annual ABLE account contribution limit, so depending on the value of the 529 account the rollover could take several years to complete.

One of the biggest differences between the various state programs is the maximum amount that may be held in the account. For New York plans, the limit is $100,000. In other states, the limits are significantly higher and are tied to the limits those states have imposed for 529 education plans. For example, Illinois plans have a limit of $400,000. So for people who plan to accumulate larger sums in an ABLE account, it is wise to shop around to different states.

Although ABLE accounts are generally disregarded as a resource when determining eligibility for means-tested benefits, there is an exception. The first $100,000 of assets held in the ABLE account will not count as a resource when determining Supplemental Security Income (SSI) eligibility. However, once the account balance exceeds $100,000, the individual’s SSI will be suspended until the balance is again below that amount. There is no impact on Medicaid eligibility regardless of how much money is in the account.

Growth and Distributions

Income generated on assets held in an ABLE account are not taxed. Disbursements made for qualified expenses of the disabled individual are also not taxed. If a distribution is made that does not constitute a qualified expense, the beneficiary will be responsible for both ordinary income tax and a 10 percent penalty.

Qualified expenses of the disabled individual that can be paid for from the ABLE account without incurring taxes or penalties include, but are not limited to, education, legal fees, financial management and administrative services, health and wellness, housing, transportation, personal support services, and funeral and burial expenses.

As of January 1, 2018, the designated beneficiary is permitted to claim the saver’s credit for contributions made to his or her ABLE account. The saver’s credit is a nonrefundable tax credit for eligible tax payers who make contributions to retirement savings accounts.  The maximum annual contribution eligible for credit is $2,000 per individual, and the amount of the credit depends on the taxpayer’s adjusted annual income.

Benefits Eligibility Tip: An important benefit of the ABLE account is that, unlike when payments are made from a Special Needs Trust, payments for the beneficiary’s housing and food are not viewed as in-kind maintenance support for the purposes of SSI, and the beneficiary will not suffer the usual reduction for payments made by someone other than the SSI recipient for those purposes.

Words of Caution

Although ABLE accounts can be a valuable tool, there are several pitfalls to consider before opening an ABLE account. As with any decision that may affect government benefits, it is always best practice to discuss the situation and your options with your attorney, as there are many issues to consider before adding an ABLE account to a beneficiary’s plan.

For example, an important thing to consider is whether the beneficiary is capable of managing the ABLE account. Since the beneficiary is allowed to manage the funds in the account, families should carefully consider the risks (e.g., making non-qualified distributions or risking abuse and undue influence by an outside person) of the funds being immediately available. While this risk can be mitigated in several different ways beyond the scope of this article, it is certainly a point worthy of consideration.

Additionally, ABLE accounts are similar to first party Special Needs Trusts in that, to the extent the beneficiary receives medical assistance funded by Medicaid after the account is established, any funds remaining in the ABLE account at his or her death will be used to pay back the state for benefits that are paid for the beneficiary. This is the case regardless of whether the funds originally come from the beneficiary or a third party.

Notwithstanding the limitations, ABLE accounts can still be a valuable addition to a carefully crafted special needs plan.

 

© 2018 Schiff Hardin LLP

Death and Taxes: House Bill Eliminates “Death” Tax in 2024

On November 2, 2017, the U.S. House of Representatives’ Ways and Means Committee released its proposal for tax reform via the Tax Cuts and Jobs Act. The House’s draft legislation contains a number of provisions that, if enacted, would significantly change the wealth transfer landscape, including the total repeal of the estate and generation-skipping transfer taxes as of January 1, 2024.

Under the proposal, commencing on January 1, 2018, the individual lifetime gift and estate tax exemption amount will be doubled to $10 million ($20 million for married couples), indexed for inflation—$11.2 million per person in 2018 ($22.4 million for married couples). This increase in the exemption amount also applies to the generation-skipping transfer tax.

The draft legislation calls for a total repeal of the estate and generation-skipping transfer taxes as of January 1, 2024, while preserving the ability of beneficiaries to obtain a basis adjustment as to inherited property. Although the gift tax is set to remain in place, a reduction in the rate from 40% to 35% is provided for. Similarly, the annual exclusion—scheduled to increase to $15,000 per individual in 2018 ($30,000 for married couples who elect to split their gifts)—looks certain to survive.

This post was written by the Tax, Estate Planning & Administration  of Jones Walker LLP., © 2017
For more Family, Estates & Trusts legal analysis, go to The National Law Review

Are There Alternatives to Traditional Divorce?

Traditional fault divorce is generally viewed as a time consuming, expensive, and very public way to end a marriage. Couples who once shared homes, finances, and families suddenly find themselves as adversaries, fighting to divide the life they built together. Finances, and families, are often shattered by divorce. Divorce arbitration has been used for many years to resolve various legal issues.

Divorce attorneys are increasingly viewing arbitration as a viable alternative to a court divorce trial. Divorce arbitration can help couples avoid a time-consuming, expensive, public trial in return for the efficiency, privacy, cost-effectiveness, and informality of arbitration.

Divorce arbitration helps couples retain control over life decisions, limit expenses, and prioritize their children’s well-being.

Divorce arbitration is a structured process that in some ways is similar to a court room divorce but with more control retained by the parties themselves. Divorcing couples are powerless to alter the structure of a court room proceeding. Nor can they choose the judge who will hear the case. However, parties to a divorce arbitration can set up the structure, timing, and location of the arbitration from the outset, and can choose the arbitrator. The parties agree in advance as to which issues will be arbitrated, whether and how the rules of evidence will apply, and the manner that the proceedings will be recorded.

The arbitration itself involves testimony of witnesses and the submission of documents into evidence. At the conclusion of an arbitration hearing, the arbitrator will usually render a decision within 30 days. A typical court room divorce often continues for several weeks or months.

Divorce arbitration is recognized by the New Jersey Supreme Court as an effective method of dispute resolution that provides an alternative to conventional divorce litigation. Unlike a court schedule, the parties to a divorce arbitration schedule the dates of the arbitration sessions. Instead of court dates scheduled in different weeks over a period of weeks or months, scheduling arbitration sessions results in more convenience, fewer lost work days, and a speedier resolution.

Read more legal analysis at the National Law Review.

This post was written byJohn S. Eory of  Stark & Stark.

The Best Housewarming Gift for the Unmarried Couple: An Estate Plan

“Thinking too long about doing something is often the reason it never gets done.” 
–Everyday Life Lessons

In recent years, a growing number of Americans are deciding to cohabitate instead of getting married or remarried. Often, individuals of all ages, state they do not need an estate plan, either because they are not married or because they do not have children. These are not reasons to avoid preparing your estate plan and, in fact, are often more reason to ensure your estate is in order. Although this article will not discuss everything that unmarried cohabitating couples should have in place, it is a decent starting point for a conversation with your partner and, eventually, an estate planning attorney.

Estate plans are important for a devoted unmarried couple, because without an estate plan, you have no input into major healthcare and financial decisions for your partner.

Medical Decisions

You have been together for years or even decades, but if you are hospitalized, can your partner speak on your behalf and make decisions for your care and well-being? Sadly, no. Failure to have a valid Health Care Power of Attorney in place may result in a courtroom battle between your partner and family. A Health Care Power of Attorney is a document whereby you name an Agent to act on your behalf if you are unable to make reasonably informed medical decisions for yourself. Undertake an honest discussion with your partner concerning your wishes. Topics to discuss include organ transplant during life, removal of life sustaining treatment, burial arrangements, organ donation and religious limitations. Your wishes will be explicitly stated within the Health Care Power of Attorney, which your named Agent must follow to the best of their abilities.

Real Property and Holding Title

Throughout your relationship, you may have purchased a home (or several homes, depending on your lifestyle). Consider this scenario: you both paid half of the down payment for the home, and you each pay half of the monthly mortgage payments, but because your partner had a better credit score, the home is only titled in his or her name. If your partner dies without a Last Will and Testament that leaves the property to you, that property is not yours, and unless you purchase it for fair market value, you will have to vacate the home. If your partner did have a valid Last Will and Testament, it could provide that the home be distributed directly to you. Other options include your partner recording a Beneficiary Deed, which states that when he or she dies, the property passes to you by operation of law; another option is that your partner could deed the property to be held in both your names, as joint tenants with right of survivorship. Be aware that such a transfer may have gift tax implications and may affect your mortgage. Discuss these matters with your attorney before proceeding.

Distribution of Your Assets

By living together, you have likely acquired mutual possessions and one of you may have supported the other for a period of time, e.g. during graduate school, through loss of employment or through a disability. Because of this, there may be assets that you both believe are shared, even if they are in the sole name of one partner.

estate tax planning non us citizensIf you do not have a valid Last Will and Testament, your estate is considered intestate. An estate that passes through intestate succession means your assets will be distributed according to Arizona law. In this scenario, the following persons will receive your assets: first your legal spouse, then your children, siblings, parents, grandparents and finally, if none of the foregoing are then living, to issue of your grandparents. If you want to leave anything to your partner, you must execute a Will that provides for the distribution of your estate to him or her. There are also other options you can discuss with your attorney, such as beneficiary designations and language that provides for transfer on death of the assets.

You may also want to consider leaving your partner as your beneficiary on a life insurance policy or on any retirement accounts. At the very least, be aware of who is named as your beneficiary on your policies and accounts and be sure those are your wishes.

Although seeking the advice of an attorney is important, start the conversation at home, informally.

How to Start

Have a casual conversation with your partner to discuss the basics.  These topics will likely require multiple conversations.  If you are not sure how to start, go straight to the source.  Many attorneys charge a one-time flat fee for an initial consultation. You will want to find an attorney with whom you are both comfortable and, preferably, that you will use in the preparation of your documents. When you are satisfied with your decisions, engage the attorney and get drafts started.  Review the drafts with your attorney in his or her office and then take the drafts home to read and digest alone. Take your time. Be sure to ask any questions and voice any concerns; this is why you are paying the attorney. Throughout the process, it is important to remember that most estate planning documents can be revised if your circumstances or living arrangements change.

If it is important to you, discuss your plan with your family so they do not feel left out of important decisions.

Acceptance by Family and Friends

There is a chance some of your family or friends may not agree with your lifestyle or the decision to live together. Attempt to inform your friends and family that your desire is for your partner to be the lead in making decisions on your behalf, and that the two of you have discussed it and made each other aware of your personal wishes. Doing so may also avoid potentially costly and time-consuming legal battles should you become incapacitated or die.

Take the first step and work your way through it. Although it may seem overwhelming initially, the process should only take a couple of months. Once finished, you will both be able to sigh with relief knowing these issues have been resolved.

This post was written by Amber Hughes Curto and Amy K. Povinelli  of Ryley Carlock & Applewhite, A Professional Corporation.

Obergefell Uncertainty re: Same Sex Spousal Benefits

On June 26, 2015, the U.S. Supreme Court removed a cloud of uncertainty for same-sex couples when it ruled, in the landmark decision of Obergefell v. Hodges, that the equal protection and due process clauses of the Fourteenth Amendment require all states to issue marriage licenses to same-sex couples seeking to marry and to recognize same-sex marriages lawfully performed in other states. We previously discussed the ruling in our blog post, Same-Sex Marriage Decision: Uniformity in All States. However, as discussed below, the Obergefell ruling left at least two unanswered questions.

Retroactivity

Justice Kennedy’s opinion for the majority in Obergefell did not state whether the decision should be applied retroactively. Retroactive application could require employers to revisit their past practices in providing employee benefits to same-sex couples. To date, no guidance has been issued by the IRS or other federal agencies to assist employers in this respect. Some news outlets have reported that the Social Security Administration intends to apply the Obergefell decision retroactively, but to date no official guidance has emerged.

The retroactivity conundrum is highlighted in at least two lawsuits initiated in Federal courts over the past year that challenge employers’ denials of health benefits to the same-sex spouses of employees.

  • In Cote v. Wal-Mart Stores Inc., an employee sought repeatedly to have her same-sex spouse added to her health insurance but was denied. While Wal-Mart did extend benefits to same-sex spouses in the wake of the Windsor decision, the employee and her spouse had accumulated significant medical bills prior to Windsor. The employee is challenging Wal-Mart’s pre-Windsor denials and is seeking class-action status for the suit.

  • In Considine v. Brookdale Senior Living, an employee’s request to have her same-sex spouse added to her health plan was denied because Brookdale Senior Living did not offer health insurance coverage to same-sex spouses. After requesting briefs in mid-July on the impact of the Obergefell decision, the court recently sent the parties to arbitration based on an arbitration clause in Ms. Considine’s employment agreement.

In both of these cases the U.S. Equal Employment Opportunity Commission (“EEOC”) found probable cause that the defendants had discriminated against the plaintiffs on the basis of their gender, a theory the EEOC has advanced in such cases since 2012.

Some courts interpreting state law have already found in favor of the retroactive recognition of same-sex marriages, including a federal court in Alabama and a state court in Pennsylvania. The Alabama case involved a wrongful death suit where state law required damages to be distributed under the laws of intestate succession. The plaintiff prevailed in having his same-sex marriage recognized retroactively and received the proceeds of the suit, even though the marriage ceremony was performed in 2011 and the plaintiff’s same-sex spouse died that same year, which was before Alabama recognized same sex marriage.

In the Pennsylvania case, the plaintiff sought to receive spousal death benefits from various benefits providers, inheritance tax treatment as a spouse, and access to a jointly-owned safety deposit box following the death of her common-law same-sex spouse. Finding in the plaintiff’s favor, a state judge recognized the 2001 same-sex common law marriage despite the fact that it was not recognized under state law when celebrated, and the plaintiff’s same-sex spouse died before same-sex marriage was recognized in Pennsylvania.

Self-Insured Health Plans

Another lingering question concerns Obergefell’s effect on employers that sponsor self-insured health plans. After Obergefell, will state and/or federal anti-discrimination laws require those plans to offer benefits to same-sex spouses? ERISA generally preempts state regulation of self-insured health plans, and there is nothing in ERISA or other federal law prohibiting discrimination based on sexual orientation. Obergefell does not appear to apply. However, as noted above, the EEOC has taken the position that discrimination against an employee based on the employee’s sexual orientation equates to discrimination based on gender. The EEOC’s approach is currently being tested in the courts. In the meantime, any employer that elects not to offer self-insured medical benefits to spouses of same-sex couples risks attracting the attention of the EEOC.

Article By Jeremy T. Coffey, William B. Duff, Edward Spacapan Jr, B. Frank Thorn
Schiff Hardin LLP

© 2015 Schiff Hardin LLP