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National Estate Planning Awareness Week runs from October 19-25, 2020. First celebrated in 2008, this week highlights the importance of estate planning and its vital role in your overall financial health. By some estimates, up to 50% of Americans have not prepared any estate planning documents, which include documents effective both during life and after death. The uncertainty of this year only highlights the importance of creating or updating your estate planning documents.
Many people assume that estate planning documents are necessary only for individuals or families with a high net worth; however, everyone can benefit from having an estate plan. The most significant benefit is that estate planning documents, which can include a Will, Revocable Trust, and/or various types of Irrevocable Trusts, allow you to choose the beneficiaries of your estate, the amounts they receive, and how they receive those amounts. Without an estate plan, the intestacy laws of your state will determine to whom and how your estate will pass. It is entirely possible that intestacy laws may not distribute your estate how you would expect it would pass, or how you would want it to be distributed. An estate plan can also take into account various concerns involving the distribution of an estate, such as beneficiaries who may need time to develop prudent money management skills; those with special needs to ensure continued eligibility for various public benefits; or beneficiaries with significant wealth on their own or liability concerns who want to keep assets out of their own estates. Intestacy laws do not account for these scenarios.
Developing or updating an estate plan also ensures that your estate has accounted for the various taxes that may be assessed as a result of your death, or any changes in the law. In the last year alone a major new law with respect to the distribution of inherited qualified plans, the SECURE Act, took effect; and there may be accelerated changes with respect to the Federal Estate Tax on the horizon. Creating an estate plan or revisiting your older documents allows for your estate to be up to date with the current legal landscape.
Estate planning documents also include Powers of Attorney for both financial and medical decisions, as well as Advance Medical Directives (“Living Wills”) for end-of-life decisions. These documents are effective during your lifetime, and allow another individual (or individuals) to make decisions on your behalf if you are unable to do so. Financial and healthcare Powers of Attorney and an Advance Medical Directive clarify who may make these important decisions, as well as your wishes, before a true “need” arises.
Just as you regularly review your budget and meet with a financial adviser to discuss short- and long-term objectives, meeting with an attorney to update (or create!) your estate plan is an important step to ensure your personal and financial wellbeing.
Elaine T. Yandrisevits
On July 26, 1990, President George H.W. Bush signed the Americans with Disabilities Act (ADA) into law. The ADA represented a sweeping change in access for individuals with disabilities by prohibiting discrimination on the basis of disability in employment, education, transportation, public accommodations, and other areas of life. The signing of the ADA represented the efforts of years of advocacy on behalf of individuals with disabilities and their advocates, whose work continues to this day.
One of the most important estate planning considerations for individuals and families is the ability to pass on assets to a beneficiary with a disability. If an individual with special needs is receiving income- and resource-dependent public benefits, then proper estate planning is necessary to ensure that the receipt of an inheritance does not jeopardize eligibility for these benefits. Income- and resource-dependent public benefits have strict limits on the amount of assets an individual can receive monthly (income) and own (resources) in order to qualify. Two of the most important income- and resource-dependent public benefits are Supplemental Security Income (SSI) and Medicaid (called Medical Assistance in Pennsylvania), which includes health insurance and Medicaid waiver programs for community-based services. The resource limit for SSI eligibility is $2,000 per individual ($3,000 if the individual is married). In many states, including Pennsylvania, individuals who qualify for SSI are automatically enrolled in Medical Assistance. Medical Assistance waiver programs have varying resource limits depending on the program. As a general rule, therefore, individuals with disabilities who receive these public benefits cannot have assets in excess of $2,000 without affecting their eligibility for public benefits.
Reprinted with permission from the June 19th edition of The Legal Intelligencer. (c) 2020 ALM Media Properties. Further duplication without permission is prohibited.
The Supreme Court of the United States held in Bostock v. Clayton County, Georgia, 590 U.S. ___ (US 2020) that Title VII’s prohibition against discrimination on the basis of sex also bars discrimination on the basis of sexual orientation and gender identity. The Court’s opinion relies on the text of the statute, rejecting arguments from employers regarding the failure to specifically include gender identity or sexual orientation in the statue. The Supreme Court’s decision in Bostock is historic – it expands the protections of Title VII to sexual orientation and gender identity, protections previously denied. The Court’s ruling requires employers to update and modernize their policies and procedures, hiring practices, training and workplace culture.
When a business owner gets divorced, the business is often the major asset subject to distribution. Accordingly, the business and its’ ongoing operations are almost always implicated in the divorce. In most cases that I see, the business is a small business with one owner or a few owners. In the best case scenario, the business owners have planned in advance for situations that arise in a divorce through a Shareholders Agreement, Prenuptial Agreements and/or Postnuptial Agreements. Hopefully, the parties’ respective family law and business law attorneys can work together to best protect the business owner to ensure as smooth a transition as possible. Hopefully, the relevant agreements have set forth a valuation formula which can be upheld at law for purposes of the divorce. Counsel can also work together to insure that income is clearly defined and reported so that support is less contentious. Additionally, advance planning can be used to address the below issues so that a divorce does not mean the end to the business. While advance planning is not a guarantee, it will provide additional protections to the business owner.
A divorce can impact internal and external business relationships, support (between spouses and child support), equitable distribution (division of marital property) and business control. In terms of business relationships, banking relationships can come into play, especially if the spouse is a personal guarantee of the loan. It is often not easy or possible to have the spouse removed from the guarantee. The spouse may also have a role in the business and it may not be feasible for them to remain involved. For example, in cases where the spouse is client facing, a delicate balance will be necessary to transition the spouse out of the business without negatively impacting the business. This can be a challenge if the divorce is acrimonious. Finally, the roles of the parties within the business may create sustainability issues going forward. In some cases, one spouse has a particular talent (i.e. software development, marketing creativity or scientific knowledge) which cannot be easily replaced and without which the business may not be able to survive. Such issues impact valuation but also succession and strategy on distribution of assets.
As for support, when a business owner is a party to a support action, whether for support for a spouse or for a child, calculating income can be challenging. The definition of income for purposes of determining support is very broad and is not the same as taxable income. There can be practical issues in obtaining information and documents which reflect the income. Legal issues can also arise, such as whether income is being reported or if the court can compel income or retained earnings to be distributed from the business to the owner to pay support.
In equitable distribution, the business must be valued so that division of the assets can occur. Business control also comes into play. It is unusual for parties to retain joint ownership or for the non-business owner spouse to receive shares of the business so creativity and/or structured payments are often necessary unless there is enough cash reserved for an outright payment. The payout can cause a financial strain for the business.
To best protect a business in the event of a divorce of the business owner, it is advisable for business owners to have advance planning through the mechanisms listed above. While not a guarantee, it will place the business owner spouse in a much better position than ignoring these issues all together.
It’s the hardest advice to give; do nothing. As lawyers, we envision ourselves as problem solvers. It’s our job to take on a client’s problem, real or perceived, and seek to find a solution. We listen, we evaluate, we plan. We apply our knowledge of the law, our experience and our judgment to develop a strategy to best address our clients’ concerns and maximize potential outcomes. We are often type “A” personalities. We are drawn to action.
So it makes sense that the hardest advice for a lawyer to give is to do nothing; to maintain the status quo, to grin and bear it, to forego that argument or claim. Sometimes, however, to do nothing is exactly what a situation requires.
For example, consider the small business with two equal owners both of whom are “involved” but to differing degrees. Each invariably believes the success of the business is primarily the result of their effort as opposed to the efforts of their co-owner. Should they separate? Dissolve the business? Sometimes the answer is certainly yes, but just as often the answer is no. The cost of the dispute, not only in terms of money spent but also revenue and opportunity lost, must be considered. It may even be that the co-owners’ combined respective skills are what drove the success of the business and that combination may be lost forever. Business factors such as proprietary trade secrets or exclusive trade agreements may render separation for value impossible. There is rarely a quick resolution to a business control dispute.
Similarly, when considering litigation, a party must consider whether litigation is actually in their best interest and not an emotional reaction. Whether claimant or defendant, the economics of litigation, success or failure, must be considered. Sometimes, however, the litigation economics form only part of the story. A business owner must also consider the business management distraction that litigation may cause, disharmony or disunity in the work force as employees and management personnel take up sides, or even the impact on customers and clients. A further concern is the question of how that portion of the public which becomes aware of the dispute - or even which must become aware of that dispute for business reasons – might perceive the respective positions of the parties. In some cases, litigation may force clients and customers to become concerned for their own business, thus creating significant stress on the relationship.
Tax reporting obligations are another area ripe with conflict. Often times an analysis of a business control dispute or damages evaluation in litigation will involve analysis of financial and tax reporting. A party must consider whether tax and financial reporting is consistent and that the facts as reported substantiate the position espoused by the party. In the litigation process, we often encounter all manner of tax financial recordkeeping and reporting issues; inaccurately reported income, misdirected payments, mischaracterized expenses and inventory value manipulation just to name a few. The parties to any dispute must consider the implications of public disclosure and avoid “taxicide”.
Many business relationships disintegrate to the point where continued co-existence is untenable and intolerable. In many cases, there are legal mechanisms that can be brought to bear to induce a change. A business owner is wise to consult with experienced professionals so as to evaluate the broad ranging ramifications of a particular strategy before embarking on what could be a dangerous or damaging path. Sometimes it is best to do…nothing.
Most employers these days are aware of the many workplace claims an employee might bring, including allegations of discrimination on account of race, color, religion, sex, national origin, sexual orientation, pay, age, or disability. Among other claims are those brought under the Fair Labor Standards Act (minimum wage, overtime) and the Family Medical Leave Act.
Employers paradoxically seem less aware of a retaliation claim an employee may bring. Paradoxically, because as reported by the Equal Employment Opportunity Commission (“EEOC”-the federal agency responsible for enforcing laws prohibiting employment discrimination), retaliation claims constituted the highest percentage of all charges filed in its fiscal year 2019.
Moreover, as discussed below, retaliation claims, by which an employee can obtain the same remedies as discrimination claims, are often easier for an employee to prove.
A recent opinion by the United States Court of Appeals for the Third Circuit (covering Pennsylvania) illustrates what an employee must do to state a case for retaliation and how an employer might defend the action.