Lawlion Legal Info Blog

TPMR Lawyers Win Victory in U.S. Court of Appeals to Protect Local Business

2011-11-14T08:06:00.000-08:00

TPMR LAWYERS WIN SIGNIFICANT VICTORY IN U.S COURT OF APPEALS TO PROTECT LOCAL BUSINESS

On November 10, 2011, the United States Sixth Circuit Court of Appeals announced its decision in the case of Daniel Pilgrim, et al. v. Universal Health Card, LLC, et al., upholding dismissal of a multi-million dollar class action suit against a Stark County business, Universal Health Card, LLC. TPMR attorneys Gary Corroto, Lee Plakas, Edmond Mack and Maria Klutinoty secured this victory by utilizing an aggressive and innovative legal strategy to protect Universal from the potentially crippling effects of this litigation. Mr. Corroto argued the case before a three judge panel of the Sixth Circuit Court of Appeals in Cincinnati on October 6, 2011. The case represents a significant victory for a local business and protects local jobs.

By taking an aggressive and innovate approach to the case, TPMR was able to secure a dismissal of the case at the earliest possible stage of the litigation saving Universal hundreds of thousands of dollars in legal fees and expenses to the benefit of Universal and its Stark County employees.

The case was brought in the Federal District Court in Akron, Ohio under the Class Action Fairness Act of 2005, which grants federal court jurisdiction in cases where the amount at issue exceeds $5 million, by a New York City area class action law firm on behalf of two class representatives from Pennsylvania and Mississippi seeking to bring claims against Stark County based Universal on behalf of tens of thousands of individuals located in more that twenty-five states. The TPMR legal team employed an innovative strategy in approaching these claims - claims that, if successful, would have driven Universal out of business causing the loss of a significant number of local jobs. Recognizing the potential cost of the litigation, and the crippling effect that it would have on its client, rather than taking the traditional approach of conducting expensive class action discovery and waiting to address the issue of class certification until after the completion of time consuming and costly discovery, TPMR lawyers analyzed the case at its earliest stages recognizing critical flaws in the Plaintiffs’ case and devising a legal strategy to attack those flaws at the earliest possible time. TPMR employed seldom utilized provisions of Federal Civil Rules 12 and 23 to file a motion to strike the class allegations in the Plaintiffs’ complaint requesting the Court dismiss the case before class discovery could even begin. The District Court agreed with TPMR’s position that the Plaintiffs’ claims were fatally flawed and that dismissal of those claims was appropriate before discovery. The Federal Sixth Circuit Court agreed and upheld the dismissal. The Courts adopted TPMR’s arguments that Plaintiffs could not maintain a class action against Universal because the class, as asserted, would include thousands of satisfied Universal customers who had no claim and would require the Court to apply the laws of each state where each individual claimant resided. As a result, Plaintiffs could not satisfy their burden to demonstrate that common issues of law and fact predominated the class such that class action treatment of the claims was warranted. Once the Court reached this conclusion, dismissal of the case was proper.

Is There a Deadline for the State of Ohio to Request Medicaid Estate Recovery?

2011-08-18T05:54:00.000-07:00

The answer to this question of course is yes. However, thanks to a recent Ohio Supreme Court decision, that deadline may not be for years and years if no one notifies Ohio's Medicaid Estate Recovery Administrator of the death of a Medicaid recipient.

What is Medicaid Estate Recovery?

The Ohio Department of Job & Family Services is the Ohio administrative agency responsible for administering Medicaid (not to be confused with Medicare) benefits to Ohio residents. Because Medicaid eligibility is many times dependent upon a person's financial resources, there are numerous rules and regulations associated with a person's ability to receive Medicaid benefits as well as certain rules and regulations that allow the State of Ohio to recover Medicaid payments made to a beneficiary after that beneficiary dies.

Specifically, the administrator of the Medicaid Estate Recovery Program in Ohio may make a claim against a Medicaid recipient's estate after that recipient dies. If the Medicaid recipient dies having assets, those assets are subject to the claims of the estate recovery administrator to the extent of any Medicaid benefits paid for the benefit of that recipient during his or her lifetime.

What is the deadline?

Ohio Revised Code Section 2117.061(E) provides that the administrator must present a claim for estate recovery to the person responsible for the estate of the decedent recipient not later than ninety (90) days after the date on which the administrator receives the Medicaid Estate Recovery Reporting Form or one year after the decedent's death, whichever is later.

In the recent case of In Re Estate of Centorbi (2011), 129 Ohio St.3d 78, 2011-Ohio-2267, the Ohio Supreme Court determined that the "whichever is later" language actually extended the deadline beyond one year after the decedent's death where no Medicaid Estate Recovery Reporting Form is sent to the administrator. In other words, the administrator never has a deadline to make a claim against a decedent's estate unless and until the Medicaid Estate Recovery Reporting Form is sent to the administrator.

This outcome obviously can create an enormous amount of uncertainty and lack of finality when administering the estate of a deceased Medicaid recipient. Therefore, it is absolutely critical that any person responsible for the estate of a decedent that received Medicaid benefits, or even may have received Medicaid benefits (if you are unsure, the reporting form gives you safe harbor) send the Medicaid Estate Recovery Reporting Form to the administrator as soon as possible after the death of the recipient. By doing so, the administrator must present a claim to that responsible person (or other designated personal representative) within one year of the recipient's death. If the notice form is received by the administrator after that one year period, then the administrator of the program has an additional ninety (90) days to present the claim.

Questions about Medicaid claims or other estate questions? Contact our attorneys.

December 2010 Tax Legislation Update

2011-02-22T13:16:00.001-08:00

Congress Brings Back Federal Estate Tax, Raises Exclusion to $5 Million, Lowers Rate to 35%

In December 2010, Congress reenacted the Federal Estate Tax (aka "Death Tax") as part of the tax legislation compromise between Congress and President Obama. This legislation is effective for only two years, set to expire on December 31, 2012.

The new law provides for an individual exclusion amount of $5 million and a tax rate of 37%. Many expected the Estate Tax to return in 2011 with a much lower exclusion level and possibly higher tax rates.

Had Congress not taken any action in December, the old Estate Tax laws would have come back into effect. The exclusion amount per person would have been just $1 million with a tax rate as high as 55%.

While many hoped that Congress would simply extend, or make permanent, the 2010 Estate Tax repeal, the provisions of the legislation provide for many planning opportunities for individuals and families.

Proper planning and consideration is now more important than ever before.

Individual Gift Tax Lifetime Exemption Raised to $5 million, Gift Tax Rate fixed at 35%

While Congress reenacted the Federal Estate Tax, it also provided for a large increase of the Federal Gift Tax Lifetime Exemption. The new lifetime exemption is $5 million.

Until now, the Federal Gift Tax was assessed against an individual (or that person's estate) if there were lifetime gifts in excess of $1 million. Gifts less than the annual gift exclusion amount were exempt.

Like the Estate Tax provisions, this increase is set to expire on December 31, 2012 unless Congress takes action by that time. If Congress fails to take action by the end of 2012, then the lifetime exemption will decrease to $1 million. The Gift Tax rate would also increase.

Families wishing to preserve significant wealth should consider taking advantage of this potential opportunity to shelter assets from Estate and Gift taxation while this lifetime exemption remains at an all time high.

New Tax Law Allows Portability of Unused Estate Tax Exclusion Among Spouses

While Congress disappointed many by not permanently repealing the Federal Estate Tax, Congress did add a new portability feature to the Estate Tax that will benefit married couples.

The new legislation provides each individual with a $5 million individual exclusion. Under prior law, if the individual did not use his or her entire exclusion amount, that unused exclusion amount was lost. Previously, the surviving spouse and the children were unable to later use that unused exclusion to shelter assets upon their later deaths.

Pursuant to the new legislation, a surviving spouse may use his or her deceased spouse's unused exclusion amount in addition to the surviving spouse's exclusion. To qualify however, certain tax elections and filings must be made upon the first spouse's death. Otherwise, this benefit is lost.

For example, if Husband and Wife's combined estate is valued at $10 million and Husband leaves everything to his wife upon Husband's death in 2011, no Federal Estate Tax is paid at the time of his death because there is an unlimited marital deduction allowing him to leave his entire estate to his wife (and vice versa) upon the first death.

Upon Wife's death, assuming Husband's estate timely filed the appropriate election, Wife's estate would pay no Federal Estate Tax estate tax on $10 million (Husband's unused $5 million exclusion + Wife's $5 million exclusion = $10 million). Without portability, Wife's estate would have to pay Estate Tax on $5 million.

This portability option is only available to married couples. It also requires proper planning and tax filings in order to maximize the tax savings.

Favorable Capital Gains Treatment Returns to Inherited Property

The December 2010 tax compromise legislation also saw the return of more favorable capital gains tax rules. Persons inheriting property from someone (as opposed to receiving it as a lifetime gift) will once again receive a "stepped-up" basis in the capital asset for purposes of capital gains tax.

This rule becomes particularly advantageous for families that may not necessarily exceed the Federal Estate Tax Exclusion amount ($5 million) but have one or more highly appreciated capital assets.

This rule applies to any capital asset: real estate, equipment, marketable securities, closely held business interests, collectibles, art, and any other capital asset.

A gift during the donor's lifetime of a capital asset will continue to be taxed at the original owner's tax basis. Therefore, very careful consideration must be given when deciding upon how to transfer a highly appreciated capital asset.

For example: Father purchased a parcel of real estate in 1975 for $25,000 and it is now worth $500,000. He desires to give it to his two children. If he gives the property to them during his lifetime, they will assume his tax cost basis in the property ($25,000). Assuming they sold the property at its current value immediately upon receiving the gift, the two children would be taxed on the capital gain of $475,000 ($500,000 less the cost basis of $25,000).

If Father instead named the two children as transfer on death beneficiaries of the real estate, and he died in 2011, the two children would receive an adjusted tax basis in the property equal to the value on the date of Father's death. Assuming the current value was $500,000 and the children immediately sold the property after Father's death for that amount, the children would not be taxed on any capital gains because their basis was adjusted at the time of Father's death.

This favorable capital gains treatment is available to all individuals. Therefore regardless of whether or not a person's estate will face any Federal Estate Tax liability, an estate plan should take advantage of the stepped up basis rules.

Highlights:

· Estate, Gift, and Generation Skipping Transfer taxes are all unified with a $5 million lifetime exclusion and rate of 35%

· Unused exclusion amounts are portable among spouses

· Return of favorable stepped-up basis for capital gains

· 2011 Gift Tax Annual Exclusion $13,000 per individual

· Direct payments of beneficiary's tuition and medical expenses still exempt from Federal Gift Tax

Contract Negotiation Strategies for Buyers and Sellers

2011-01-05T05:44:00.001-08:00

We are pleased to share Robert Konstand's seminar presentation regarding business negotiation strategies for buyers and sellers.

Making and Evaluating Offers: Business Decisions v. Legal Decisions.

It is prudent for the client to get his attorney involved in the discussions for the sale or purchase of a business very early in the process. Buyers and sellers tend to hear only what they want to hear in negotiations and are usually afraid to approach the difficult deal points that they perceive as a weakness. Effective legal counsel can take the lead role in negotiations to ensure that the client is protected. However, the attorney must be fully apprised of the legal and business issues in the negotiation. In the initial phase of negotiations, the discussions will be centered on business matters.

The attorney should meet with the client prior to any meeting with any potential seller or seller, and understand exactly what the client is looking for in the transaction. Attorneys sometimes shy away from discussing business matters. With adequate preparation, the attorney can effectively present what the client is seeking. It is beneficial at times for the client to step back and listen to his or her attorney state what the proposed deal is during the negotiations.

Rendering business advice to a client can be problematic. The attorney can offer advice on business matters if the attorney is well-versed and understands the situation and the client understands that it is merely a business opinion and not a legal conclusion. Business opinions may be helpful for the attorney to get the client 'down to earth' in matters where the client's goal may be extreme or unrealistic or could end up damaging the client.

Caution is necessary in offering business advice to the client. Often, we see as attorneys, clients making obvious mistakes in the operation of their business. It is the role of the attorney to point out issues that may have beneficial or detrimental effects on the business side of things, where the attorney has that knowledge. If the attorney does not understand or has no knowledge of the business issues at hand, then the attorney should not be making any opinions or statements regarding the business. A good example of sound business opinion would be where a party seeks to buy a business that would require a large sum of cash to operate the business initially and the client does not have the cash or the access to the cash to operate the business. It is obvious that the business will fail without the cash in place, and therefore the attorney if comfortable, should advise the client of that. It is incumbent upon counsel to assist clients in making the right decisions.

It is more important to make sure that the initial negotiations include all of the major business points of the proposed transaction. The finer points can be left up to the written agreement; however, issues can arise with regard to lesser points that become major deal-breakers that perhaps would have been better to have been dealt with in the initial discussions.

Evaluating Your Client's Strengths and Weaknesses in the Transaction.

Every client is different. If you know your client well, you can find out about its strengths and weaknesses prior to the negotiations. A common weakness would be insufficient cash to purchase the business. An example of a strength would be that the client is a good business person and could make money but lacks the financial resources. It is important for the attorney to know this so that any agreement can be negotiated to avoid or minimize any client weaknesses and take advantage of any client strengths.

Another important issue is how much time your client can devote to the business. Will the business require full time involvement or not and will the client devote the necessary time and attention to the business.

If the client has insufficient cash for conventional bank financing and cannot meet the requirements for an SBA type loan, then obviously owner financing or outside partners would be in order. Depending on the various weaknesses or strengths, it may be beneficial for the client to be present and discuss the strength or weakness at the initial meetings of the buyer and seller and counsel. It helps to set limitations and demands on the negotiations and shows the other side that your client is truthful. Every client has weaknesses and strengths in their particular transactions and it is up to their counsel to utilize these strengths and weaknesses to the client's best advantage. Also, it is wise to have the client present at all negotiations to see where the issues are and the intensity of the issues. It is easy for a client to make unreasonable demands if they are not in the heat of the negotiations.

Another example of weaknesses would be the client's lack of knowledge with regard to financial statements and accounting. It is surprising today that this is prevalent. If either the seller or a potential bank sees this as a weakness, the deal may not go forward. The client then needs to enlist the help of a professional who can be there to answer questions and to give the other side assurance that the appropriate professional advice will be available to the client and be part of the team. I find it helpful at times to get the client's accountant involved in negotiations at a very early stage. This is particularly beneficial where the accountant knows the client well and understands the financial matters of the client.

The same goes for a client that has strong financial capabilities but lacks specific knowledge of running the particular business. Once again, the client should obtain help and present this to the other side, particularly where there will be owner financing and/or bank financing in the matter. Maybe a representative of the seller can stay on for a period of time after closing, to assist in the transition.

Discussions should be memorialized during the initial negotiations to make sure that every party is on the same page. Initial negotiations can be discussed through a term sheet prepared by the buyer. The term sheet is an outline of the deal points which can serve as a basis for discussion. Once there is an initial meeting of the minds and verbal agreement on the major points, then a letter of intent should be prepared. Clients question letters of intent because they are usually nonbinding. Recently however, I have seen binding provisions with regard to confidentiality and similar terms while the business points are not binding. It cannot be overemphasized that once business points and terms have been agreed upon in the letter of intent, it is usually difficult to negotiate away from those understandings. Some clients like to agree to certain points in the letter of intent knowing that they will not be able to agree to the same points in the final agreement. I strongly advise against this practice. If a client is unsure as to a specific deal point, he or she is better off to omit the deal point from the letter of intent and then deal with it as a new subject in the agreement.

Meeting Conditions of Sale.

Once the deal has been made and the agreement is signed, then each party must perform according to the terms and provisions of the agreement. Both the buyer and seller will make certain representations and will have certain obligations with regard to closing the transaction and thereafter.

It may be helpful to keep a punch list of your client's obligations as well as the obligations of the other side to ensure that all items are met in the closing. One cannot depend on an Escrow Agent in a real estate closing to make sure that all conditions are met and performed. It is up to us, as counsel for our clients, to make sure that everyone performs as agreed. Once again, it must be stressed that if your client is unable to perform according to the agreement, then this should be brought to the attention of the other party as soon as possible, in most cases. It may be possible to work around any issues. In the drafting of the agreement, the attorney for each party must carefully consider what the default provisions are, if the agreement does not close. As attorneys, we need to make sure that we protect our client's potential weaknesses in the agreement in case there is a default. In today's difficult economic times, it may be difficult for sellers to provide proper title to the assets sold, watch out for the undisclosed 'short sale' of assets.

Discussing the Finer Points of the Acquisition Agreement.

The question always comes up as to whether the seller or buyer should draft the agreement. This should not be a major issue unless the party drafting the agreement is not competent to draft it. I personally have no issue with making changes and doing red lines on agreements to make sure that all of the points I need are included to protect my client. As the transaction is negotiated on the term sheet and letter of intent, I keep notes of deal points and legal matters that I want to make sure are included in the agreement. Check lists are helpful, as well. However there will be times when the first version of the agreement is not even close in reflecting the transaction. Then is it is wise to start over with your own agreement.

Drafts of the agreement should be reviewed and discussed with your client before meeting with the other side. Some clients may understand most of the agreement, some clients may not. However, it is up to us as counsel to fully disclose and explain the agreement to the satisfaction of our clients. Clients, at times, tend to want to close things quickly and not pay attention to detail; it is incumbent upon us as counsel to ensure that our client understands the fine points and the nuances that are beneficial or potentially detrimental to the transaction. The last thing we want is for the client to say that they did not understand what they were signing or that it was not fully explained to them.

Discussions with the client help to vest them in the process. It assists the client in making sure that he or she can fully perform as expected of them not only in the closing of the agreement but in running the business thereafter.

Dealing with Liabilities.

Liabilities are always an important factor in the sale of a business. The buyer may have to assume certain liabilities. Liabilities must be detailed; representations by the seller must be made to detail the extent of those liabilities. If any liabilities are to be assumed or if the seller makes a representation that there are no liabilities, then the seller should back up the statement by a personal guarantee or other agreement.

If your client assumes liabilities, then the client needs to make sure that the liabilities can be paid and will not detrimentally affect the operation of the business. Liabilities need to be closely documented with the creditor to ensure that everything is as represented. Assuming liabilities can be helpful in financing a business, but care must be taken to ensure exactly what the liabilities are and the terms and conditions of the repayment of the liabilities.

Counsel should also look for any possible unknown potential liabilities in the transaction. Are there potential employee claims that have not been brought? Are retirement plans properly documented? Is there any litigation threatened or pending? Are there agreements that have disclosed but are in default? What if there are agreements that have not been disclosed? It is important for counsel to examine all of these matters.

In owner financed transactions, the agreement should contains a provision for a dollar for dollar set-off against any sums due the seller, where there is a breach of any representations, covenants, or other obligations of the Seller.

If you are unsure of any potential liability, it is wise to hold an agreed upon sum in escrow after the closing to investigate the liability and have the money available to resolve it. If the other side is unwilling to do so and it is a reasonable request, then this is a red flag, and if your client desires to proceed then it must be done with extreme caution. Sellers like to generally get out of their business quickly and in a clean manner. However, when there are issues of uncertainty, the buyer must insist on being protected. If there are potential issues, a reputable seller should be willing to provide for reasonable requests.

Environmental Issues.

Today, environmental issues are very important in any transaction. If the sale of a business includes real estate, then a Phase One environmental survey and perhaps a Phase Two will be necessary to ensure that the property is environmentally clean, even if there is a lease. Once again, representations by a seller may be worthless if the seller is not collectible and the buyer inherits the seller's environmental issues.

This can be more troublesome in a transaction where the sale of real estate is not involved. Environmental issues can be present in the real property that is leased and equipment can be contaminated.

A business operating out of leased premises has the potential for environmental liability and should be evaluated. Landlords are becoming aggressive in demanding clean-up of their real estate by tenants.

Successor Liability: Taxation, Tort and Contractual.

Successor liability is an issue in taxation with regard to Trust Fund taxes including Federal, state, and local as well as sales taxes. One common issue overlooked, is the status of the workers' compensation premiums paid, as well as the rate, as a result of the history of claims by the seller. Another issue is whether or not the new business entity of the buyer will be considered a successor employer or not.

If the business entity is purchased, then an examination of all filed tax returns must be made as well as the payments thereon. Investigate and confirm any potential IRS or state audit issues.

Tort liability can be an unknown. If potential tort liability is insured and the seller had insurance on an "occurrence" basis, then coverage should be available post-closing. If insurance was made on a "claims made" basis, then it may be incumbent upon the buyer to continue insurance. More important is the potential for uninsured future tort liability where the seller must represent that there is none and that the representation would be backed by sufficient assets for indemnification purposes.

Contractual liability is generally not insurable and thus representations have to be made by the seller and that sufficient assets will be in place for the benefit of the seller for indemnification purposes, post-closing.

Unpaid Taxes, Sales Tax, Payroll Tax and Income Taxes.

As previously discussed, these can be successor liability issues for the buyer. Provisions in the purchase agreement must be made for indemnification. As part of the buyer's due diligence, sales tax returns for the selling entity as well as payroll tax and income tax returns must be reviewed, as well as verification of the payments for the tax due. Obviously, if the internal statements of the seller reflect different numbers than contained in the tax returns then there are potential issues not only for liability purposes but for the real value of the seller and whether or not the tax returns may be erroneous.

Accounts Payable.

Once again, accounts payable must be verified and if assumed, then indemnification should be provided by the seller for any accounts payable other than as represented. During the due diligence process, the buyer should examine the accounts payable not only as to the amount but the timing of the payment. Arrangements should be made to ensure that the accounts payable can be paid on a timely basis. Most accounts payable today provide for interest to be charged on delinquent balances at fairly high rates and this should be avoided for cash flow purposes for the buyer. Make sure that vendors will continue to do business with the new entity at the same pricing and terms as before the sale.

Insurance for Environmental Issues.

Insurance is available, but it is very expensive and often contains exclusions and requires personal indemnification. Insurance is usually required for large real estate sales and where non-recourse financing is provided. The mortgagee will want as much environmental protection as possible and may seek redress from the seller for environmental liability issues. Environmental insurance is worth investigating but may be cost-prohibitive.

Non-Competition Agreements and Seller Participation, Post-Closing.

Non-competition agreements are crucial in the sale of a business where the principal of the seller could continue to compete or interfere with the buyer's enterprise. The courts look at non-compete agreements on a case-by-case basis. Most artfully drafted agreements provide that the seller and its principal cannot compete with the buyer for any set duration of time and within a certain distance or geographical area. The Courts look more favorably upon stricter provisions where the non-compete agreement is with the principal of the seller, rather than just as an employee of a company without a sale pending. Make sure that the agreement provides for appropriate injunctive relief that may be sought in enforcing a non-compete agreement.

Breach of Contractual Representations and Survival of the Agreement.

If a party defaults before the agreement is closed, the agreement usually provides for a default process which may or may not include litigation. Post-closing defaults are more troublesome. Indemnification provisions should be used extensively by counsel for the buyer to protect the buyer against defaults or breaches of representations made by the seller. Care must be given in the drafting of the purchase agreement to ensure that important representations and covenants survive the closing of the agreement.

Once again, there needs to be recourse upon a collectable entity.

Using ADR Effectively.

Most agreements for the sale of business provide for some type of alternative dispute resolution. Some agreements call for binding arbitration or a similar arbitration process; other agreements may have a mediation requirement and then litigation. It may be effective to provide at least an informal hearing of some type, either by mediation or arbitration, before litigation ensues. It allows both sides a forum to air the grievances and get a taste of litigation. Litigation is the least preferable way to resolve conflicts in the sale of a business because of both cost and time factors.

Closing the Deal.

Once again, checklists are crucial for the closing of a transaction. The buyer's attorney will need to assist not only with the obligations, including due diligence, contained in the sale agreement, but also provide services and assist with any third party financing. The funds must be obtained and financing qualifications must be met. Counsel should be vigilant to make sure that all terms and conditions of the agreement are met and that the client is prepared to operate the newly purchased business. This may necessitate forming a new entity, obtaining insurance, obtaining tax and accounting (including payroll) advice, as well as operational advice.

There will be times when the seller will insist on an opinion of counsel. These should not be given lightly as there is tremendous exposure to the lawyer. It is best to negotiate what will be contained in the opinion, while negotiating the agreement. Obviously, the goal is to limit what matters are opined. Also make sure that all necessary qualifications are contained in the opinion, like choice of law, bankruptcy and insolvency, and default.

Post-Sale Duties and Obligations.

Again, it is incumbent upon the attorneys to make sure that all post-sale obligations are met. The use of checklists again is useful in this process. The goal of the attorney representing the buyer would be to continue to represent the buyer because he or she is knowledgeable of the transaction and is in the best position to continue the representation. Careful consideration of post-sale duties and obligations will ensure that counsel continues to be retained in the future.

Foreclosure FAQ’s & Strategies

2010-10-23T16:48:00.001-07:00

We have all heard about the real estate foreclosure crisis affecting individuals across the nation, but the crisis has affected Ohio particularly hard. If you are facing foreclosure, or are in the process of a foreclosure proceeding, then you likely have many questions about what to do. Seeking legal advice is the best thing you can do so that you understand your rights and your options. This article will try to provide you with some basic information that will allow you to better understand the process and how you and your attorney can work towards potential resolutions with the bank / lender / creditor seeking to foreclosure upon your property.

Some Foreclosure Vocabulary

You may have seen or heard a variety of terms used in the media or elsewhere and wonder what they mean. Here are some basic terms and definitions:

Chapter 7 / 11 / 13: These are different types of bankruptcy filings an individual may file depending upon their circumstances. Bankruptcy typically is an option of last resort. When all else fails, bankruptcy may be necessary. Your attorney's advice is critical in evaluating whether or not bankruptcy is an appropriate decision for you and your family.

Credit Score: This "score" is essentially a rating that credit rating companies apply to you based upon how well you have managed debt and whether you have kept current with your various payment obligations. It does not necessarily matter how much or how little debt you have had over time. In fact some people that have avoided incurring any debt, and have been current with all of their other payments, sometimes are surprised and frustrated to learn that they may have a credit score far less than others that have incurred large amounts of debt, but have paid it off timely. Chances are, if you are currently facing foreclosure, or you are in default on your loan payments, your credit score has been negatively impacted. A bankruptcy also negatively impacts your credit score. However, people sometimes fail to understand that you can rebuild your credit score over time. When you are trying to evaluate options to save your home or stay current on other obligations, your credit score may not necessarily be your first priority, and it's probably too late to save your score.

Deed in lieu: This is a bit like a "short sale" except there is no buyer. A "deed in lieu of foreclosure" is a transaction merely between the homeowner and the bank. The homeowner agrees to simply sign a deed for the property to the bank in lieu of the bank having to file a foreclosure action. Like a short sale, the homeowner and bank should come to an agreement in writing as to whether or not the bank will forgive part or all of any deficiency. The bank then becomes the new owner of the property and may choose to auction it, list it for sale, or leave it off of the active market for a period of time believing that there may be a better opportunity to sell the property in the future. In a very creative deed in lieu, the homeowner might even be able to remain in the home and pay rent to the bank in order to continue living in the home while the homeowner searches for new living arrangements.

Deficiency: Also referred to as a "deficiency judgment," this is the difference between the amount that the bank receives when the property is sold and the amount it is owed (if the bank's remaining balance was not entirely paid off). This is the likely result when a home is "underwater" or when there is a "short sale." Depending upon the loan agreement documents, the bank likely will have the right to continue to try to collect from you this deficiency balance even after the foreclosure proceeding is completed and the house is sold. However, depending again on the situation, banks may be limited as to how long they can continue pursuing you for the deficiency, if there is one.

Loan Modification: In certain situations, the bank may agree to modify an outstanding loan. The bank has several options when considering a loan modification (also called a "loan mod"). The bank can adjust and reduce the amount of principal balance. The bank can forgive unpaid, accrued interest. The bank can extend the loan without reducing the balance owed, but by extending it over an additional period of time, it may be able to reduce the monthly payment obligation. The bank can also reduce the interest rate without reducing the principal balance. This can also effectively reduce the monthly payment obligation.

Short Sale: This term refers to the sale of a property where the homeowner and the bank agree to sell the property to a buyer that is paying a total sale price that is less than the outstanding balance owed to the bank on its loan. Banks many times may be willing to agree to a short sale knowing that the amount of the loan far exceeds the current fair market value of the home. This type of sale typically occurs when the home is "underwater." The issue that must be understood and addressed by the homeowner and the bank before the sale is whether or not the bank will release the homeowner from any obligation to pay the "deficiency." If the homeowner is not released, the bank may still try to collect the deficiency from the homeowner even after the short sale is completed. However, some banks may agree to release the homeowner from this obligation in order to avoid the costs and delays it will face if it needs to file a foreclosure.

Underwater: This term simply means that the current fair market value of the property is less than the current outstanding loan balance owed to the bank. Assuming that the homeowner continues making the required monthly payments to the bank and is current on all other obligations, a property can be underwater without the risk of a foreclosure, and without the risk of negatively impacting a credit score.

What is a Foreclosure and who can file it?

A foreclosure is a legal proceeding whereby a person or entity that has a lien (pronounced "leen") upon property can ask a court to sell the property in order to collect money owed. Currently, the vast majority of foreclosures are associated with mortgage loans made in the last 15 years. Banks gave large loans to people in exchange for a mortgage on their homes. Once those people could no longer afford to keep paying their monthly payments, the banks declared the loans to be in default and file foreclosures in order to sell the property and collect the outstanding loan balance still owed.

Many people may not realize that banks are not the only entities that can file foreclosures. Any person or entity that is owed money, sued to collect that money, and obtained a court judgment, can file a judgment lien. This is like a mortgage in that it allows the judgment lien holder to initiate a foreclosure action to sell property owned by the person that owes the money.

Government agencies also can file a foreclosure. If the homeowner has failed to pay income taxes, property taxes, or has some other obligation to pay the government (state, local, or federal), the government will place a lien upon the property and may then file a foreclosure to collect what is owed.

Now that a foreclosure is filed, is it too late to resolve this?

Absolutely not. In fact, once the foreclosure is filed, there are several opportunities to resolve it, and the bank may be even more willing to negotiate with you.

It is commonly known that banks will not negotiate with you when you are keeping your payment current. If the bank is getting paid, why would they agree to reduce your obligation? Banks are out to make money. Negotiating with you to reduce the amount of money they will get is against every bank's instinct.

Should you strategically stop paying the bank? If you do, your credit score will plummet. You may also risk the bank taking very swift action to grab any bank accounts you have at that bank, initiate legal proceedings, or take other action against you. Therefore, you have to very carefully consider this decision, and you should only do so after seeking professional advice.

Should you decide to stop your payments to the bank, you will definitely have their attention. Once the bank is not getting paid, they will send you threatening letters and collection agents will call you at home to try to get you to start paying them. If you continue not paying the bank, they will file a foreclosure action.

The worst thing you can do if you are trying to negotiate with the bank is to ignore the foreclosure action. In Ohio, if a foreclosure is filed in court, you have only 28 days from the day you are served with the foreclosure complaint to file an "Answer" to the complaint. Get a lawyer! An "Answer" is a legal document that requires certain allegations and defenses to be made or you risk waiving those defenses. Unless you are a lawyer, you probably have no idea how to draft and file an answer with the court in such a way as to preserve all of your defenses.

If you do not file an answer, the bank will obtain its foreclosure almost immediately because the court will issue a default judgment against you and quickly order the property sold at auction. Therefore, to hold off the foreclosure process, and to engage in meaningful negotiations with the bank, an answer must be filed.

Once an "answer" is filed, most counties in Ohio have a foreclosure mediation program that homeowners can request. This mediation typically involves a court-appointed, neutral person (the mediator) that will try to assist both the homeowner and the bank to reach an agreed resolution. This might result in a short sale, a deed in lieu, a loan modification, or some other settlement that both the homeowner and the bank agree to in writing. A successful mediation results in the bank's dismissal of the foreclosure.

I tried mediation, but the bank won't agree to settle. Can I do anything?

Absolutely. Due to some very sloppy loan processing practices in the last 15 years, there has been increasing press attention to courts refusing to allow some foreclosures to proceed. Homeowners and their lawyers can effectively halt foreclosure proceedings if there is a problem with the bank's paperwork. Examples of this are:

Is the bank that initiates the foreclosure the current holder of the loan and the mortgage? If not, the bank may not actually have legal standing to bring the action, resulting in its dismissal.
Is the bank using "robo-signers" in its foreclosure documents? If so, then the documents may be invalid because they were not properly executed or reviewed prior to filing.
Are the amounts set forth in the foreclosure case accurate? If not, or if the bank cannot verify their accuracy or properly demonstrate the application of your payments to principal and interest, then a court may dismiss the foreclosure.

There can be many other types of technical defenses that grind a foreclosure to a halt. An attorney with experience in foreclosures can identify those potential issues and work with you to try to reach a proper resolution of the dispute. The key is to involve a professional advisor at the earliest stages to navigate the process and protect your rights.

What is “probate” and why am I trying to avoid it?

2010-09-28T04:58:00.001-07:00

What is "probate" and why am I trying to avoid it?

Is "probate" an 8-legged monster that will suck the life out of your lifetime hard work and savings upon your death? Or, did probate just get a bad reputation somewhere along the way? The answer actually is not as simple as some may believe. This post will explain the probate administration process, try to dispel some of the myths, and provide you with some basic information that you can consider when talking with your estate and financial planning professionals.

Introduction

"Probate" is the name of the court in Ohio that governs the administration of the financial affairs of deceased persons. There are several other subjects over which the Ohio probate courts have jurisdiction. However, those topics are beyond the scope of this article.

Why do we need probate courts? One primary reason we need probate courts is to assist with a lawful, supervised procedure for transferring the assets and property of a deceased person to his or her surviving heirs. This procedure is intended to avoid conflict and provide certainty.

In some situations, the plan of distribution of a deceased person's estate might be obvious. For example, if a man is survived by only his wife, and he has no children, everyone might simply assume that his intent was to leave all of his assets to his wife.

What if the family picture was more complex? What if there is a surviving wife and children? Should the wife still receive all of the property or should the children receive some portion? What if the husband had children from a prior marriage that survive him, he is survived by a second wife, step-children, and children from his second wife? Who gets what?

What if the husband sent a letter to his church telling his pastor that upon his death, he wanted the church to receive an inheritance from his estate? What if that letter wasn't signed by the husband, but was typed on his stationery? Is that valid?

All of these questions demonstrate exactly why we need probate courts in Ohio, and why we need uniform rules and regulations about how to execute a document that will be legally recognized. However, as society has become much more efficient with respect to the registration of assets and property, the laws have recognized and even sanctioned procedures that allow for the faster and more efficient transfers of assets that permit those assets to bypass probate court oversight.

Probate court processes are seen by many as lengthy, drawn out, and expensive. That can be true at times. There are some very valid reasons to try to avoid probate court, and there are sometimes situations where a probate court's oversight might be beneficial.

Some common myths about probate court

Myth #1: If I avoid probate, I avoid estate taxes.

This is one of the most common misconceptions about probate court. People believe that if you can avoid probate court, no estate taxes will be owed. This is incorrect.

A prior blog post discussed in greater detail the estate tax, how it is levied, and how it can be avoided or minimized. The estate tax applies to all assets owned by a decedent at the time of his or her death regardless of whether the asset requires probate administration or if the asset bypasses probate administration by way of a payable on death beneficiary designation, simple trust, or survivorship account.

Myth #2: Probate court will take a percentage of my assets upon my death.

This myth is sometimes a spinoff of Myth #1 (avoid probate and you avoid estate taxes). Others believe that the probate court will assess some type of levy or assessment against the assets separate from the estate tax. This is incorrect.

The probate courts do charge court costs for an estate administration, but these costs typically are less than $300 for a full estate administration.

Myth #3: If I avoid probate, no one can contest my will (or my estate plan).

A part of this myth actually isn't myth. If a person dies and has an estate plan that does completely avoid probate administration altogether, then the person's will has little or no consequence. This is because all of the assets bypass probate administration. A person's will controls the administration of a person's probate estate. Without probate assets, the will has almost no effect.

However, this does not mean that the person's estate plan is not immune from attack by a disgruntled family member that wishes to contest that plan. A trust, payable on death beneficiary designation, survivorship account classification, or even a gift made before the person's death are all subject to inquiry and attack by a disgruntled heir / family member.

Myth #4: I can avoid probate using a POD designation or survivorship account designation, but the beneficiary is legally bound to follow the provisions in my will.

This is the granddaddy of all myths. Parents many times make the foolish mistake of naming only one child as the beneficiary of assets, or naming only one child as a joint and survivor owner of assets, or the single beneficiary of life insurance to take advantage of probate avoidance benefits. However, they mistakenly believe that the provisions of the will are legally binding on those non-probate assets. They mistakenly believe that the single beneficiary is required to distribute the assets that he or she receives pursuant to the will. This is incorrect.

This can create extensive problems and potentials for family disputes merely because the parents did not plan properly. Problems such as these can easily be avoided if careful planning is done by an estate planning professional.

How do you avoid probate?

As you can see by some of the above myths, extreme caution must be taken when planning your estate with the goal of avoiding probate. Planning should be done only with the assistance of an estate planning professional such as an attorney. There can be significant tax consequences, inequitable distribution consequences, family infighting, and unnecessary legal expenses merely because there was no careful plan developed.

Ohio law provides individuals with a variety of tools to avoid probate. Individuals can establish trusts to hold property and pass it to others upon the death of the owner. They can identify one or more payable-on-death or transfer-on-death beneficiaries for bank accounts, securities, and even real estate. Beneficiaries can be named on retirement accounts, life insurance policies, and annuities. One or more persons can be named as survivorship beneficiaries to a jointly owned asset such as a bank account, security, or real estate.

Again, designating persons as beneficiaries under any of these mechanisms should be done only after considering all of the potential consequences. The prior blog article regarding joint and survivorship accounts is a perfect example of the terrible consequences that can occur when such planning is done without the assistance of a professional.

Why do I want to avoid probate?

Two major reasons that people identify as reasons to avoid probate.

My assets remain confidential and are not open to inspection by the public. Probate estates are open to public inspection because they are maintained in court files. If you wish your family's net worth to be absolutely confidential, you may want to plan to avoid probate.
Probate can be expensive and involve delays. Because assets in an estate require judicial orders and paperwork to access and transfer, family members sometimes must hire professional advisors to assist them with the probate administration process, satisfy court filing requirements, and file documents accounting for even simple and undisputed expenditures and distributions. This takes time and money.

Is probate ever beneficial?

In some situations, a person may actually want court-oversight and supervision of his or her assets upon her death. The probate court has particular expertise in this oversight and also has the power of the Ohio judicial system to protect a decedent's assets from theft, mismanagement, negligence, fraud, or other misconduct. Many times, the probate court can prevent the problem before it happens depending upon the nature of the estate.

Get advice

Estate planning requires careful thought, a review of your assets, and professional guidance. Reaching your goals, protecting your family, and minimizing taxes and expense can be accomplished, but shoddy planning can create headaches, litigation, and needless expense and delay. Talk with your attorney about these issues and get your questions answered.

2010-08-30T14:13:00.001-07:00

Understanding Your Employment / Reemployment Rights as a Uniformed Service Person:

USERRA—Uniformed Services Employment and Reemployment Rights Act. 39 USC §§ 4301 – 4335.

USERRA is the federal law that protects the employment of persons in the "uniformed services." Persons on Military Leave from their private sector jobs are granted certain rights and protections under USERRA. However, USERRA provides additional rights and protection to those that serve our nation.

Who is protected by USERRA?

USERRA protects persons who perform duty, voluntarily or involuntarily, in the "uniformed services." These include the Army, Navy, Marine Corps, Air Force, Coast Guard, and Public Health Service commissioned corps. It also includes the reserve components of each of these services. Federal training or service in the Army National Guard and Air National Guard also gives rise to rights under USERRA, and certain disaster response work is also covered.

Uniformed service includes active duty, active duty for training, inactive duty training (e.g., drills), initial active duty training, and funeral honors duty performed by National Guard and reserve members. It also includes the period for which a person is absent from a position of employment for the purpose of an examination to determine fitness to perform any such duty.

USERRA applies to virtually all United States employers, regardless of the size of the employer.

What conduct is prohibited?

USERRA prohibits employment discrimination against a person on the basis of past military service, current military obligations, or intent to serve. An employer must not deny initial employment, reemployment, retention in employment, promotion, or any benefit of employment to a person on the basis of past, present, or future service obligations. Additionally, an employer must not retaliate against a person because of an action taken to enforce or exercise any USERRA right or for assisting in an USERRA investigation.

What are employers required to do?

A pre-service employer must reemploy service members returning from a period of service in the uniformed services if those members meet the following five criteria:

The person must have been absent from a civilian job on account of service in the uniformed services;
The person must have given advance notice to the employer that he or she was leaving the job for service in the uniformed, unless such notice was precluded by military necessity or otherwise impossible or unreasonable;
The cumulative period of military service with that employer must not have exceeded five years;
The person must not have been released from service under dishonorable or other punitive conditions; and
The person must have reported back to the civilian job in a timely manner or have submitted a timely application for reemployment, unless timely reporting back or application was impossible or unreasonable.

Employers are required to provide persons (that are eligible for protection under USERRA) a notice of the rights, benefits, and obligations of such persons and such employers under USERRA.

What happens when a service member returns to his or her civilian job?

Returning service members are to be reemployed in the job that they would have attained had they not been absent for military service. This is referred to as the "escalator" principle. The employer is required to return the employee to the same seniority, status, and pay, as well as other benefits determined by seniority. USERRA also requires that reasonable efforts, such as training or retraining, be made to enable returning service members to qualify for reemployment. If the service member cannot qualify for the "escalator" position, he or she must be reemployed, if qualified, in any other position that is the nearest approximation to the escalator position and then to the pre-service position.

What about health insurance or other employment benefits?

Health and pension plan coverage for service members is also covered by USERRA. Individuals performing duty of more than 30 days may elect to continue employer sponsored healthcare for up to 24 months. However, if they do so, they may be required to pay the full premium. For military service of less than 31 days, healthcare coverage is provided as if the service member had remained employed.

USERRA's pension protections apply to defined benefit plans and defined contribution plans. It also applies to plans provided under federal or state laws governing pension benefits for government employees. For these plans, they must be treated as if the service member had continuous service with the employer.

Where can a service member file a complaint if there is a violation?

Service members that wish to file a complaint alleging a violation have two alternatives. First, they can file a complaint with the U.S. Department of Labor, Veterans Employment and Training Service. If the DOL determines that a violation has occurred, it will try to negotiate a resolution. However, it has no enforcement authority. Thus, it will turn the matter over to the Office of Special Counsel in the case of the federal government, or the United State Attorney General. These officials may pursue the matter, or they may inform the service member that he or she may take action against the employer.

The other alternative is for the service member to file a lawsuit in state or federal court. Employees of the federal government must file an appeal with the Merit Systems Protection Board.

What is the remedy for a violation of USERRA?

USERRA provides for compensatory damages, reinstatement, back pay, lost benefits, corrected personnel files, lost promotional opportunities, retroactive seniority, pension adjustments, and restored vacation. If a violation is determined to be willful, the court may double any amount due as liquidated damages. USERRA does not allow for an award punitive damages. However, the court may, in its discretion, award attorney fees and legal expenses.

Legal Issues Surrounding Ohio’s Manual of Uniform Traffic Control Devices

2010-08-17T16:11:00.001-07:00

We are pleased to share Attorney Amanda Paar's article regarding Ohio's Manual of Uniform Traffic Control Devices which appeared in this month's edition of Ohio Trial Magazine.

When, if ever, is a stop sign mandated by the Ohio Manual of Uniform Traffic Control Devices?

Anyone who has ever sued a political subdivision for negligence with regard to any traffic signage issue is undoubtedly familiar with the Ohio Manual of Uniform Traffic Control Devices. It is the bible of all things "traffic control device." The law regarding a political subdivision's liability for nuisance has changed, and the terms of the Manual are becoming increasingly important in cases involving traffic control devices.

In general.

The political subdivision immunity analysis contains three tiers. First, there is a "general premise that a political subdivision is not liable for damages caused by any act or omission in connection with a governmental or proprietary function." A "governmental function" includes the "maintenance and repair of roads, highways, and streets."

The second tier of the analysis is to determine whether any of the exceptions to immunity apply. If an exception to immunity does apply, then the third and final tier is analyzed. Namely, whether political subdivision immunity can be reinstated by the statutorily listed defenses set forth in R.C. 2744.03.

The critical inquiry with regard to traffic control devices lies in the second tier of the analysis. The law in this area has significantly changed, and today, affords even greater immunity to political subdivisions than ever before.

The good old days.

The former R.C. 2744.02(B)(3) provided that a political subdivision was liable for injury caused by its "failure to keep public roads, highways, [and] streets * * * within the political subdivisions open, in repair, and free from nuisance * * * ." Items such as malfunctioning traffic signals and overhanging tree limbs that obstructed the view of a traffic signal qualified as a nuisance under the former statute. The focus hinged on whether a condition exists within the political subdivision's control that "creates a danger for ordinary traffic on the regularly traveled portion of the road." Significantly, a political subdivision's failure to maintain a traffic control device that was already in place was grounds for an actionable nuisance claim. The main hurdle for a plaintiff to prove was that the political subdivision had either actual or constructive notice of the alleged nuisance.

And then it all changed.

Effective April 9, 2003, the Revised Code was amended to eliminate the nuisance language that had been in place and developed for decades. The legislature severely narrowed this exception to immunity. Now, political subdivisions are "liable for injury, death, or loss to person or property caused by their negligent failure to keep public roads in repair and other negligent failure to remove obstructions from public roads." The previous "nuisance" language was changed to "failure to remove obstructions." The new law requires plaintiffs to completely disregard the well-established nuisance law that was created and refined for decades, as it has lost nearly all persuasive authority.

The legislature also added a definition of "public roads" to be used in interpreting whether an exception to political subdivision immunity applies. The new definition of "public roads" includes traffic control devices mandated by the Ohio Manual of Uniform Traffic Control Devices. (The new definition of "public roads" also does not include sidewalks, aqueducts, viaducts, or public grounds. ) Thus, the new law imposes political subdivision liability only when a traffic control device is mandated by the Manual. When the installation of a particular traffic control device is discretionary according to the Manual, there is no liability, regardless of the political subdivision's degree of negligence in its failure to maintain the device. Thus, the pivotal question is: what traffic control devices are mandated by the Manual?

The OMUTCD.

The Manual is part of Ohio law regarding traffic control devices, and as such, a court should take judicial notice of the Manual. A "traffic control device" is all-encompassing. It includes:

all flaggers, signs, signals, markings, and devices placed or erected by authority of a public body or official having jurisdiction, for the purpose of regulating, warning, or guiding traffic.

Read tangentially, is the definition of "traffic control signal," which means:

any device, whether manually, electronically, or mechanically operated, by which traffic is alternately directed to stop, to proceed, to change direction, or not to change direction.

The introduction to the Manual provides three differing levels of authority. "Standards" must be satisfied by the political subdivision. "Guidances" are provisions that should be followed. And "options" may or may not be applicable based upon the particular circumstances of the situation. For plaintiffs, only the provisions of the Manual that qualify as "Standards" impose liability to a political subdivision.

Chapter 2B of the Manual governs regulatory signs such as stop signs. It states, as a standard, that "[r]egulatory signs shall be used to inform road users of selected traffic laws or regulations and indicate the applicability of the legal requirements." A stop sign is included in the definition of a regulatory sign. The Manual provides another standard, stating, "[w]hen a sign is used to indicate that traffic is always required to stop, a STOP sign shall be used," and references a diagram of a stop sign. Using a guidance provision, the Manual states,

STOP signs should be used if engineering judgment indicates that one or more of the following conditions exist:

Intersection of a less important road with a main road where application of the normal right-of-way rule would not be expected to provide reasonable compliance with the law;
Street entering a through highway or street (O.R.C. Section 4511.65 provides information on through highways (see Appendix B2));
Unsignalized intersection in a signalized area; and/or
High speeds, restricted view, or crash records indicate a need for control by the STOP sign.

Based upon these provisions, alarmingly, a stop sign is never mandated by the Manual.

To date, there is only one significant appellate decision that has discussed the recent change in political subdivision immunity with respect to stop signs. In Walters v. City of Columbus, the court addressed a situation where a driver essentially ran a stop sign, was injured, and sued the City of Columbus for its negligence in failing to remove an obstruction from the stop sign and failing to maintain or repair a public road. The "critical inquiry" before the court was "whether or not the stop sign at issue was mandated" by the Manual. The City argued that based upon the "guidance" provision of the Manual at § 2B.05, the stop sign was not mandated by the Manual, and therefore, no liability attached. The plaintiff argued the "standard" that when a "sign is used to indicate that traffic is always required to stop, a STOP * * * sign shall be used." Plaintiff argued that even though the "original decision to place a stop sign is discretionary," that "once the decision to place a sign is made, the mandates of the manual must be followed, including section 2B.04, thus making them mandated by the OMUTCD." The plaintiff also cited to Franks for the proposition that a political subdivision's failure to maintain the signage already in place constitutes a nuisance claim.

The Tenth District specifically distinguished Franks as non-applicable since the amendment of R.C. 2744.02 and R.C. 2744.01, effective April 9, 2003. It noted the absence of the nuisance language in the new statute and the new definition of "public roads." The court reasoned that if it accepted the plaintiff's logic, then

all traffic control devices would be "mandated" by the OMUTCD and the distinction in the statute between those traffic control devices that are mandated and those that are not would effectively be abrogated to the point of rendering the distinction meaningless.

The court noted the legislature's intent to "limit political subdivision liability for roadway injuries and deaths," and specified that the General Assembly used the word "obstructions" in a "deliberate effort to impose a condition more demanding than a showing of a 'nuisance' in order for a plaintiff to establish an exception to immunity." Similarly, the court read the same legislative intent into the new definition of a "public road" and determined that not all traffic devices are to be considered part of the public road. Accordingly, the court held that the stop sign at issue was not mandated by the Manual.

After this analysis, the court cited several provisions of the Manual where a traffic control device is mandatory. Yield signs "shall be used to assign right-of-way at the entrance to a roundabout intersection." Do not enter signs "shall be used where traffic is prohibited from entering a restricted roadway." A "one way" sign "shall be used to indicated streets or roadways upon which vehicular traffic is allowed to travel in one direction only." "Low clearance" signs "shall be used to warn road users of clearances less than 300 mm (12 in.) above the statutory maximum vehicle height."

Conclusion.

While some traffic control devices are mandated by the Ohio Manual of Uniform Traffic Control Devices, the Court of Appeals for the Tenth District has taken a firm stance that a stop sign is never mandated by the Manual, referencing the marked legislative intent to support political subdivision immunity. The legislature has painted this area of law with a very broad brush in favor of upholding immunity for injuries and death resulting from negligently maintained traffic control devices. Perhaps there will be a split in the districts regarding whether a stop sign is ever mandated by the Manual; time will tell. As practitioners, it is imperative under the new law to scrutinize the provisions of the Manual prior to accepting such cases in order to properly evaluate the likelihood of surviving political subdivision immunity. A copy of the manual should be on the bookshelf of every attorney who challenges political subdivision immunity. The Manual can be downloaded in full or part at http://www.dot.state.oh.us/Divisions/HighwayOps/Traffic/publications2/OhioMUTCD/Pages/default.aspx.

2010-07-22T16:14:00.000-07:00

http://www.usatoday.com/money/perfi/taxes/2010-07-21-estatetax21_CV_N.htm

Excellent article that follows up on the status of the Federal Estate Tax and how timing is everything. George Steinbrenner's heirs will save somewhere between $450 million - $550 million in Federal Estate Taxes based upon his death in 2010 vs. 2011.

Enforcing Employee Benefits: Navigating the ERISA Nebula

2010-07-21T16:09:00.000-07:00

Introduction

Most private sector employees that participate in an employee welfare benefit plan (such as a health care plan, disability plan, or retirement plan) are subject to a 1974 federal law called "ERISA." ERISA is the acronym for the Employee Retirement Income Security Act. Despite the name, ERISA applies to all sorts of employee benefit plans, not just retirement plans.

ERISA applies to health and medical insurance plans, short and long term disability income insurance plans, and retirement plans such as pension plans, 401K plans, and other retirment plans that are sponsored by private sector employers.

Congress enacted ERISA to regulate abuse and misuse of employee welfare benefit plans, require equality in application and enforcement, and try to establish a more uniform administration of very complex benefit plans. In recent years, the focus on health care reform has shed light on a number of problems that evolved partly because of the gaps and shortcomings that exist in ERISA.

Over a multi-part series, just as with the prior discussion on the Federal Estate Tax, I will attempt to provide a common sense approach to ERISA and employee benefits that will hopefully give you a better understanding of the procedures and legal rights available to plan beneficiaries when an insurance company, plan administrator, or employer fails to live up to its obligations to provide benefits.

Does ERISA apply to my benefits?

Not all employee benefit plans are covered by ERISA. Government employers on the state, local, and federal level are exempt from ERISA. There are also other limited types of employers that are exempt from ERISA's coverage. However, most private sector employers are subject to ERISA's provisions.

The more difficult question many times is whether or not the employer's particular benefit plan is covered by ERISA. Not all private sector employer plans qualify as ERISA plans. This issue is a particularly complicated one that is dependent upon whether the employer is not only sponsoring, but also funding part or all of the cost of the plan or benefits provided. There are other factors too that can determine whether or not the plan is governed by ERISA.

One sure way to know whether or not your employee benefit plan is an ERISA plan is to request a complete copy of the plan agreement. Employers and their administrators are required to provide the plan documents to their eligible employees, and the plan documents themselves many times explain whether or not the plan is subject to ERISA.

If you are a private sector employee, and your employer provides an employee benefit to all of its employees, and the employer either funds the plan or pays part or all of the premiums, the chances are good that it is an ERISA plan.

If my ERISA plan benefits are improperly denied, can I bring a lawsuit?

The short answer is yes. Plan participants, including the employee and the employee's family members that may also be plan participants, have the right under ERISA to bring a civil action to enforce the plan benefits. ERISA permits a civil enforcement action to be filed either in state court or federal court. ERISA also allows the plan member to recover attorneys fees (in the Court's discretion) in the event that he or she is successful in the action. A recent U.S. Supreme Court decision has made it much easier to recover an award of attorneys fees if the plan participant is successful in the enforcement action. Prior to that case, awards of attorneys fees were not as certain.

Many people have the misperception that a plan participant can collect punitive damages, emotional distress, or other similar types of damages if their benefits are improperly denied. ERISA makes it very clear that the sole remedy to a plan participant seeking to enforce his or her right to benefits is an order that enforces the plan benefits and the reimbursement of attorneys fees and legal costs. Punitive damages, emotional distress damages, pain and suffering, and the like are not available remedies.

Is it a waste of time to try to appeal the denial of my benefits under an ERISA plan?

Not only is it NOT a waste of time, you are legally required to exhaust all appeal remedies that are available to you under the plan agreement before you are permitted to file an enforcement action. Failing to timely appeal the denial of benefits or adverse decision through the plan's appeal procedures will allow the Court to dismiss your claim EVEN IF YOU ARE RIGHT! Therefore, it is absolutely critical that you follow your plan's appeal procedures, file all appeals to the appropriate persons, and raise every reason why the decision is incorrect.

As long as I appeal and state the reason for my appeal, do I have to have supporting documents?

Yes! Unlike most lawsuits, ERISA enforcement actions are essentially just another level of appeal to the Court. The Court typically will not permit you to rely upon medical records, documents, witness testimony, or other types of evidence that are not already contained within the claim file and appeal that was developed by the insurance company or plan administrator before the enforcement action was filed.

This means that not only do you have to raise every argument as to why the decision is improper, you also need to make certain that you submit to the insurer / administrator a complete set of all documents that support your arguments. This may include medical records demonstrating your condition, and why it is a covered condition. It may also include your physician's letter explaining the medical records and further explaining why you qualify for benefits. It may include affidavits setting forth witness testimony that supports your claim for benefits. It may include treatises or other supporting documentation.

To put yourself into the best possible position to win an enforcement action, the work must be done before the enforcement action is even filed. Typically, plan participants are well-advised to engage experienced legal counsel during the appeal process so that all information can be well-developed, fully documented, and incorporated into an argument that considers the terms and conditions of the plan agreement itself.

Insurance companies and plan administrators can and do reverse initial denials when they believe that there was an error, or that they failed to consider all of the evidence. However, even if the insurer / administrator does not reverse the denial, the proper documentation of the file will preserve your ability to argue the case before a Court that will be independent in its review of the facts.

In the next installment, I will discuss some issues faced by persons that become disabled and unable to perform their job duties. If there is a disability income plan, will it provide you with coverage?

Federal Estate Tax 2011: Part 3

2010-07-10T08:06:00.000-07:00

In this final part of the Federal Estate Tax 2011 series, I hope to simplify some additional opportunities for minimizing or even eliminating the Federal Estate Tax that appears likely to return on January 1, 2011 to pre-2001 rates. In Part 2, the charitable deduction, marital deduction, and usage of both spouses' unified credits were explained as techniques that can be used to minimize or eliminate the Federal Estate Tax. In this Part 3, I will explain how life insurance policies can avoid the Federal Estate Tax if proper planning is used. In addition, gifting strategies during an individual's lifetime can be used to obtain additional Federal Estate Tax savings.

I. The irrevocable life insurance trust ("ILIT").

Part 1 explained that the death benefits of a life insurance policy are subject to the Federal Estate Tax. For individuals that own, or plan to own, a large life insurance policy, the death benefit payout can lead to a large estate tax bill. Fortunately, with proper planning, and the use of an ILIT, the entire life insurance policy can avoid estate taxation.

This process requires that an irrevocable trust be created. As the name implies, the trust cannot later be changed or revoked. Once established, it is permanent, so care must be taken when establishing the trust.

Once the trust is created, the owner of the life insurance policy must transfer the policy to the trustee of the trust. The trustee (someone other than the original life insurance policy owner, who is the insured life) takes over the ownership of the policy and pays the premiums. The trustee is also named as the recipient of the death benefits upon the original policy owner's death.

The trust identifies the beneficiaries to whom the trustee will eventually pay the death benefits after the trustee receives them from the life insurance company. The original owner's surviving spouse should not typically be the sole beneficiary of the trust because the goal is to pass these assets to future generations in a way that will avoid the Federal Estate Tax. Distributing them to the surviving spouse simply creates a larger taxable estate upon the surviving spouse's subsequent death.

Obviously, the payment of premiums during the insured's life requires a source of cash. This requires the original owner to make periodic gifts of cash to the trustee in order to fund those premium payments. The trust agreement must include certain provisions that allow the original owner to make these cash transfers in a way that takes advantage of the annual gift exclusion and provides the ultimate beneficiaries with a withdrawal right so that the trust can qualify for the exemption from estate taxation.

Term life insurance policies are the easiest to transition to an ILIT. This is because they normally have no investment value to them. Instead, relatively small amounts of premiums are paid over a term period in exchange for the obligation of the life insurer to pay a defined death benefit to a beneficiary upon the insured's death during that term.

Life insurance policies that contain some type of investment value (universal, whole life, etc.) may be more difficult to transfer to an ILIT if they are transferred after they have already been purchased and have built up a substantial cash surrender / investment value. However, they can be transferred to the ILIT as long as there is appropriate planning. If the owner has not yet purchased the policy, then the ILIT can be created prior to the purchase of the policy in order to maximize the use of the ILIT, maximize tax savings, and reduce transfer complications.

Properly established and administered, use of an ILIT can completely eliminate a very large life insurance policy from estate taxation and create a significant source of tax-free cash for use by the beneficiaries upon the death of the original life insurance owner.

II. Gifting strategies using the annual gift exclusion

As discussed in the prior installment, individuals can make annual gifts to other persons up to the amount of $13,000 per year, per person. With a large family, and by using both spouses' annual exclusion to split gifts, this annual exclusion can allow for large transfers of assets in a relatively short period of time.

Here's an example: Fred and Donna have 4 children and 8 grandchildren. They have a combined estate of $1,800,000 which includes a large amount of cash in certificates of deposit and savings accounts. If they chose to make annual gifts to their 4 children, they could each make a gift of $13,000 to each child ($26,000 per child by split gifting) and transfer $104,000 in one year, reducing their combined estate to $1,696,000. If they chose to also include each of their grandchildren, then $312,000 could be gifted in one year simply by maximizing the annual gift exclusion.

Individuals that wish to make gifts to minor children can use certain types of trusts to receive such gifts in order to protect the cash from being used too early by the child. Gifts of marketable securities, interests in real estate, and other types of assets are all eligible to be transfered in this manner.

Individuals must be very careful to consider all of the potential issues that come with making unrestricted gifts. Recipients of such gifts may use the gift foolishly, and recipients that are eligible for certain types of governmental assistance may lose their eligibility upon receiving gifts that have any significant financial value.

III. Conclusion

When considering your potential liability for estate tax, and evaluating various ways to minimize that liability, it is crucial that you discuss these issues with an attorney that is experienced with estate tax, trusts, and probate planning.

Implementing many of the techniques discussed in this series requires the use of particular legal documents. A "Do-It-Yourself" approach is never recommended and can lead to disastrous legal or tax consequences. Family disputes may arise and litigation may occur even though you thought you created a simple and easy-to-follow plan. Talk to your estate planning professionals. Proper planning can save significant amounts in taxes, avoid family disputes, and provide for a smooth transition during a very difficult time for your family.

The Federal Estate Tax in 2011: Part 2

2010-07-06T13:31:00.000-07:00

I. The Federal Gift Tax is alive and well in 2010 even though the Federal Estate Tax is in temporary repeal.

In the last segment, I introduced the basics behind the Federal Estate Tax and the fact of its return on January 1, 2011 if Congress takes no action before then. I also explained the Federal Gift Tax which prevents individuals from avoiding the Federal Estate Tax by simply giving enormous amounts of money to their children and grandchildren to avoid the Federal Estate Tax.

In 2001, when Congress enacted the legislation which gradually eliminated the Federal Estate Tax by 2010, Congress may actually have anticipated the events that are currently unfolding. Knowing that the Federal Estate Tax would return in 2011 absent an extension of the 2001 law, Congress did NOT eliminate the Federal Gift Tax. That effectively prevents individuals from giving away their wealth to future generations in 2010 while the Federal Estate Tax temporarily disappeared.

Is there any way to minimize the effect of the estate tax if Congress takes no action and the tax returns to pre-2001 levels? Yes.

II. The unlimited marital and charitable deductions.

The Federal Estate and Gift Tax allows for unlimited tax-free transfers between spouses as long as both spouses are United States citizens. This means that you can give unlimited wealth to your spouse during your lifetime without paying any gift tax. Likewise, you can leave unlimited wealth to your surviving spouse upon your death and pay no estate tax.

Most married couples already incorporate this deduction into their estate plans by simply designating each other as the primary beneficiary of each other's estate. In such cases, no estate tax is due upon the death of the first spouse because the surviving spouse inherits the entire estate. The theory behind this deduction is that the assets will ultimately be taxed once the surviving spouse dies and the assets pass to the children and/or grandchildren (or other beneficiaries of the married couple).

The same unlimited deduction is also available for gifts and bequests to charitable organizations. While there may be limitations on an income tax deduction for gifts to charity, there is no limitation on the deduction for purposes of the Federal Gift Tax and the Federal Estate Tax. Therefore, individuals making gifts to charity during their lifetime, or leaving assets to a charity upon death, can significantly reduce the size of their taxable estate. Use of charitable lead trusts, charitable remainder trusts, charitable gift annuities, and many other charitable gifting vehicles provide a number of tax advantages.

III. Shouldn't I just leave all of my assets to my surviving spouse to defer the payment of the Federal Estate Tax for as long as possible? NO!!

If Congress takes no action, and the Federal Estate Tax returns to 2001 levels, the unified credit amount for each person will effectively shield $1,000,000.00 in assets. This unified credit amount is not for each married couple; it is for each individual.

If it is for each individual, shouldn't each person take full advantage of his or her unified credit amount to shield more money from the Federal Estate Tax? The answer is obviously yes. However, as mentioned above, most married couples have a simplified estate plan that leaves the entire family estate to the surviving spouse; thus wasting one spouse's $1 million unified credit.

Confused? Here's a simple example. Sam and Judy are married and have 3 sons. Sam and Judy own a home, a checking account, savings account, some mutual funds, each has an IRA, and Sam owns a life insurance policy naming Judy as the beneficiary. Sam dies in January 2011 and Judy receives all of the assets. In July 2011, Judy dies. At the time of her death, all of the combined family assets have a value of $1,750,000. Her will provides for the estate to be divided equally among the three sons. Judy's estate will pay Federal Estate Tax at a rate of 37% of $750,000 (taking into consideration the $1 million unified credit that shelters the first $1 million from taxation). Judy's sons therefore get the privilege of paying the IRS approximately $277,500 in Federal Estate Tax. Ouch.

If Sam and Judy had planned better, their sons in the above example could have paid $0.00 in Federal Estate Tax. If Sam and Judy would have prepared credit shelter trusts before Sam's death, Sam's estate would have set aside the amount of $1 million in a credit shelter trust. The remaining assets ($750,000) could be available for Judy's unrestricted use. For even more flexibility, the credit shelter trust can be drafted in order to allow Judy to use the income and some of the principal of the credit shelter trust should she actually need it. The ultimate beneficiaries of the credit shelter trust (upon Judy's death) are the 3 sons. Upon Judy's death, the $1 million credit shelter trust created upon Sam's death, as well as the $750,000 that is owned by Judy upon her death pass to the three sons free of any Federal Estate Tax. Sam's unified credit of $1 million was used to shelter the first $1 million. Judy's unified credit of $1 million was used to shelter the remaining $750,000.

IV. I'm not a millionaire, so I don't need to worry.

These numbers may appear very significant, but when you stop to think about all of the assets that are included in an estate tax caluclation, you may actually have something to worry about.

Do you have a large life insurance policy? If you have a life insurance policy, through your employer or one you purchased yourself, the death benefits from that policy are included in the estate tax. Do you own a home? The equity in that home is included in the estate tax. Have you been saving for retirement in an IRA or employer-sponsored plan? Include all those assets as well. Your bank account balances, investments (including stocks, bonds, and mutual funds), and any real estate is included. Own a small business or a farm? The appraised value of that business or farm is included in the estate tax as well. Are you close to or over $1 million yet? Have you considered how much you want to pay in Federal Estate Tax?

In Part 3, we will discuss some other planning methods to reduce or minimize the Federal Estate Tax.

The Federal Estate Tax in 2011: "I'll be back" (Part 1)

2010-07-05T10:20:00.000-07:00

For persons dying in 2010, the good news (at least for now) is that there currently is no Federal Estate Tax. Thanks to a 2001 law enacted by Congress, the decades old estate tax was slowly phased out of existence.

However, that 2001 Act contained a sunset provision that expires on December 31, 2010. The Terminator's famous line is probably an appropriate quote to describe what will happen with the Federal Estate Tax on January 1, 2011 if Congress continues in its stalemate on legislation on the topic. That's really bad news for individuals and married couples that have a combined wealth in excess of $1 million and have not carefully reviewed their estate plan recently. Absent action by Congress, on January 1, 2011, the estate tax rates will range from an eye-popping 37% (the lowest rate) and go up to an incredible 55%.

However, the good news is that with proper planning, you can minimize (and sometimes even eliminate) the effect of this tax. This can save tens of thousands, maybe even hundreds of thousands, of dollars in taxes.

In the coming weeks, I hope to provide a multi-part series on the importance of this legislative development to stress just how important this is, and how important it is to discuss this development with your estate planning attorney so that you and your family can determine what you can do to avoid, or at least minimize, this tax.

I. What is the Federal Estate Tax?

The Federal Estate Tax is a tax that the federal government levies upon each and every asset owned by an individual citizen that dies. This tax applies to every asset that is owned by the deceased individual (referred to in legal and tax jargon as the "decedent"). Even if the decedent owned only a partial interest, the decedent's partial interest is valued and included in this tax calculation.

Many people have the misconception that if you plan your estate to avoid probate, you avoid the estate tax. This is completely false. The estate tax applies to every asset owned by the decedent at the time of his or her death, regardless of whether or not the asset is included in the decedent's probate estate, a trust owned/controlled by a decedent (although certain types of trusts may be used to bypass the estate tax and will be discussed in a future part), or is left to a beneficiary by way of a beneficiary designation.

The estate tax is basically calculated by adding up the fair market value of all of the decedent's assets at the time of his or her death. Certain deductions may be taken from that total. The remaining amount, after deductions, is taxed. As indicated before, if Congress takes no action, the tax rate percentage that is applied to this number is somewhere between 37% and 55% depending on the size of the estate. The larger the estate, the larger the tax rate.

The Federal Estate Tax includes certain tax credits which can also reduce the amount of the estate tax. The most important credit is the "unified credit." Since 2001, the unified credit amount was gradually increased so that more and more estates were exempted from the Federal Estate Tax until 2010 when Federal Estate Tax disappeared. On January 1, 2011, absent Congressional action, the unified credit will return to the 2001 credit amount. This means that the unified credit will shelter only $1 million from federal estate taxation.

II. What assets are included in the estate tax calculation?

In short? Everything!

*Bank accounts (including checking, savings, money market, certificates of deposit)
*Stocks and bonds (including United States Savings Bonds and municipal bonds of all types)
*Mutual funds
*Annuities
*Life Insurance policies (includes the death benefit amount and accrued interest and dividends regardless of whether the policy is a term policy, universal life, or other form of life insurance policy)
*Accidental Death policies
*Real estate (including your home, vacation home, timeshare interest, investment property, or vacant land)
*Retirement accounts (including Roth IRA's, traditional IRA's, SEP's, SIMPLE's, 401k, Keough, and all other employer provided retirement account benefits)
*Tangible personal property (including vehicles, boats, trailers, campers, collectibles, artwork, cash on hand, and household contents)
*Family Business / Farm Interests (including close corporation interests, farms, partnership interests, or other forms of small business ownership and investment interests)

If the value of all these various types of assets added together is more than $1 million, and Congress takes no action to address the Federal Estate Tax, you need to evaluate your exposure to this tax immediately by consulting with an attorney experienced in estate tax planning.

III. What if I just give it away to my beneficiaries before I die?

Congress already thought of that loophole. That is why there is not only an estate tax, but also a gift tax that provides for comparable tax rates as the estate tax. If you give someone else (other than your spouse or a charity) more than the annual gift tax exclusion (2010's annual gift tax exclusion is $13,000 per donee), you must pay a tax on that gift.

However, in the next installment, we will discuss how gifting strategies during an individual's lifetime can help that individual significantly minimize estate taxes, as well as how married couples should take full advantage of both the husband's unified credit and the wife's unified credit rather than the natural inclination by couples to waste one of their unified credits.

Using Joint Accounts: Is it always a good idea?

2010-07-02T15:14:00.000-07:00

I. Introduction to the Joint Account

Joint accounts are extremely popular because of the convenience they provide to bank customers and individual investors. Joint accounts allow two or more people to share one account, assist each other with paying bills and making deposits, and (sometimes) allow for an easy transition of account ownership when one of the joint owners dies.

However, use of the joint account in particular situations can lead to confusion, family disputes, and even litigation if the owners do not have a thorough understanding of potential risks and do not give careful thought to their overall estate plan. Worse still, well-meaning bankers or brokers that may not fully understand the legal ramifications of creating a joint account may unintentionally mislead customers with questions about setting up a joint account. This article seeks to provide some basic information for you to consider when opening a joint account. As always, you should consult with your estate planning attorney before incorporating a joint account into your estate plan.

II. Joint or Joint With Rights of Survivorship?

Most people (unfortunately this sometimes includes the banker or brokerage professional that assists the customer in setting up a joint account) have no idea that there is actually a difference between these two types of accounts. While both offer some forms of convenience mentioned above, they have very different features when one of the owners dies.

In Ohio, when two or more persons create a "joint" account, and one owner dies, that owner's share of the joint account must be administered by the deceased owner's estate representative through probate court. If the deceased owner intended the surviving owner to receive the account without probate court administration, then this was the wrong account to use. However, if the deceased owner intended his or her will to govern the distribution of the deceased owner's share in the account to other beneficiaries, then this is the correct account to use.

If two (or more) persons create a joint account "with rights of survivorship" (sometimes referred to as "JTWROS"), then the surviving owner(s) receives the entire account upon the other owner's death. The deceased owner's share in the account is NOT governed by the deceased owner's will. The surviving owner receives all of the account, and the deceased owner's beneficiaries (pursuant to the will) receive no part of the account even if the deceased owner actually intended for them to receive it. Worse yet, if the customer does not specifically tell the banker or broker that they want a "joint" account rather than a "joint account with rights of survivorship" many banks and brokers simply default to the JTWROS account without taking the time to ask the owners if that is in fact how they wish the account to be titled!

Do you see the potential problems yet? Here's one example of a misguided use of a JTWROS account:

Mrs. Smith is an elderly widow with 4 adult children. Her will provides for all her assets to pass equally to all four children upon her death. Mrs. Smith lives in an apartment and has all of her life savings in a checking and savings account. Mrs. Smith adds her daughter, Laura, as a joint owner on the account to make it easier for Laura to help her pay her bills. The banker simply assumes that Mrs. Smith wants the accounts to be joint accounts with rights of survivorship and does not inquire about Mrs. Smith's true ultimate intentions (i.e. that the accounts be distributed upon her death equally to all of her four children, not just Laura). Mrs. Smith then dies. Laura, as the sole surviving owner, receives all of the account balances and the other three children are effectively disinherited because the accounts avoid probate administration and pass directly to Laura.

If Laura chooses to keep the money and not share it with her siblings, there is very little that her siblings can do except resort to litigation to try to set aside the JTWROS designation. What if Laura decides to follow her mother's will and share the account with her three siblings? If she transfers more value to each sibling than the annual gift tax exclusion, she will incur a gift tax that she must pay in the year that she shared the accounts with her siblings. What a headache! It could have easily been avoided.

III. For Married or Committed Couples

The most common and safest use of a joint bank account or joint brokerage / securities account is by a couple that is either married or devoted to a long-term, committed relationship. The use of a joint account with rights of survivorship in such situations typically makes sense because both partners have equal access and ability to use the account to make purchases, withdrawals, and deposits. If one partner dies, the surviving owner is the owner of the account without the need to probate the deceased owner's share.

Persons that are married or in a long term commited relationship should consider whether the other owner has a high risk career or significant debt that could lend to garnishment of the account that contains assets of the innocent owner. Persons in second marriages with more complex estate plans should also be careful to consider whether a joint account is appropriate in conjunction with their overall estate planning intentions.

IV. Other Risks / Misconceptions

1) The federal and Ohio estate tax cannot be avoided by naming someone as a joint owner of an account. Both the federal and Ohio estate tax includes any amounts contributed to the account by the deceased owner that remain in the account at the time of death of the deceased owner.

2) Naming another individual as a joint owner to an account can potentially subject your assets to the claims of that other individual's creditors even if you contributed all of the account assets.

3) As mentioned earlier, your intentions set forth in your will (or trust) have absolutely NO effect on the distribution of the account upon your death if it is a joint account with rights of survivorship. The surviving owner(s) receive the account automatically upon your death regardless of whether or not you actually intended them to inherit that account.

Think carefully about whether or not to use both the "joint" account and the "joint account with rights of survivorship." Using either form of account can pose risks and problems that include those identified in this article. You should consult with your estate planning attorney before incorporating any joint account into your estate plan; especially if the joint account holds a significant amount of your assets.

Introduction

2010-07-02T07:58:00.000-07:00

Tzangas, Plakas, Mannos & Raies, Ltd. is pleased to present this resource of legal information to assist people in better understanding a wide variety of legal issues. Our hope is that this information will be helpful to you in identifying issues, potential problems, risks, and planning opportunities. Please keep in mind that nothing in this blog should be considered legal advice or a substitute for legal advice. No blog can possibly anticipate the unique facts and legal issues that may arise in any particular matter, case, or transaction.

This resource is intended only to provide you with information that will allow you to better understand various legal concepts. We suggest that you should contact a qualified, licensed attorney to obtain specific legal advice with regard to any questions you may have.