New York and Connecticut Business Litigation Lawyer & Attorney : Rogers & Tartaro Law Firm : Commercial Litigation : Westchester County NY, Fairfield County CT

The Utah Business, Real Estate and Estate Planning Blog, in its article, “ILTSs as an Estate Planning Tool” by Matt Frankhauser, provides a clear and succinct summary of how an Irrevocable Life Insurance Trust (ILIT) may be used to keep the proceeds of life insurance policies out of the gross estate of the insured. We don’t want to try to improve on the summary and offer the entire article here. But, we offer a few comments to supplement it.

First, as a point of clarification for our readers who are not lawyers, it is widely known that the proceeds of life insurance policies, the death benefits, are not taxed as income to the recipient. It is less widely known that the death benefits are counted as part of the gross estate of the insured and subject to estate tax if the estate is large enough to be taxable. The life insurance proceeds, by increasing the size of the gross estate, can push the estate across the threshold from a nontaxable to taxable estate.

The focus of our blog is generally on litigation and, whenever possible, avoiding litigation. One type of litigation our business clients will definitely want to avoid, although it will affect their beneficiaries, not themselves (who are gone at that point), is litigation with the IRS over whether millions of dollars in life insurance death benefits ought to be taxed at a marginal rate of 45% or so. Thus, Mr. Fankhauser’s article notes that “if properly constructed and managed,” ILITs can be effective estate planning tools (emphasis added). His article does a nice job of communication elements of proper construction and management.

One aspect that is especially difficult to communicate, however, concerns the process of paying the premiums. Although covered in the Utah blog article, some elaboration may help to further understanding. The issue arises because premiums paid by the insured for policies owned by this artificial entity (the ILIT) are gifts.

Now, in addition to keeping the future proceeds of the life insurance out of the gross estate, a further goal is added, not to pay gift tax on the current gifts of the premiums to the trust. As mentioned, in the Utah blog article, this is often done by taking advantage of the annual gift tax exclusion (currently $12,000). Unfortunately, the tax code and the IRS have established two governing principles: (1) the annual gift tax exclusion may not be used for a gift of a future interest and (2) money given to the trust to pay premiums that may not result in death benefits for many years are future interests.

But, if someone can exercise the option to receive the gifts now, then the gifts are considered present (and not future) interests. The result is the procedure of the “Crummey Letters,” named after a court case that established the procedure. The beneficiaries of the trust are given the option, limited for a short period of time, to immediately demand the money intended to be used by the ILIT to pay premiums. The existence of this option establishes that the gifts to the trust (for premiums) are “present interests” and the annual gift tax exclusion does apply.

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For condominium board members or concerned unit owners, a concise, clear summary of how to collect unpaid condominium common charges appears in the New Jersey Law Blog of Stark & Stark. To read the entire article by Robyn Nolan Howlett, click here.

Current headlines about the troubled mortgage market lead us to suggest just a bit of additional perspective. Overextended financing undoubtedly affects some condominiums as it does individual homes. That means, in some cases, the obvious option, foreclosure, is not such a good option. 

As pointed out in the article, the first mortgage has priority. If the owner’s equity has declined to zero, foreclosure proceedings will not recover the unpaid common charges. In fact, the equity need not decline quite to zero because the process of foreclosure may itself erode what little equity is left.

If the unit owner has personal property, which in legal jargon includes money in the bank, one of the other options mentioned in the article, a contract action, may be more effective. A better option still, also mentioned, may be to negotiate some sort of payment schedule so the unit owner can retain ownership and “catch-up.” It may not be an easy negotiation if the owner is also negotiating with a bank, but all parties may benefit by avoiding the costs and declines in value that accompany a foreclosure proceeding Still, whichever option is chosen, we concur with Ms. Howlett’s conclusion that prompt action by the Board is critical.

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I was recently reminded that property owners are still losing property rights through inattention – or embroiling themselves in costly lawsuits to retain their property rights. The legal mechanisms of “adverse possession” and “prescriptive easement” can have such consequences. And, the “best practice” for avoiding the consequences is amazingly simple: just pay attention to your property. 

The memory trigger for this commentary was an e-mail newsletter of “current developments” offered as a helpful service by a New York title company, First American Title Insurance Company of New York. A recent issue described still another adverse possession case on Long Island. An adverse possession case triggers strong memories in our firm because one particularly intense case lasted through 13 days of trial. 

Adverse possession, in plain language and greatly simplified, is the legal means by which a person can obtain title to real property without paying for it. The adverse possessor simply acts as if he or she owns it for a long enough period of time – for example, in New York 10 years, in Connecticut 15. A prescriptive easement is similar but involves not ownership but use – you can gain the right to continue a use in perpetuity on property you do not own. Although these concepts may sound odd and unfair to a person unfamiliar with real property law, they have sound bases in logic and, once examined, actually involve fair and reasonable principles of law. Ownership and the right to use property should not remain ambiguous or subject to challenge indefinitely so under appropriate circumstances the law provides a way to “settle” either title (adverse possession) or the right to use (prescriptive easement).

Of course, actually invoking these concepts is not so simple and there are rigid legal requirements subject to highly technical definitions and rules. For example, under New York law: To obtain legal title, the would-be adverse possessor bears the legal “burden” to offer proof that is “clear and convincing.”  This is a level proof somewhat less than “beyond a reasonable doubt” that we know about from criminal cases but certainly greater than the “preponderance of the evidence” required in most non-criminal legal disputes. If claiming the land without a deed or other documentary proof, the offered proof must demonstrate that possession was “hostile and under a claim of right,” “actual,” “open and notorious,” “exclusive,” and “continuous” for the statutory period (i.e., 10 years in New York). In addition, the would-be adverse possessor must demonstrate, with the same level of “clear and convincing” proof, that the property was “usually cultivated or improved,” and “protected by a substantial enclosure.”

To obtain a prescriptive easement, it is not necessary to show possession, only use. And, there are no requirements involving “usual cultivation and improvement” and “substantial enclosure.” Nor, does the use have to be exclusive. For example, you may be entitled to nonexclusive use of your neighbor’s path. However, a prescriptive easement cannot be obtained if the use is carried on by permission. If the other standards are met by the would-be prescriptive user, the owner bears the burden of establishing that the use was carried on by permission.

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If you have a compulsion to be involved in truly contentious litigation and are tired of matrimonial cases, try a will contest. For this reason, we include the identification of “best practices” in the area of Estate Planning as falling within the overall mission of our blog. Acquisition, preservation and, ultimately, disposition of assets are activities t, in our way of thinking, that are appropriately categorized as business activities that can be managed so as to avoid unnecessary and costly litigation.   

Because we consider Estate Planning such an integral part of our mission and practice, our firm’s two partners were excited to be invited and to actually appear last year to talk about Estate Planning on the public access television program My Financial Journal hosted by Andrew Rose. In all modesty, our audience was probably small. More important, we believe our audience, whatever its size, was treated to a fast paced, interesting and informative program.

With special thanks to Andrew Rose the program can be seen by clicking here.

If you don’t have time for the half hour program or the technical resources to download it, I offer a few bullet point highlights.

• The discussion of death is definitely uncomfortable for many people but others find a source of satisfaction and accomplishment in knowing they have taken care of their families and addressed some difficult issues.
• In particular, the care of minor children and financially dependent adult family members is a concern.
• The complexity of an estate plan can depend on the variety and nature of your assets but two other factors include the extent to which income tax qualified assets are included in your estate and whether, because of size, the estate is exposed to federal and state taxation.
• The status of estate tax laws is in flux because federal law, while temporarily increasing the size of exempt estates, is scheduled to be repealed absent another act of Congress and states have enacted their own estate tax laws “decoupling” or becoming independent from federal estate tax law.
• Revocable Trusts can be effective planning tools if real estate is owned in multiple states or to provide an added layer of disincentive to contest the plan.
• But, often revocable trusts are set up without actually transferring assets to them, nullifying some of the advantages.
• Planning for non-traditional families and families with children from prior marriages requires an added level of sensitivity and a concern for fairness.
• Similarly, gay and lesbian couples need to explicitly address their particular needs through effective planning because some useful provisions of law are inapplicable to them.
• Women, traditionally tending to be caregivers, may have difficulty putting their own needs first, but upon establishing a relationship can proceed expeditiously in facilitating the family’s estate plan.
• Single women and single men, in our experience do not tend to differ in the fundamental nature of their estate planning needs; one aspect is that often their concern is for more remote family members or even friends.

We hope you have the time to view the entire program. Whether you do or not, we hope you make the time for your own estate planning. You may not be around to experience it yourself, but for your beneficiaries the disputes, among themselves or with tax authorities, can be costly and debilitating.

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Very few of our clients are billionaires. Actually, to our knowledge none of our clients are billionaires. We are not billionaires. It was not because of an immediate sense of identification, then, that a short piece in the Wall Street Journal Law Blog piqued our interest so much that our commentary far exceeds the length of the piece. “Not Your Father’s Employee Handbook” involves Sam Zell, identified as the billionaire owner of the company that publishes the LA Times. 

It seems that under Mr. Zell’s “auspices” (an ambiguous characterization by the Journal that could mean anything from “he was personally responsible” all the way to “he was barely aware of it but he owns the company and dropping the name of a known billionaire makes for a great hook”), the LA Times created a new Employee Handbook. This Handbook, according to the Journal, was of an unusual nature. It was one about which an (unidentified) recruiter said “I don’t think a lawyer got their hands on it and that’s fantastic.” It was a Handbook “laced with humor” and written in plain language but with “mistakes.”

My first reaction was that the root of “fantastic” is that same as that of “fantasy.” What would be truly fantastic, in any sense of the word, would be if that recruiter’s appendix had been removed and no doctors got their hands on it. Without any way of actually knowing, I’m betting lawyers did get their hands on the Handbook but there were other goals (that is, other than a strict defensive avoidance of liability) that shaped the final product. The succinct, breezy style of the Journal’s blog leaves a lot to be filled-n by our own reflections and thoughts.

Through the hazy recollection of my past association with large corporate organizations, I thought about the article a little more seriously. Mr. Zell, or his management, may have subordinated the legal purpose of their Handbook in order to emphasize motivational issues endemic to large, bureaucratic organizations. The writing style, laced with humor, served higher priorities and their “mistakes” might very well have been “tradeoffs.”

And, backed by billions, they could afford to risk the potential liabilities, perhaps merely a few million dollar settlements. They can also afford the legal defense to minimize their losses. Thus, they can afford to downplay the potential legal liabilities while emphasizing other aspects of the employment experience at the LA Times.

This is pure speculation. We have not seen the Handbook. Nor do we have any knowledge of the nature of the LA Times organization or their actual thinking in shaping their Handbook. 

But, somewhat like an ink blot test, the Journal’s story allows us to project into it our own concepts and ideas. Our blog covers developments in business litigation but with a focus on helping clients stay out litigation, if we can and manage it better, if we can’t. Towards that end, we try to derive from the litigation world recommended “best” or at least “better” practices suited to the small and growing businesses, real estate investors and non-profits (as well as professionals who serve them) that make up our intended readership. 

It is tempting to emulate the practices of billionaires with the thought of following their paths to success. But smaller to mid-sized businesses are not backed by billions, nor is it likely that they have passed through the stages of organizational growth that would engender the problems of organizational inertia and bureaucracy to which a larger, older organization may be exposed. We, and our readers, do deal with larger, unresponsive organizations, but for this article we are tending to our own gardens.

In summary, then, the LA Times may have had good reasons to give priority to factors other than avoidance of employment litigation in developing their Handbook. But, the best, or at least better, practice for the principals of smaller, growing organizations is to focus on their own real-world situation. As they grow and have a need to structure and systematize their employment practices, they are better off giving a high priority to avoidance of the potential liabilities of employment litigation. And, it follows that they are better off taking a more serious, straight and narrow approach to their Employment Handbooks. 

More specific comments about how much an organization needs to grow before needing one, what an Employment Handbook should contain and just what are the potential liabilities it addresses must await future postings. This one is long enough. 

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Q    I made an offer to buy a house and it was accepted. I then spent money having inspections performed, but before the contract was signed, the seller backed out of the deal to sell the house to another buyer, at a higher price. Shouldn't the seller have to reimburse me for the money I spent on the building inspections. What recourse do I have?

A    Unfortunately, this situation happens in real estate. It happens more often in a real estate market which is "hot" -- that is, there are more buyers for houses than there are houses for sale. It happens less frequently in the type of slow real estate market we are currently experiencing. 

    The specific answer to your question may depend upon the laws, customs and practices of the state in which the real estate is located. We can discuss some general principles that apply in most situations of this type. For example, New York and Connecticut, where we practice, have both established the long-standing principle that to be enforceable a contract for the sale of real estate must be in writing. And, in writing means that both parties must sign the contract and it must be delivered by the last signing party to the other.

      On the other hand, buyers and sellers may enter into preliminary agreements, which also must be in writing, signed and delivered called “Binders” or “Offers to Purchase.” Since the freedom to contract a fundamental right, the parties can agree in such preliminary agreements that, to use your example, the cost of inspections is reimbursable if a final contract is not signed. If there is such a “Binder,” then you may be entitled to reimbursement for your costs. Read the Binder.

    But, unless in the initial "Binder" or "Offer to Purchase" all parties to the transaction agree to reimburse the buyers for inspections if the seller backs out, you have no recourse. There are always risks in buying and selling real estate. While most sellers honor the "accepted offer" and go forward with the sale, some don't and buyers foot the bill. I always recommend to buyers that any offers that are made and accepted be accepted with the understanding that all other offers are to be "back up offers" only. It's no guarantee but hopefully acts as a reminder to all concerned that they have an obligation to deal with each other in good faith.

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Partner Beverley Rogers led a lively discussion of Employment Law, primarily hiring practices, at the “Brown Bag Lunch” sponsored by the Ridgefield, CT Chamber of Commerce on Thursday, February 21. Our other partner, Angelo Tartaro, also attended and provided light assistance. The questions raised by attendees highlight issues of concern to the Ridgefield business organizations.

Our goal is to keep our clients and readers out of litigation, if possible. With that in mind, in leading the discussion Beverley did not dwell on technical distinctions and defenses such as the varying definitions of “employer” and “employee” under federal and state statutes and caselaw. Rather, the focus, as in this Blog, was on “best or at least better” practices of good management to avoid tangles of a legal dispute over hiring and other employment practices.

With that in mind, Beverley presented and discussed a series of questions that may and may not be asked at an employment interview. For example, an interviewer is asking for trouble when questions involve childcare arrangements but not whether a frequent travel schedule will be acceptable to the applicant. An interviewer should never ask whether an applicant has ever been arrested but it is perfectly acceptable to ask whether the applicant was ever convicted of a crime. Questions relating to sexual preference, religious practices, national origin (such as the derivation of your last name) have not place. Questions relating to whether the applicant can perform the essential functions of the position, with or without a reasonable accommodation, are acceptable. Of course, the interviewer should not suggest that a reasonable accommodation might be necessary; the applicant must request it. The examples discussed are too numerous to review here in detail; to download her handout, click here.

The attendees were very interested in how to handle a situation where the applicant volunteers information about a “forbidden subject.” The interviewer should state that the information is not appropriate to discuss any further and return the discussion to the essential functions of the position. And, the interviewer’s notes should not reflect any information about the inappropriate subject matter.

Beverley advised that notes of the interview should be kept separate from the job application. An attendee volunteered a humorous anecdote that reinforced the point. It seems the organization’s Human Resources auditors wanted to know why a notation of “W” was made an a job application. The implication was that the notation meant “White” or “Woman.” In fact, it denoted the “Western” division of the hiring organization. The better practice is not to have any notations that could be misinterpreted for a discriminatory purpose. Beverley presented and discussed a sample employment application from ____________________, which can be downloaded by clicking here.

Moving on from employment to other practices, Beverley explained that Connecticut and New York are still “employment at will” states in which an employee can be terminated for any reason but that protected classes of employees cannot be terminated for a discriminatory reason or under other circumstances covered by specific statutes or for specific conduct that is actionable under federal or state common law. An example of the latter was illustrated by one of our firm’s recent cases in which a client received a favorable settlement after suing an employer for defamation because he was wrongfully accused of stealing without an investigation.

In that case, an investigation was promised by the Employee Manual but the management largely ignored its manual. Attendees were very interested in Employee Manuals and the nuances of what they should or should not include as policies. That discussion was too extensive for this article but two general points stand out: (1) the better practice is to issue a manual and obtained a signed receipt when first issued and when updated; and (2) the manual does not do much good if actual practices deviate from those promised in the manual.

We may not be the most objective observers but we came away with the impression that the attendees found the event to be enjoyable, informative and topical.

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RIDGEFIELD PRESS

Dec 13, 2007
Business Update: 12/13/07

Rogers & Tartaro expanded law practice to immigration

Rogers & Tartaro, LLP, in Ridgefield has expanded its law practice to include services in immigration law for employers, families and individual clients.

Attorneys Beverley Rogers and Angelo D. Tartaro, the firm’s partners, said immigration law is a natural extension of their employment law practice and an opportunity to meet a growing and essential need.

Born in Italy and fluent in Italian, Mr. Tartaro emigrated to the United States with his parents when he was six years old. He graduated from Brooklyn College with a bachelor of arts in economics, and he holds an master of business administration from the NYU’s Stern School of Business.

He graduated magna cum laude from Pace University School of Law, where he was on the Law Review. He is a member of the American Immigration Lawyers Association, as well as the New York and Connecticut Bar Associations, and the Westchester County Bar Association.

Attorney Rogers, born in Brooklyn, is returning to college to earn a degree in foreign languages.

“Immigration is a dynamic area of law that can be as challenging and as complex as our tax laws,” she said. “Our secretary-paralegal was born in the Portuguese colony of Angola, Africa and speaks Portuguese and Spanish. Angelo speaks Italian. I thought it would be fun to round out our ‘United Nations’ law firm and become fluent in another language.”

Attorney Rogers received a bachelor of arts, cum laude, from Pace and a jurisprudence from Pace University School of Law. She is an active member of the Westchester Women’s Bar Association Judicial Screening Committee, and she is a member of the Connecticut Employment Lawyers Association and the New York Employment Lawyers Association.

She also serves on the Board of Directors of the Ridgefield Visiting Nurse Association and the Ridgefield Library. She is co-president of the Ridgefield Discovery Center.
With offices in Ridgefield and White Plains, Rogers & Tartaro, LLP, is a full service law firm specializing in business and not-for-profit law, commercial litigation, employment law, real estate and land use law, immigration law, and wills, trusts and probate.

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