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Protecting Your Retirement Accounts

Posted: February 27th, 2014

When discussing estate plans with my clients, I always make sure we discuss their retirement accounts (such as IRAs, 401ks, etc.). These are normally owned by only one person and have a beneficiary. Therefore they are not typically in a trust nor do they pass under a Will. What I have been finding is that often times their retirement accounts have the greatest value of any property they own, including their house. Because these accounts defer payment of income tax, their balances can grow very quickly, and can easily become worth millions over the course of generations.

With this in mind, I tell every client that they need to be absolutely sure they named a beneficiary for each retirement account. The beneficiary is the person or persons they want to receive the retirement account when they die. Many of my clients think they did. Many of them find out that they didn’t. You should contact your plan administrator to make sure you did. Retirement plans sometimes provide for a default beneficiary in the event you did not name one. Many times, however, your account will be left to your estate when you die.

This can be financially disastrous. Unless you leave your retirement account to a qualified beneficiary, it will be necessary to cash in the account and pay it out to your beneficiary. If your beneficiary is your estate, which is not a qualified beneficiary, your estate will have to pay income taxes on the payout. In other words, your $600,000 IRA is now worth only $400,000 to your family after taxes!

So, do not rely on hope that your plan has a default beneficiary designation. Check with your plan administrator that you have your own beneficiary designation on file. Get and keep a copy of that designation for your records so you (and your beneficiary) can prove that you made it.

One of the great things about leaving your retirement accounts to your children is that the accounts can “stretch out” over the life of each designated qualified beneficiary. For example, your son can “stretch” taking money out of the account over his life expectancy calculated from when you died. That is good since retirement accounts grow so rapidly by deferring the payment of income taxes. Your nest egg just became your son’s nest egg! But what happens if your son is the kind of guy that spends every penny he gets as soon as he can get it?

If you name your son as your direct beneficiary, he may decide he wants to spend that money now. As far as he’s concerned, inherited money is “found money.” Because your beneficiary didn’t work for it, he thinks of it as a freebie. Even though your son has the right to stretch out the retirement account over his lifetime, he may choose to ask for a lump-sum distribution instead.

This is definitely not a good idea. First, about one-third of the balance in your IRA is lost to payment of federal income tax. Second, that $600,000 IRA, whose balance could have grown rapidly and tax-deferred into millions of dollars over the next few decades, is gone in an instant.

A way to try to avoid this is by creating a specially designed revocable trust for your son, and designating that trust as your IRA beneficiary. Under IRS rules, a properly drafted trust can be used as a qualified beneficiary. Your son will no longer have the option of taking it all out at once. That will now be up to the trustee.

Trusts are prudent not only for family members that are spendthrifts. They might also be advisable if your child has special needs, is in a bumpy marriage, has creditor problems or is in a high-risk profession. Upon your death, the trust takes the retirement account and stretches it in a way that preserves it for that child and for future generations.

3 Counter-Intuitive Negotiation Tricks

Posted: February 9th, 2014

By: Joe Campolo, Esq. email

Tags: negotiation

When negotiating, we often follow our instincts and intuition. However, negotiation as a discipline is often counter-intuitive. Best practice suggests that we often go against our instincts and follow behaviors which at first pass do not seem to be appropriate to the desired outcome. A recent article posted on the Forbes Leadership Forum on forbes.com entitled Three Tricks That Make Negotiations Work by Richard Shore discusses three not-so-obvious strategies that seem counter-intuitive, yet make perfect sense.

1. Don’t look at the person who is talking; look at the people who are listening.
In group settings, people naturally tend to focus on the speaker. In a negotiation, that person commonly is a lawyer rather than a principal. He or she is trained to deliver a pitch or make an argument effectively. This includes not only speech, but also tone of voice, facial expressions, and body language. The negotiator is trying to control the message—and usually succeeds. Often, that is not a true reflection of their actual state of mind or your opposing party’s true settlement position. So, focus your attention on key representatives of the opposing party other than the speaker. They are more likely to convey their true frame of mind through facial expressions and body language. Because they are not in the spotlight, their facial expressions and body language can be quite informative, like a “tell” in poker. Negotiation tells can be particularly valuable when someone other than the speaker is the true decision maker—for example, when the in-house client representative is calling the shots on settlement, even though the party’s lawyer does most of the talking.

To read the full article, click here

January 2014 Legal Brief – Firm Newsletter

Posted: January 31st, 2014

Non-Disclosure Agreements – A Lesson to Be Learned

Posted: January 18th, 2014

Tags: corporate, intellectual property

A non-disclosure agreement (NDA) is typically used between companies to protect confidential information during a potential transaction. Every NDA, however, is different. The specific terms and provisions in the NDA determine whether your trade secrets would be protected upon disclosure. Accordingly, each NDA should be tailored and specific to the transaction. A recent case decided by the Federal Circuit Court of Appeal demonstrates that special attention needs to be given to an NDA.

The Convolve v. Compaq and Seagate litigation involved a misappropriation of trade secret dispute between Convolve, the owner of certain intellectual property, and Compaq and Seagate. Although the dispute involved many different issues, of particular importance was the Federal Circuit’s holding that Convolve lost its trade secret status by failing to provide written follow-up memoranda as mandated by the NDA.

The particular NDA at issue stated that to trigger either party’s obligations, the disclosed information must be marked confidential at the time of disclosure or designated as confidential by written memorandum identifying the confidential information.

After entering into an NDA, Convolve gave presentations and sent slides from one presentation to both Compaq and Seagate. In the end, however, the parties did not enter into a license agreement as anticipated. A few years later, Convolve sued Compaq and Seagate alleging misappropriation of trade secrets, among other things. The District Court held, and the Federal Circuit affirmed, that the claimed trade secrets were not preserved according to the procedures listed in the NDA. Specifically, there were no written confidential follow-up memorandums mandated by the NDA. Therefore, the disclosures given at Convolve’s presentations were not subject to confidentiality obligations.

This case illustrates that parties should pay particular attention in drafting and understanding the NDA prior to disclosing confidential information. If the NDA has a marking requirement, the disclosure should ensure that markings are provided, and if a follow-up memorandum is required, then a memorandum should be provided immediately after disclosure. Furthermore, parties should also ensure that the NDA has procedures in place to remedy any inadvertent or accidental disclosure of confidential information. As demonstrated, special attention must be paid to an NDA because it could determine whether your trade secret will be protected.

A Letter To Your Family

Posted: January 18th, 2014

By: Martin Glass, Esq. email

Tags: elder law, estate planning

So it’s the new year and you’ve promised yourself that you’re going to get your estate plan done. But having your documents in order is only part of a good estate plan.
What you need to do along with that is to prepare a letter that will help your family settle your affairs. You need to let them know what they need to do after you have died. Usually, what’s in this letter is more of a personal statement than actual written instructions and therefore not normally included in a legal document. But what you put in this letter should be consistent with the terms of your Will and/or other planning documents. This letter also becomes valuable if you become incapacitated, as it’s another method of making sure your wishes are known.

First and foremost, if you have made your own funeral arrangements or have special requests, make sure someone knows about them. It’s almost always too late if you put them in your Will. Make sure you communicate them clearly and provide the necessary details and documents. You could even include a pre-written eulogy. If nothing else, it may give your family some comic relief.

Next, certain people and institutions must be contacted upon your death, including your attorney, executor, trustee and tax specialist. Providing names, titles, addresses and telephone numbers now will make it easier for the person who needs to contact these individuals.

As part of this letter, put in where all your estate and financial documents are located. List any special assets, such as stock options and retirement accounts, that require action by your executor within a specific time frame. Consider a fireproof safe somewhere in your house versus using a bank’s safe deposit box.

Also make sure your family knows about any trust you have established. Include the name and address of the trustee and the contents of the trust. Don’t count on the original list of assets that are typically on the Schedule A at the end of the trust. You need to keep this updated as accounts and assets change.

Speaking of lists, it’s always good to include a complete (and current) list of all your jewelry and other valuables (china, glassware, art collections, antiques, etc.), including their location. Jewelry at the bottom of a garment bag or in with the cassette tapes tends to get thrown out. You may also include the names of those to whom the articles should be given. This list is sometimes (but not usually) part of the Will itself. The more common method is to just hand write the list of items, and whom you want to get each item, on a separate sheet of paper and sign it on the bottom.

Many of these items are only intrinsically valuable but often cause the most disagreements between family members. Consider including personal thoughts and messages for your beneficiaries. For example, you can name whom you want to receive your grandmother’s jewelry or your grandfather’s watch, as well as a bit of history relating to each memento or why you’re giving it to that particular person. While this list may not be legally binding, it’s very rare that these requests will not be honored.

Since one of the purposes of this letter is to aid your family in gathering your assets, add possible sources of benefits not mentioned in your Will. Some of these sources are Social Security, veterans’ organizations, employee, pension and retirement plans, and fraternal associations. Otherwise, these benefits might be overlooked.

The bottom line is that if you don’t make your wishes known, then those who are left get to make it up for themselves. This may be in line with what you wanted, but then again, it may only be in line with what they wanted.

Supreme Court to Hear Case Challenging the Face of Broadcast Television

Posted: January 18th, 2014

Tags: technology

Just about the only thing that the broadcast networks and the founders of Aereo—a service that sells live television programming online—can agree on is that the technology will fundamentally change the broadcast network business.

On January 10, 2014, the Supreme Court agreed to hear the dispute between television broadcasters and Aereo, a New York-based technology start-up that distributes broadcast signals through a network of small antennas in a “cloud,” allowing subscribers to record shows on the remote DVR and watch live and recorded programming from their mobile devices. The growing service is currently available in 10 cities for a monthly fee of $8 to $12.

At the heart of the case are “retransmission fees” – money paid to networks and their local stations by cable and satellite subscribers for access to their signals and the right to retransmit their programming. Retransmission fees are an enormous revenue source for broadcasters, who are estimated to collect $4.29 billion in retransmission fees from cable and satellite companies in 2014. Unlike cable and satellite services, Aereo does not pay the networks to distribute their broadcast signals. As such, the broadcast networks argue that Aereo’s business model is pure and simple theft, selling subscribers stolen programming. They argue that Aereo sells “public performances” of copyrighted work without the copyright owners’ permission, in violation of U.S. copyright law.

Broadcast networks also fear that if allowed to continue, Aereo’s business will lead cable and satellite companies to avoid hefty retransmission fees by streaming free TV signals. The business model would also undermine local broadcast networks in their negotiations with cable companies.

Aereo’s position, however, is that the company is simply a modern-day rabbit ears antenna that allows customers to watch free broadcast television over public airwaves. The Second Circuit agreed with Aereo in an April 2013 decision, finding that “Aereo’s transmissions of unique copies of broadcast television programs created at its users’ requests and transmitted while the programs are still airing on broadcast television are not ‘public performances’ of the [networks’] copyrighted works.” The Second Circuit decision upheld a decision from the Southern District of New York in which the court had denied the broadcaster-plaintiffs’ motion for a preliminary injunction barring Aereo from transmitting recorded programs to its subscribers while the programs were airing on broadcast television.

Some broadcast networks, including CBS, have claimed that a ruling for Aereo would prompt them to change their long-established networks into cable channels. Arguments in the high-stakes case are scheduled before the Supreme Court in April.

Sources and additional information:
WNET, Thirteen v. Aereo, Inc., 712 F.3d 676 (2d Cir. 2013)
Adam Liptak and Bill Carter, “Justices Take Case on Free TV Streaming,” New York Times, January 10, 2014.
Greg Stohr, “Broadcasters Get U.S. Supreme Court Review in Bid to Stop Aereo,” Bloomberg, January 11, 2014.
Joe Flint and Ryan Faughnder, “Supreme Court to Hear Aereo Case,” Los Angeles Times, January 11, 2014.

Around the Appellate Bench: Part 2

Posted: January 9th, 2014

By Patrick McCormick

There have been several interesting Appellate Court decisions in the past couple of months touching on a variety of issues. Cases discussing actual partial eviction, successor landlord liability and a tenant’s failure to timely cure an alleged default are discussed below.

In Croxton Collaborative Architects, P.C. v. T-C 475 Fifth Avenue, LLC,1 a commercial tenant sued its successor landlord alleging it was damaged because defendant landlord failed to remediate the “derelict” and “war-torn appearance” of the premises, which was caused by renovation work commenced by the prior landlord, in breach of the lease. Plaintiff commenced the action approximately five months after defendant bought the premises and assumed the lease. The Appellate Division reversed the lower court’s denial on landlord’s motion to dismiss the complaint.

The Court noted that lease paragraph 22.01 provided that “in the event of a transfer of title, the lease shall be deemed to run with the land and the transferee agrees to ‘assume’ and ‘carry out any and all such covenants, obligations and liabilities of Landlord hereunder.” Plaintiff apparently relied upon this lease provision to hold the new landlord liable for the conditions caused by the prior landlord. However, the Court relied upon lease paragraph 25.03 which it found “unequivocally provides that ‘under no circumstances shall the [lessor] . . . be (a) liable for any act, omission or default of any prior landlord; or (b) subject to any offsets, claims or defenses which [t]enant might have against the prior landlord.’” In finding that lease section 25.03 “trumps” section 22.01, the Court noted that section 25.03 was prefaced by stating “[a]nything herein contained to the contrary notwithstanding.”

While the Court did not engage in any detailed analysis, the lesson is clear—when representing purchasers, upon review of the existing leases to be assumed by the purchaser, counsel should look for exculpatory language similar to the language used in section 25.03 in this case. If such language does not exist, purchaser should be advised and cautioned that it could be liable for the acts or inaction of prior landlords and that an agreement by the prior landlord to indemnify purchaser for such claims may be warranted.

In a very brief decision in Darwin Management LLC v. Avenue C Food Corp.,2 the Appellate Term reminds tenants of the need to timely cure alleged defaults. In Darwin, landlord served a cure notice alleging tenant defaulted under the terms of the lease by installing an ATM outside the mixed-use premises. Tenant did not cure the alleged default until two weeks after the deadline set in the landlord’s cure notice.

In reversing the judgment of the lower court entered after a non-jury trial to dismiss the holdover petition, the Appellate Term held simply that “[t]he commercial lease terminated upon tenant’s failure to cure [citation omitted] and the court was without power to revive the terminated lease [citation omitted].” Simply stated, in the face of a default or cure notice, the tenant needs to unequivocally and timely cure the alleged default or timely obtain a Yellowstone injunction to toll the running of the cure period pending a determination of whether the tenant is in fact in default as alleged. The failure to cure or toll the cure period can result in the loss of possession of the demised premises.

Finally, the Appellate Term in Paris Lic Realty, LLC v. Vertex, LLC3 addressed a defense of actual partial eviction asserted by a tenant in a commercial nonpayment proceeding. The lease in question described the demised premises as “approximately 4,000 square feet on the third floor (including areas of the elevator and stairways).” Based on this description, the tenant cleverly argued it was ousted from part of the demised premises because it was not able to use the elevator for “extended periods of time during building construction.” The Appellate Term held that even if the elevator was part of the demised premises, there could be no actual partial eviction because the lease provided that there shall not be “any abatement or diminution of rent because of making repairs, improvements or decoration to the demised premises after the date for the commencement of the term.” If the lease did not contain this abatement provision, would the tenant have prevailed based on the description of the demised premises to include the elevator?

¹ —N.Y.S.2d —, 2014 N.Y. Slip Op. 00279 (1st Dep’t 2014)
² 42 Misc.3d 132(A), 2013 N.Y. Slip Op. 52233(U) (App. Term 1st Dep’t 2013)
³ 41 Misc.3d 145(A), 2013 N.Y. Slip Op. 52074(U) (App. Term 2d Dep’t 2013)

Teaching Doctors the Art of Negotiation

Posted: January 9th, 2014

By: Joe Campolo, Esq. email

Tags: negotiation

With recent health care changes, specifically the Affordable Care Act, negotiation skills will be tremendous value to medical professionals, administrators, and other stakeholders in the health care sector.

Recognizing the importance of negotiation, medical schools are starting to invest in communication training for students. A recent article by Dhruv Khullar in the NY Times Health Blog, Teaching Doctors the Art of Negotiation discusses how doctors negotiation on a daily basis, with both patients and colleagues and should be offered classes in negotiation training just as law, business and public policy schools do.

In this context, “negotiation is about exploring underlying interests and positions to bring parties together in a constructive way. It’s about creative, innovative thinking to create lasting value and forge strong professional relationships. It’s about investigating what is behind positions that may seem irrational at first to understand the problem behind the problem.”

To read the full article, click here

December 2013 – Firm Newsletter

Posted: December 28th, 2013