Blog of Law Offices of Daniela Lungu

Consolidate Your IRAs to Reduce Maintenance Fees

 Combining multiple IRAs in one account can cut down on fees and make it easier to keep track of investments.
By Kimberly Lankford, Contributing Editor, Kiplinger’s Personal Finance
December 27, 2011
    
Both my husband and I have several traditional and Roth IRAs. Some of these accounts charge an annual maintenance fee. Can we consolidate them to reduce the cost?

Yes, each of you can set up a traditional IRA and a Roth IRA and consolidate all of your funds into those accounts. Not only will consolidating save you money by trimming maintenance fees, it will make it easier for you to keep track of your investments. However, you and your husband cannot combine your separate IRAs into a single account; they must remain separate.

Some firms, such as TD Ameritrade, charge no annual maintenance fees for IRAs. But even if you choose a firm that usually charges a fee, you might be able to avoid it by keeping a certain amount of money in your accounts.

Vanguard, for example, charges $20 a year for all IRAs with balances of less than $10,000. But you can avoid the charge if your household has more than $50,000 in total assets with Vanguard or if you sign up to receive statements and other documents electronically.

But even though you can consolidate all of your traditional IRAs in one account and all of your Roths in another account, it might not always be a good idea, says Maria Bruno, of Vanguard’s Investment Counseling and Research Group. If you keep money from a previous employer’s 401(k) in a separate rollover IRA, for example, you may be able to roll that into a new employer’s 401(k) in the future. And with Roths, it may be a good idea to keep accounts you’ve converted from traditional IRAs separate from contributory accounts because there are different rules regarding the holding period before you can get access to your earnings tax-free, she says.
Read more: http://www.kiplinger.com/columns/ask/archive/consolidate-your-iras-to-reduce-maintenance-fees.html#ixzz1iWLtaJw7

Improving your Credit Rating

Remember, the credit scoring system looks at the percentage of debt you
owe compared to your overall credit line.
For instance, if you owe $10,000, and you have $100,000 of credit available
to you, you are only using 10% of your available credit line. On the other
hand, if you owe $10,000 and you only have $20,000 of credit available to
you, you are using 50% of your available credit line. This is negatively
interpreted by the credit scoring system as being a strong dependence on
credit. Furthermore, if you owe $10,000 and you only have $10,000
available to you, you have “maxed out” your available credit and your credit
scores will be very negatively impacted. Therefore, it is not how much you
owe, but how much you owe compared to what you are able to borrow.
Additionally, if you have no debt and no credit lines open or available to you,
you will end up with a lower score than someone who has no debt and a few
lines of credit available to them. Financing is a game of percentages and
ratios. The credit scoring system does not look at the dollar amount of debt
you have; only the balance you owe, compared to how much credit is
available to you.
Here are three practical steps to improve your credit score in this area:
1. Do not close your credit accounts unless it is necessary to do so. It is
better to have many open accounts with little or no balance than to
have just one or two accounts regardless of the balance.
2. Do not concentrate large balances on just a few accounts. Pay
outstanding debt down as close to zero as possible, and evenly
distribute the remaining balance across all your open credit lines. The
key is to keep the balances down below 30% or at the very least 50%
of your available credit line(s).
3. Call your credit card companies and try to increase your available
credit lines if they can do so without pulling a new credit report.
• Your Credit History, or how long your accounts have been opened-
15% impact on your credit score. The longer your accounts have been
opened, the higher your score will be: newly opened accounts will bring
your score down.
Here are three practical steps for you to improve your score in this area:
1.  Do not close your credit accounts. If you have too many department
store credit cards, close the newest ones – do not close the old
accounts. If you keep your accounts open and use them every once
in a while, your score will improve over time.
2. Think twice before jumping on that latest 0% credit card offer or
opening a new card just to get a 10% discount at a department store.
3. If you dont have much of a credit history, and you are planning on taking
out a mortgage in the future, it would probably be a good idea to establish
a few open credit lines with little or no balance on them. Although newly
opened accounts tend to lower your score initially, they will improve your
score once they have been open for awhile, somewhat active and paid off
with little or no balance.
• The type of credit that you have open – 10% impact on your score.
A good mixture of auto loans and leases, credit cards and mortgages is
always best. Too many credit cards is not a good thing, and having a
mortgage does increase your score.
Practical steps to improve your score in this area are:
1. Having 3-5 revolving credit cards open is optimal.
2. Having a good mix of auto loans, credit cards and mortgages is
positive for the score; rather than having a concentration in credit
cards only.
• The number of recent inquiries that have been made by creditors -
10% impact on your credit score. Inquiries affect the score for one year
from the time the inquiry is made. Personal inquiries do not count toward
your score. In other words, you can check your credit report as often as
you like and that wont affect your score. The score is only affected if a
potential creditor checks your credit. Potential creditors include credit card
companies, auto finance companies, department stores and mortgage
companies.
The reason that inquiries impact your credit score is because the scoring
system assumes that if you have many recent inquiries, you must be
strapped for money and in some type of “panic” mode, trying to get credit
wherever you can find it. The system also assumes that all these inquiries
will eventually result in new accounts being opened, and as stated before,
the system doesnt like you to open new accounts and punishes you by
giving you a lower credit score.
Here are three practical steps that you can take to improve your credit
score in this area:
1. Multiple auto and mortgage inquiries are treated as only one inquiry
if made within 14 days of each other. So, it is better to shop for a car
or a mortgage over a two week time-frame, rather than to prolong it
over a longer timeframe.
2. Don’t apply for a lot of credit or open multiple credit cards at the
same time.
3. If you are thinking of applying for a mortgage within the next 90
days or so, it would be good to wait until after your mortgage closes
before you apply for any new credit.
Mortgage professionals should help you implement these and other
strategies to improve your credit rating.

Mortgage professionals should be committed, qualified and equipped to help you improve your credit rating.
Your credit scores usually determine the price you pay for your money (your mortgages, your auto loans and
leases, your credit cards, business loans, etc.).
Perhaps the most significant part of your credit report is your credit score. Credit scores range from 350 to
850, with 850 being the best possible credit score that you could receive, and 350 being the worst possible
credit score. There are five factors that determine your credit score:
• Your Payment History – 35% impact on your credit score. Paying debt on time and in full has a positive
impact. Late payments, judgments, charge-offs, collection accounts and bankruptcies have a negative
impact. One of the most important issues as far as payment history is whether or not you have had any late
mortgage payments in the last 12 months. Timely mortgage payments are weighted heavily by the scoring
systems and are one of the most vital requirements that lenders look for when evaluating your credit history.
Many times a single late mortgage payment within the last 12 months can hold up your file or spell the
difference between the best interest rate and the next credit level. This is not to say that your mortgage is the
only debt you should pay on time. Your payment history on other debts (car payments, credit cards, etc.) is
also given a lot of weight.
The credit scoring systems evaluate how many late payments you have had and whether they were 30, 60 or
90 days late, or whether they are currently in default, with default being the worst situation. Additionally the
systems look at whether the late payments were consecutive. If you only have one or two minor late
payments on your report with no other derogatory marks, your score will not be terribly affected, but you will
have a tough time getting over the critical 700 level.
Bankruptcies and judgments are another major area of importance. If you have had any bankruptcies within
the last 7 years, it will seriously affect your ability to borrow or establish new credit accounts. Additionally, if
you have had any judgments within the last several years, it is very important that you payoff the judgment
and get a “satisfaction of judgment” from the court. Any unsatisfied or recent judgments will make a bad dent
in your credit scores and adversely affect your ability to borrow. Usually, judgments and liens must be paid
prior to the closing. However, in some cases, they can be paid out of the loan proceeds.
Here are four practical steps that you ‘can implement to improve you r credit score in the area of “Payments”:
1. Make all your payments on time.
2. Past dues on any account will destroy your score – bring your delinquent accounts current
immediately. A 30 day late payment one month ago is worse than a 90 day late payment three years
ago.
3. Pay your bills before they go to a collection agency.
4. Check your credit report for accuracy on a regular basis; and make sure that disputed bills are not
negatively affecting your credit scores .
• The Balance You Owe vs. Your Available Credit Lines – 30% impact on your credit score. Keeping
your credit balances below 50% of your available limit is very important. Keeping your balances below 30%
of your available credit is even better. This is perhaps the single most misunderstood part of credit scoring.
There are a lot of misinformed people that don’t understand how the credit scoring systems work, and yet
they insist on pretending to be experts in this area. Here are just a few of the common myths:
1. You should close all your credit accounts if you are not using them.
2. You should not have credit accounts appear on your report after they have been closed.
3. You should not have any open credit card accounts at all.
4. You should not have high limits on your credit lines.
First of all, the credit scoring system looks at the percentage of debt that you owe compared to your overall
credit lines – not the amount of credit that you have available to you. For this reason, most of the time it is
better to leave your credit accounts open. By not using the credit that is available to you, the system regards
you as having enough financial restraint and discipline not to overload on debt.

Ten Lease Provisions That Get No Respect
By Jerald M. Goodman, Sharon D. Brown, and Stephen J. Messinger
 
When negotiating commercial leases, lawyers typically focus
on achieving the business objectives and protecting the legal rights
and remedies of their clients. Often, however, without much thought, at-
torneys tack on a litany of boilerplate provisions. These provisions, which are
usually relegated to the end of the lease or are sprinkled casually throughout the
more “important” lease clauses, are frequently overlooked while the lawyers
dwell on the weightier issues. Nevertheless, boilerplate provisions address
important legal underpinnings and, if improperly drafted, can have significant
legal and financial consequences. A heightened degree of care and respect
toward crafting these provisions can help the parties avoid surprises.
1. Force Majeure
Occurrences defined as force majeure events excuse parties for nonperfor-
mance of their obligations under the lease. Generally, the party with the
most performance obligations will want an expansive definition of force
majeure events. In many cases, the determination of whether an event of de-
fault has occurred can turn on whether the cause for nonperformance is within
the definition of a force majeure event as set forth in the lease. The following
is a typical force majeure provision. The time for the performance of any
act required to be done by either party shall be extended by a period
equal to any delay caused by or resulting from an act of God, war,
terrorism, civil commotion, fire, casualty, labor difficulties, short-
ages of labor or materials or equipment, governmental regulation, a
restraint of law (e.g., injunctions, court or administrative orders or
a legal moratorium imposed by a governmental authority), act or
default of the other party, or other causes beyond the reasonable control of
the party seeking the extension of time (which shall not, however, include the
availability of funds), whether that time be designated by a fixed date, a fixed
time, or otherwise.  Depending on the relative bargaining
power of the parties and the allocation of performance obligations under the lease,
applicability of the force majeure provision may be expressly limited to one of the
parties. Adding a notice requirement to a force majeure provision is another means
of limiting the applicability of the provision. Because the force majeure provision
is effective to excuse a party from liability for nonperformance, parties often seek to
expand the applicability of the provision. The following are some specific examples
of force majeure issues.

Government Prohibition
A New York court has held that a temporary restraining order against a landlord
was a “government prohibition” described in a lease force majeure provision. Reade
v. Stoneybrook Realty, LLC, 882 N.Y.s.2d 8 (App. Div. 2009).

Acts of God
After Hurricane Katrina struck in 2005, lease parties litigated over the extent to
which a party could be excused from performance because of force ma-
jeure. The Louisiana Court of Appeals rejected one tenant’s argument that
the post-hurricane depressed business climate was a continuing force ma-
jeure event under the lease. The court noted that the tenant had presented no
evidence of any physical damage to the leased premises. The tenant thus
was obligated to continue paying rent for the remainder of its five-year lease
term following Hurricane Katrina. The tenant was excused, however, from
paying rent for the two months immediately following the hurricane because
the court found that “the building was inaccessible due to the aftereffects of the
storm.” Meadowcrest Prcf’! Bldg. P’ship v. Toursarkissian, 1 So. 3d 555, 556 (La. Ct.
App. 2008). The court therefore narrowly interpreted the force majeure provi-
sion to exclude the economic effects of the hurricane: “To rule otherwise
would be to make the enforceability of leases dependent on the vagaries of
the marketplace, and this we decline to do.”Id.

2. Limiting Liability
Exculpatory Provisions Landlords typically require that their
liability for claims under the lease be limited by exculpatory provisions. Ju-
dicial treatment of exculpatory clauses varies from state to state. For example,
in North Carolina, courts will generally uphold exculpatory clauses unless
there is evidence that the provision is actually an unconscionable penalty for
enforcing the terms of the lease, that there were formation irregularities in
the lease, or that there is inequality of bargaining power between the parties.
Blaylock Grading Co. v. Smith, 658 S.E.2d 680,682-83 (N.C. Ct. App. 2008) (up-
holding provision in surveying contract limiting the surveyor’s damages to
$50,000). In Pennsylvania, however, although the relative sophistication of the
parties is similarly a factor, the courts have held that an exculpatory clause
is valid and enforceable if the clause does not contravene public policy; the
contract relates entirely to the parties’ own private affairs; is not a contract of
adhesion; and the intention of the parties is expressed with particularity and
demonstrates clear and unambiguous intent to release a party from liability.
Princeton Sportswear Corp. v. H & M Assacs., 507 A.2d 339, 341 (Pa. 1986).
Some courts have held that an exculpatory clause in a commercial lease
“must be construed strictly against the party seeking its protection.” Kaplan
v. Bankers Sec. Corp., 490 A.2d 932, 934 (Pa. Super. Ct. 1985). See also Ultimate
Computer Servs., Inc. v. Biltmore Realty Co., 443 A.2d 723, 726 (N.J. Super. Ct.
App. Div. 1982) (general exclusion of liability for landlord’s negligence did not
keep landlord from being responsible for damage to computer equipment
caused by defective roof). Nebraska has applied general contract law to excul-
patory clauses, considering whether the provision was clear and unambiguous;
whether there was any disparity in bargaining power between the parties;
and whether the provision contravened public policy. Keenan Packaging Sup-
ply, Inc. v. McDermott, 700 N.W.2d 645, 653-54 (Neb. Ct. App. 2005).
The following is a sample exculpatory provision: Landlord’s liability under this Lease
shall be limited to its interest in the Demised Premises, and neither
Landlord nor any member or partner in Landlord nor any member,
partner in any such member or partner nor any other person having any
direct or indirect interest in Landlord, shall have any personal liability
with respect to any of the provisions of this Lease.
Although most tenants will accept such a limitation, many will add language
that precludes limitation of liability in the event of intentional misconduct of
the landlord.

3. Notices
A vague or unclear notice provision can prevent the parties from efficiently en-
forcing critical rights and remedies under the lease. Notice provisions should
specifically identify the acceptable methods of delivery and clearly specify
when notices will be deemed to be given. Hand Delivery Method ~
If hand delivery is an acceptable means of providing notice, the parties should
consider whether that method is likely to be effective under their particular cir-
cumstances, taking account of the size of the entities involved and other practical
considerations. In addition, the hand delivery method must expressly require an
acknowledging signature, receipt, or other documentation to evidence the actual
delivery. Facsimile and E-Mail: Delivery Methods: The parties should also consider whether
to allow notice given by the more convenient methods of facsimile and e-mail,
which will depend in part on the term of the lease since facsimile numbers and
e-mail addresses will likely change over time. Accordingly, the notice provision
must require the parties to update their contact information as needed. Most
practitioners still require that faxed and e-mailed notices be effective only in ac-
companied by a hard copy.

4. Integration Provisions
An integration provision states that all prior oral agreements and representa-
tions are integrated into the final signed lease. In general, integration provisions
are interpreted by the common law plain meaning rule: “When a contract contains
an integration clause, extrinsic evidence may not be admitted to prove different or
additional terms in the contract, although such evidence may be admitted to inter-
pret ambiguous terms of an integrated contract.” United Artists Theatre Circuit,
Inc. v. Sun Plaza Enter. Corp., 352 F. Supp. 2d 342 (E.DN.Y. 2005) (citing Proteus Books
Ltd. v. Cherry Lane Music Co., 873 F.2d 502, 509-10 (2d Cir. 1989)). The parties should
consider, however, how this provision applies to lease exhibits. Typically, the parties will provide that
the exhibits are incorporated into the integrated document even when the exhibits
are attached or finalized after full execution of the lease. Although it is not unusu-
al for the exhibits to be included as part of integrated lease provisions, the parties
may overlook the effect of terms contained in the exhibits. In one recent
case, a dispute regarding the meaning of the word “proposed” contained
in the exhibits to a lease allowed the tenant to introduce extrinsic evidence
to interpret the lease. Chesterfield Exch., LLC v. Sportsman’s Warehouse, Inc. 572
F. Supp. 2d 856, 867 (ED. Mich. 2008). The tenant argued that in its lease the
landlord represented that Sam’s Club was the “proposed” anchor tenant for
the shopping center because a plan of the shopping center attached as an ex-
hibit to the lease depicted Sam’s Club as a “proposed” tenant. The tenant
argued that in this context “proposed” meant “planned” or “intended,” and
that the tenant entered into the lease based primarily on the presence of
Sam’s Club as the anchor tenant. The landlord argued that the word “pro-
posed” merely meant “possible” or “likely” The court disagreed, holding
that the extrinsic evidence demonstrated that the lease meant “intended”
because “[ajfter all, it was the participation of Sam’s Club that rekindled the
lease negotiations.” Id. at 867.
5. Surrender
Lease surrender provisions describe the physical condition of the premises
required at the time of surrender by the tenant. Lease parties frequently litigate
over the condition required by surrender provisions.
Common Law Surrender Requirements
If the lease is silent, the standard at surrender is generally that the “lessee is
under a duty at common law to return the premises in substantially the same
condition as when they were received, reasonable wear and tear excepted.”
Statler Arms, Inc. v. APCOA, Inc., 700 N.E.2d 415, 428 (Ct. c.P. Cuyahoga Cty.
1997).
Interaction with Maintenance Provisions
When surrender provisions are litigated, a court will likely interpret the sur-
render provision in the context of the lease as a whole, especially in conjunc-
tion with the maintenance provisions contained in the lease. Depending on
the scope of the tenant’s maintenance obligations during the term of the lease,
the tenant may be liable for repairs or replacements at surrender that are not
apparent from a reading of the surrender provision alone. Statler Arms, 700
N.E.2d at 423-25,429. See also SLWj UTAH, t.c. v. Griffiths, 967 P.2d 534, 536
(Utah Ct. App. 1998) (surrender clause read with the maintenance clause to
require a new roof). For example, although a lease was silent about surren-
der, because the tenant was obligated to maintain and repair structural elements
of the leased premises during the term of the lease, the court held that the
tenant was liable to replace the roof on surrender of the premises. Statler Arms,
700 N.E.2d at 428. Addressing Special Personal Property:  In drafting a lease, counsel should
be sure to address the disposition of tenant’s specific personal property or
fixtures on lease surrender. Satellite dishes and other telecommunications
equipment installed by a tenant at its sole expense can become problematic
on surrender. In many cases, the landlord will require such equipment to be
removed and for the tenant to repair any damage caused by the removal.
6. Waiver Provisions
Waiver provisions address acts or omissions that have the potential to
function as a renouncement of rights and remedies otherwise available
under the lease. As one New York court explained: “A waiver is the voluntary
abandonment or relinquishment of a known right. It is essentially a matter of
intent which must be proved.” Jifpaul Garage Corp. v. Presbyterian Hoep., 61
N.Y.2d 442, 446 (N.Y. 1984). By including waiver provisions in a lease, the parties expressly agree that specific acts
and omissions that could constitute a waiver will not be deemed a waiver.
In some leases, waiver provisions also can address conduct of parties other
than landlord and tenant. For example, a waiver provision that is applicable
to a defined category of “Landlord’s Parties,” which expressly includes
“independent contractors,” will likely be held by its plain meaning to apply to
landlord’s construction subcontractors. H & M Hennes & Mauritz LP v. Skanska
USA Bldg., Inc., 617 F. Supp. 2d 152, 159 (EDN.Y. 2008).
Another basic function of waiver provisions is to “give a contracting
party some assurance that its failure to require the other party’s strict adher-
Compliance with law provisions can shift liability to one party
for the costs of making the leased premises compliant with
govern ment-ordered alterations or repairs. Will not re-
sult in a complete and unintended loss of its contract rights if it later decides
that strict performance is desirable.” Rehoboth Mall Ltd. P’ship v. NPC mn.
Inc., 953 A.2d 702, 704 (Del. 2008) (quot-ing Viking Pump, Inc. v. Liberty Mut.
Ins. Co., No. Civ.A. 1465-VCS, 2007 WL 2752912, slip op. at 27 (Del. Ch. Apr. 13,
2007)). For example, when a restaurant tenant was entitled to seven successive
five-year renewal terms under a lease, the landlord could not prevent the ten-
ant from exercising its second five-year renewal term based on the tenant’s
defaults during the original term, when the landlord failed to enforce
its remedies during the original lease term. Rehoboth Mall, 953 A.2d at 704-05.
In Alaska, the landlord of a supermarket property was similarly precluded
from enforcing the use provision of the lease six years after the tenant’s
initial violation thereof. Carr-Gottstein Foods Co. v. Wasilla, LLC, 182 P.3d 1131,
1140 (Alaska 2008). In that instance, the tenant relocated an affiliate-owned
liquor store from a satellite location to a portion of the leased premises, and the
landlord not only knew about the move but helped to facilitate it. The Supreme
Court of Alaska held that the waiver clause preserved landlord’s right to
object to tenant’s future violations of the use provision of the lease but that
the landlord had effectively waived its right to object to the use of the premises
for the sale of liquor.
7. Compliance with Laws
Compliance with law provisions can shift liability to one party for the
costs of making the leased premises compliant with government-ordered
alterations or repairs. In addition, these provisions typically make a tenant’s
criminal or tortious use of the property an event of default.
In general, except when the party that has assumed responsibility for
legal compliance has much less bargaining power than the other party, in
a commercial lease a court is likely to enforce a provision shifting the risk and
expense of government-ordered alterations and repairs. Fresh Cut, Inc. v. Fazli,
650 N.E.2d 1126, 1130-32 (Ind. 1995). A common example of a government-or-
dered repair is asbestos abatement. See, e.g., Brown v. Green, 884 P.2d 55 (Cal.
1994) (lessees assumed responsibility for complying with asbestos abatement
order). A blanket requirement in the lease, however, stating that the tenant is
responsible for all government-ordered repairs and alterations may not be
effective to shield landlord from all liability. The California Supreme Court
has noted that when the parties seek to allocate to the tenant the burden
of legal compliance, “the legal and practical scope of that duty may well
be less, especially where a short-term commercial lease is at issue and the cost
of compliance is more than a small fraction of the aggregate rent reserved over
the life of the lease.” rd. at 57. Similarly, if the nature of the government-ordered
repair is not expressly addressed and, from the circumstances, it seems un-
likely to have been anticipated by the parties, the court is unlikely to hold that
the tenant is liable for it. For example, in California where a tenant paid $650
in monthly rent for a three-year term to operate a cabaret and bar on the leased
premises, despite a lease provision shifting to tenant all liability for compli-
ance with laws, the tenant was not held responsible for a city-mandated earth-
quake hazard reduction reconstruc- tion that would cost $34,000. Hadian v.
Schwartz, 884 P.2d 46 (Cal. 1994). Counsel must take care to define
precisely the respective obligations of the parties. The Indiana Supreme Court
has held that a compliance with laws provision is in the nature of an indem-
nity, which is “strictly construed and the intent to indemnify must be stated
in clear and unequivocal terms.” Fresh Cut, 650 N.E.2d at 1132 (citing Wilson
Leasing Co. v. Gadberry, 437 N.E.2d 500,501 (Ind. Ct. App. 1982)). In that case,
a fire destroyed a warehouse, and the court deemed ambiguous an allocation
of risk for maintaining a fire sprinkler system when the lease required the
tenant to maintain “electrical systems, heating and air conditioning systems,
and structural frame of the building” but also impliedly required the land-
lord to maintain the roof, exterior walls, and foundation. The court therefore
vacated the lower court decision granting summary judgment and remanded
the case to the trial court. A tenant may seek to curb its liabil-
ity by limiting its compliance with law requirements to orders that are related
to the tenant’s particular use. Brown, 884 P.2d at 59. Tenants should also
seek to have the landlord represent and warrant that the leased premises
do not violate applicable building codes, regulations, or ordinances in ef-
fect at the commencement of the lease term. See Hadian, 884 P.2d at 48.
8. Estoppel Certificates/Status Statements
Over the term of a lease, estoppel certificates will be required if the
landlord seeks to sell or refinance the property. Similarly, large commercial
tenants also may require estoppel certificates in the event of a transfer
or refinance. The party that seeks the estoppel certificates will want
assurances that the other party will promptly execute them, whereas the
other party will want to ensure that the form of certificate and turnaround
period are not onerous.
 

In view of the potential for significant monetary damages in the event a -party
is unable to complete a contemplated transfer or financing because it is unable
to produce the necessary estoppel certificate, the lease provisions requiring
that the other party furnish this detailed estoppel certificate are of paramount
importance. A cautionary tale from New York is illustrative. When a commercial
tenant attempted to refinance its leasehold mortgage, it requested an estoppel
certificate from the landlord, which the tenant was entitled to receive within
20 days. The landlord refused to issue the certificate on the grounds that the
certificate form was more extensive than required by the lease and that the tenant
did not send its request in accordance with the lease notice provision. The court
rejected the landlord’s arguments, stating that landlord” could have marked
up the certificate or supplied its own form of certification …. The fact that
plaintiff may have requested a certification of items not specifically identified in
the lease did not relieve defendant of its absolute obligation to issue an estoppel
certificate within 20 days of the request.” Juleah Co., L.P. v. Greenpoint-Coldman Corp.,
853 N.y.s.2d 313, 315 (App. Div.2008). As a result, the court held the landlord
liable for more than $450,000 in damages, which was the amount that tenant
would have saved had the contemplated refinancing been consummated.
Another consideration when drafting estoppel provisions is to avoid the po-
tential use of an estoppel certificate by one of the parties beyond the intended
purpose. In one New York case, a tenant inadvertently continued to pay rent on
a portion of the leased premises that it had actually vacated. The landlord
had actual knowledge of the tenant’s mistake and kept silent. When the ten-
ant refinanced, the landlord executed an estoppel certificate. The landlord then
attempted to use the estoppel certificate to prevent the tenant from recovering
its rent overpayments. The court applied equitable principles to permit the
tenant to recover, basing its decision on the fact that landlord had actual knowl-
edge of the mistake. NHS Nat’l Health Servs., Inc. v. Kaufman, 673 N’y'S.2d 129
(App. Div. 1998).

9. Holdover
When a tenant fails to vacate the leased premises at the end of the lease term
and the landlord continues to accept rental payments, the common law
presumption is that the parties have agreed to extend the lease on a month-
to-month basis, subject to the original terms of the underlying lease.
Because leases provide tenants with certain rights and remedies, an exten-
sion of the lease term is an extension of those protections to the tenant. In
general, lease holdover provisions can clarify that the tenant’s failure to vacate
the leased premises is not an extension of the original lease, but rather creates
a special, separate agreement. Lease holdover provisions also can delineate
distinctions from the otherwise applicable common law. Marsh-McLennan
Bldg., Inc. v. Clapp, 980 P.2d 311, 315-16 (Wash. Ct. App. 1999).
Unenforceable Penalties Regarding the rental rate during a hold-
over tenancy, it is important to consider whether the jurisdiction will regard a
double or triple holdover rental rate as an unenforceable penalty. In one such
case, the Tennessee Court of Appeals held that a double rental rate during
holdover was not an unenforceable penalty. Brooks v. Networks of Chattanoo-
ga, Inc., 946 S.W.2d 321, 324-25 (Tenn. Ct. App. 1996). The court also held the
tenant liable for the holdover rate even if the landlord initially accepted a lesser
amount. Id. at 326-27. The holdover tenant in that case initially continued
to pay only the regular rental rate applicable at the end of the lease term.
The tenant argued that, because it was negotiating a new lease with the land-
lord and not retaining possession of the  leased premises against the landlord’s
will, it was not a holdover tenant. Eight months later, when the parties’ negotia-
tion for a new lease broke down, the court permitted the landlord to collect
double rent for the holdover period retroactively.

10. Defining Common Areas and Facilities
Tenants typically pay as additional rent a proportionate share of the real estate
taxes, insurance, and maintenance costs for areas that are defined as com-
mon areas and facilities. Accordingly, the obligations of the tenant can vary
widely depending on whether areas are included as part of common areas or
part of the leased premises. Electrical and Telephone Closets: A common item that parties dispute
is the categorization of electrical and telephone closets. In one unreported
case in New York, the tenant claimed that its lease provided the tenant with
the right to use electrical and telephone closets for its telecommunication wires
and equipment. The landlord argued that tenant’s use of the closets was not
part of the leased premises and therefore that the tenant owed the landlord
licensing fees. Although the description of the leased premises specifically
excluded “electrical and telephone closets,” the definition of the common areas
did not expressly include them. Nonetheless, the court found the definition of
the “common areas” (which included “the pipes, ducts, conduits, wires and
appurtenant meters and equipment” serving the leased premises in com-
mon with other areas of the building), to be broad enough to encompass the
electrical and telephone closets. Marine Buffalo Assoc., L.P v. HSBC Bank USA,
781 N.YS.2d 625 (Sup. Ct. 2003). Control:  when a lease does not include a store’s
loading dock within the definitions of either common area or leased premises,
the parties’ liability for personal injuries from unsafe conditions on the loading
dock has been held to depend on the amount of control over the area respec-
tively exercised by the parties. Stalter v. Prudential Ins. Co. of Am., 632 N.Y.S.2d
602,603 (App. Div. 1995). Insurable Interests:  If not carefully defined, the distinction
between “leased premises” and “common areas” may produce unexpected outcomes. For example, a Michigan
shopping center lease required the tenant to obtain insurance covering its
leased premises and to pay a proportionate share of landlord’s cost of insuring the shopping center’s com-
mon areas. In addition, the parties intended for the tenant’s policy to cover
the sidewalks immediately outside of the tenant’s store. Therefore, the tenant
obtained a policy covering premises “owned or used by” the tenant. When a customer slipped and fell on
the icy sidewalk immediately outside of the tenant’s store, the customer brought
a suit against the tenant and the landlord. The landlord was held liable as
the record owner of the property. The landlord settled with the customer and
then attempted to recover from the tenant’s insurer. The tenant’s insurer denied coverage,
arguing that the phrase “owned or used by” the tenant was required to be interpreted in conjunc-
tion with the tenant’s lease, which provided that tenant must obtain insurance
covering “leased premises.” Because the lease definition of “leased prem-
ises” did not include the sidewalks, the insurer argued that the sidewalks were
not covered areas. The Sixth Circuit agreed with the insurer and upheld the
denial of coverage. Minges Creek, L.L.c. v. Royal Ins. Co. of Am., 442 F.3d 953 (6th
Cir. 2006); see also Zurich Am. Ins. Co., v. ABM Indus., Inc., 397 F.3d 158 (2d Cir.
2005). Accordingly, if a tenant assumes maintenance or insurance obligations
for a portion of the common area, the lease should expressly require the ten-
ant to maintain insurance covering the specific areas.

Conclusion
In the press to meet deadlines and be responsive to clients, lawyers can over-
look some of the “standard” or “boilerplate” provisions in a lease form. Also,
many of these provisions appear at the end of the document, where attention
spans seem to wane. Nevertheless, these provisions often address impor-
tant legal foundations that, if neglected, can have unintended consequences for
clients. To avoid embarrassing or costly surprises, attorneys should spend suf-
ficient time in reviewing these less than glamorous sections of the lease and
give these provisions the respect they deserve.

 
What’s Ahead for Home Prices in 2012
The bleeding is just about over. But don?t expect a speedy recovery.

By Pat Mertz Esswein, Associate Editor
From Kiplinger’s Personal Finance magazine, January 2012

 The median home price in the U.S. has plunged nearly 40% in a little over five years, but the worst is definitely over: The market has finally wrung out the last excess valuations born of the housing bubble. Before you break out the party hats, note that this doesn’t mean prices across the nation are poised to rebound anytime soon. Alex Villacorta, director of research and analytics at Clear Capital, a provider of real estate data and analytics, says the housing market is in a “suspended state,” with positive and negative factors offsetting one another. But he doesn’t expect another free fall in prices, assuming “things are left to work themselves out and there are no further shocks to the economy.”

Although the percentage of sales of distressed homes will rise, the federal government?s latest loan-modification program might allow as many as 1.5 million to two million homeowners to refinance, estimates Mark Zandi, chief economist at Moody?s Analytics. Zandi says that further home-price declines nationwide will be limited to 3% to 5% and that 2012 will be the year that prices finally stabilize — setting the stage for gains in 2013.

Short-lived spikes in prices will affect some cities sooner. When housing markets touch bottom and begin to stabilize, price appreciation tends to be spread unevenly, creating a lot of confusion about where the recovery is occurring and when, says David Stiff, chief economist at Fiserv Case-Shiller. Even within a single city, more desirable neighborhoods will stabilize first, while prices in other neighborhoods may fall at a rapid pace.

Touching bottom
In the year ending September 30, home prices across the U.S. fell by 2.6%, and the median home price stood at $171,250, according to Clear Capital. That comes on the heels of a 2.5% decrease from September 2009 to September 2010. In the five-plus years since the peak of the market, home prices nationally fell by 38.1%. Detroit (down 74.7%) is the biggest loser, crushed by subprime lending, foreclosures and the gutted auto industry. A few cities enjoyed small price appreciation, largely because they missed the bubble to begin with: the Clarksville, Tenn., metro area; cities in upstate New York, including Syracuse, Buffalo and Rochester; and Pittsburgh.

Houses haven?t been this affordable since appliances came in harvest gold or avocado green. The benchmark of affordability — the ratio of median home price to median family income — has fallen to 2.6, below the historical ratio of 2.9, says Stiff. Another measure, the percentage of monthly family income consumed by a mortgage payment (principal and interest, using a mortgage rate of 4.1%), is 12% nationally, the lowest since 1971.

Homes in many cities are now substantially undervalued as measured by affordability, says Stiff, and that can lead to double-digit bounces in prices — say, a jump of 10% to 15% in the year following the trough, as the natural optimists, especially investors with cash, jump in to catch the bottom. It might look like a bubble all over again, but it won?t last long. A good example is Cape Coral-Fort Myers, Fla., where investors pushed up prices by 12% during the year ended September 30. Such a bounce will be followed by a sideways drift, during which the ?glass half-empty? folks will slowly return to the market.

Theoretically, low rates should help push buyers to act. The average interest rate on 30-year fixed mortgages fell to 3.94% in the first week of October 2011, according to Freddie Mac. The past couple of years? predictions that rates would rise were based on the premise that the economy would improve, says Guy Cecala, publisher of Inside Mortgage Finance, an industry publication. ?As long as the economy remains stagnant, unemployment remains high, and the housing market is in the toilet, rates will remain near historic lows,? he says. At least for the first part of 2012, he adds, rates should hover between 4% and 5%.

Other positive signs: Existing home sales increased during the summer and early fall of 2011, according to the National Association of Realtors, after a deep slump following the expiration of the first-time home buyer tax credit. Although the inventory of homes on the market and in foreclosure remains high, a lull in home building over the past three years is gradually easing the surplus. The months? supply figure, or how long it would take to sell the inventory of homes on the market at the current pace of sales, improved to 8.5 months in September — although that ratio still favors buyers (six months? supply represents a normal balance between sellers and buyers).

The lure of affordability and low mortgage rates hasn?t increased buyer demand as much as one might expect. Some would-be buyers can?t get a mortgage, given lenders? stiffer requirements. Many more are hesitant to pull the trigger on a home purchase for fear that home prices will continue to fall or that their job prospects are uncertain. Although the recession has technically ended, the economy doesn?t feel better to many.

But Celia Chen, director of research at Moody?s Analytics, says that both corporate and household balance sheets are healthier and should lead to stronger economic growth and improved confidence. She anticipates more robust growth by the second half of 2012, assuming that Congress follows through on its debt-ceiling deal, the Fed keeps interest rates low, and there are no new shocks to the economy (see Investing Outlook 2012).

The foreclosure problem
The dark cloud of foreclosures still hangs over the housing market. The pace of foreclosures has slowed as lenders, loan servicers and regulators have sorted out paperwork and pro?cedures in the wake of the robo-signing controversy that emerged a year ago. But RealtyTrac, which monitors the foreclosure market, says that foreclosure filings have begun to ramp back up.

Nevada, California and Arizona — among the epicenters of the boom and bust — still suffer the highest rates of foreclosure. Georgia, Florida, Utah, Michigan, Idaho, Illinois and Colorado round out the top ten. Among metro areas, Las Vegas still tops the list.

Currently, about 1.84 million home loans are 90 days or more delinquent (a strong predictor of foreclosure) but not yet foreclosed on, and 2.17 million have finished the foreclosure process but haven?t yet been offered for sale, according to Lender Processing Serv?ices (LPS). What happens to home prices if and when they come to market? Villacorta, of Clear Capital, says that despite the downward pressure on prices by foreclosures, prices won?t tank as long as lenders continue to bring additional foreclosures to market at a steady pace.

Bank-owned foreclosures sell for an average discount of one-third off the per-square-foot price of conventional homes for sale, according to RealtyTrac. Buyers who want to snag a bargain on a distressed property will face competition from investors, and the biggest bargains may require a lot of work. Short sales, or homes sold with lenders? permission for less than their owners owe on their mortgages, have also grown in number. Lenders take an average of 16 weeks to sign off on a short sale, so patience is imperative.

Of course, the longer lenders take to work through the foreclosure glut, the longer it will take for home-price appreciation to return to its normal pace of 2% to 4% a year. To hasten the process, the federal government may introduce more policy initiatives — although whether they?ll have any meaningful impact or come soon enough is debatable. In October, Fannie Mae and Freddie Mac, along with their regulator, the Federal Housing Finance Agency, expanded the Home Affordable Refinance Program to allow more underwater borrowers to refinance out of their mortgages into more manageable loans. The FHFA, the Department of Housing and Urban Development and the U.S. Treasury have called for ideas to handle the foreclosures they own, such as converting them to rental properties for purchase by investors.
Read more: http://www.kiplinger.com/magazine/archives/where-home-prices-are-headed.html#ixzz1iWQ63LWo
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LEGAL  A Variety of Legal Issues Can Be Addressed Every Year

• Protect your personal assets from business liability through a California Corporation
    or an LLC
• Ensure that insurance policies have adequate coverage for defense   
• Adequately capitalize your entity; keep entity separate from personal activity
   

FINANCIAL  Annual Financial Check-Up Is Important To Stay On Track!

• Speak to financial advisor annually to re-evaluate goals and assess portfolio; re-balance retirement portfolio annually
• Check beneficiary designations on each financial account for consistency with estate plan
• Tax Returns – keep at least four years worth from date of filing

CREDIT  Protect Against Fraud and Identity Theft

• Order a credit report from Equifax, Experian and Trans Union annually
• Fix any reporting errors with each credit reporting agency
• Evaluate credit cards for interest rates and offers and make changes accordingly; review
    statements monthly for accuracy
• Shred financial documents with personal information older than three years (except for
    income tax records)
• Photocopy current credit cards and file for safekeeping with financial records; destroy
    inactive cards

ESTATE PLANNING Protect Your Family From Expensive Probate And Taxes

• Update or create Will
• Update or create Living Trust – particularly if you have real property
• Update or create Advance Health Care Directives
• Update or create Durable Power of Attorney for Property
• Update or create Guardianship Documents for Minor Children

INSURANCE  Protect Against the Unexpected And Save Money

• Purchase life insurance policy or reevaluate existing policy to determine if needs are met;    consult with CPA before canceling life insurance policy for tax ramifications
• Ensure that property and casualty policy is sufficient to cover loss
• Purchase umbrella policy to cover unexpected insurance events
• Long Term Care Insurance – purchase a policy or consult with a Medicaid attorney if a policy is not appropriate for you
• Purchase a Funeral Expense Pre-Need Policy
• Ensure that home owner’s insurance coverage is adequate to cover  boats or other watercraft or airplanes and replacement coverage of home and contents

This Complimentary Financial and Legal Checklist is offered to you by the Law Offices of Daniela Lungu, 4695 Chabot Drive, Suite 200, Pleasanton, CA 94588.  Contact our office at (925)558-2710 if you have questions, or need a recommendation to a service provider.

For owners of closely held businesses, such as S corporations, the sale to an intentionally defective grantor trust (IDGT) has developed into one of the most effective techniques to freeze the value of the owner’s estate and transfer any future appreciation in the S corporation to future generations. In the midst of an extended recession that has seen asset values fall sharply across all asset classes, including closely held S corporations, and with interest rates near historic lows, many estate planning attorneys have advised clients that, notwithstanding the current uncertainty regarding the estate, gift, and generation-skipping transfer taxes in 2010, now is the time to take advantage of this tremendous wealth transfer opportunity because most agree that estate and generation-skipping transfer taxes will return in some form in either 2010 or 2011. This article will briefly outline the basic structure of a sale of S corporation stock to an IDGT transaction, but the article’s main focus will be on the often overlooked income tax consequences of selecting among the various types of trusts that can own S corporation stock.

In structuring the sale of S corporation stock to an IDGT, attorneys often draft the terms of the trust with three primary considerations: (1) intentionally violate one or more of the grantor trust rules under IRC §§ 673 to 677 to ensure the trust is treated as a grantor trust for income tax purposes; (2) avoid retaining any powers that could cause the assets of the trust to be included in the grantor’s estate under IRC §§ 2036 to 2038; and (3) ensure that the grantor’s desired positive scheme is created, with particular attention to extending the duration of the trust to as many future generations as possible. This last consideration is often the determining factor in whether the trust that ultimately owns the S corporation stock (on termination of grantor trust status) is an electing small business trust (ESBT) or a qualified subchapter S trust (QSST). Because both ESBTs and QSSTs are permitted S corporation shareholders, attorneys sometimes ignore the potential income tax differences between such trusts in drafting the dispositive terms of the initial trust used in the sale. Although this issue may not come to light during the lifetime of the grantor (that is, while the trust is a grantor trust), it can have a dramatic effect on the total assets available to the grantor’s intended beneficiaries once the grantor is deceased. Specifically, since a 2006 legislative change, the treatment of any interest expense paid on indebtedness incurred to acquire stock in an S corporation (which would be paid as part of a promissory note received in a sale of S corporation stock to a defective grantor trust transaction) is substantially different in QSSTs and ESBTs, and attorneys should be mindful of this difference in drafting trusts to be used in a sale to an IDGT transaction and in making S corporation trust elections for trusts that hold S corporation stock acquired with debt.

An IDGT is an irrevocable trust that is treated as owned by the grantor for income tax purposes but not for estate tax purposes. A sale of assets to an IDGT in exchange for a promissory note is a popular estate freezing technique, which can allow future growth of the sold assets to occur outside of the estate of the grantor. In addition, because the grantor pays the income tax on the income generated by the assets held by the trust, these payments are essentially tax-free gifts to the beneficiaries of the IDGT. For an in-depth discussion of the intricacies of a sale of assets to an IDGT, see Louis A. Mezzullo, Freezing Techniques: Installment Sales to Grantor Trusts, 14 Prob. & Prop. 16, Tan./Feb. 2000. As a brief synopsis, an installment sale of assets to an IDGT typically follows these steps: (1) the grantor first establishes an IDGT; (2) the grantor funds the IDGT with a small amount of “seed money” (10% to 20% of the value of the assets sold is often cited as adequate coverage) and/ or the grantor obtains personal guarantees (typically from the IDGT beneficiaries); and (3) the grantor enters into an installment sale agreement with the IDGT trustee, in which the grantor seIls S corporation stock to the IDGT in exchange for a promissory note with an interest rate equal to the Applicable Federal Rate.
The growth of the S corporation stock sold to the IDGT is now outside the estate of the grantor and any S corporation dividend paid will be paid to the IDGT. The IDGT will use cash flow from the S corporation stock to service the promissory note payments due to the grantor, and the grantor now has an established cash flow in the form of the interest and possibly principal payments. So long as the growth rate of the S corporation stock sold to the IDGT exceeds the interest rate of the promissory note, the grantor has effectively transferred such excess growth from her estate to the IDGT. The assets in the IDGT should not be brought back into the grantor’s estate even if she dies during the term of the promissory note. In addition, the grantor is able to leverage her GST exemption because the allocation is made for only the small initial gift to the IDGT, even though significantly more assets may ultimately make up the IDGT’s equity.
In the current economic environment, asset values are depressed and interest rates are at historic lows. The result of this confluence of events is that the value of the S corporation stock may be lower than it was a couple years ago, while the interest rate required to be charged on the promissory note will be near historic lows, creating an extremely low threshold for asset growth to make the transaction successful.  S corporations are corporations that satisfy all of the requirements of IRC§ 1361 and make an election to be treated as an S corporation. Among the various limitations on S corporations, the corporation must be a domestic corporation and must not have as a shareholder a person who is not an individual, an estate during the period of administration, a trust of a specified type, and (in taxable years beginning after 1997) an exempt organization of a specified type.  The specified trusts include • a voting trust; • a grantor trust or a former grantor trust for the two-year period beginning on the day of the deemed owner’s death; • a trust treated under IRC§ 678 as owned by an individual other than the grantor; • aQSST; • a testamentary trust for stock transferred to it under to the terms of a will (a “will recipient trust”) or an IRe § 645 electing trust, but only for the two-year period
beginning on the day on which the stock is transferred to the trust; and an ESBT. In the context of a sale to an IDGT, the initial trust that purchases the S corporation stock is a grantor trust and thus an eligible S corporation shareholder. ollowing the death of the grantor, there is a two-year” grace” period for the trust before it must make an election to be treated as a different type of eligible S corporation shareholder. Typically, once the two-year period following the
death of the grantor has ended, the trust owning the S corporation stock or successor subtrusts will elect to be treated as a QSST or as an ESBT, depending on the terms of the trust. As a result, the remainder of this article will focus primarily on the income tax differences between QSSTs and ‘ ESBTs.  A QSST is a trust that satisfies the following requirements: (1) all income of the trust is distributed or is required to be distributed currently to one individual who is a U.S. citizen or resident; (2) during the life of the current income beneficiary, there is only one income beneficiary; (3) if the trust distributes any trust principal during the life of the current income beneficiary, it can only be distributed to that current income beneficiary; (4) the current income beneficiary’S income interest in the trust must terminate on the earlier of the current income beneficiary’s death or the termination of the trust; and (5) if the trust terminates during the lifetime
of the current income beneficiary, all of the trust assets will be distributed to that income beneficiary.
An election to treat the trust as a QSST and to treat the income beneficiary as the owner of the trust’s S corporation stock must be made by the income beneficiary (not the trustee) within two months and 15 days after the trust’s receipt of the S corporation stock. Similarly, a QSST election must be made within two months and 15 days from (1)
the date that the grantor trust ceases being a grantor trust (or the two-year grace period following the death of the grantor) or (2) the end of the two-year period for a testamentary trust.  
The requirements for an ESBT are not as restrictive as those for a QSST. An ESBT can have multiple beneficiaries, and the trust income can be accumulated and/ or sprinkled among multiple trust beneficiaries. A trust is eligible to be an ESBT if it is a domestic trust that does not have as a beneficiary any person other than an individual, an estate,
or certain charitable organizations. An election to treat the trust as an ESBT must be made by the trustee of the trust (rather than the beneficiary of the trust in the QSST context), and the trustee must make the
election within the same time constraints imposed on a QSST election for the election to be timely.

IRC §136<1(d)(1)(B) essentially creates two portions within a QSST, with one portion consisting of income, deductions, and credits related to the S corporation (the S Portion) and one portion consisting of all
other income, deductions, and credits (the Non-S Portion). The QSST’s income beneficiary is treated as the owner of the S Portion for most income tax purposes. Thus, the current income beneficiary will report the QSST’s share of the S corporation’s income tax items (such as income, deductions, and credits) directly. All of the QSST’s Non-S Portion will be reported by the trustee and taxable under the rules of Subchapter J. ESBTs also use the S Portion/Non- S Portion concept for income tax purposes, with one significant reporting difference. The S Portion of an ESBT is taxed as a
separate trust, the tax attributes of which cannot be merged or commingled with the tax attributes of the Non-S Portion. The primary difference between QSST income taxation and ESBT income taxation is in the treatment of the S Portion of the income tax items. For a QSST, the S Portion is taxable to the current income beneficiary of the
trust, whereas for an ESBT, the S Portion is taxable to the trust. For the ESBT, the S Portion is taxed under special ESBT rules. lRC §§ 641(c)(2)(A) and 641(c)(2)(B) state that for the S Portion, an ESBT must pay the tax at the highest marginal rate for trusts and estates and receives no personal exemption or standard deduction. The Non-S Portion is taxed under the same rules as all other trusts. After understanding the differences between the taxation of the S Portion and the Non-S Portion of various trusts owning S corporation stock, it is important to determine which income tax items of each trust belong in each Portion. For most items, this determination is easy. The S corporation will send a Form 1120S Schedule K -1 to each of the S corporation’s shareholders, in- cluding the trust. The Schedule K-1 will detail the S corporation’s income, deductions, and credits attributable to the shareholder. These items are all attributable to the trust’s S Portion. As a default, all other income, deductions, and credits make up the trust’s Non-S Portion. Congress, however, has created special carveouts of tax items that are not found on the S corporation’s Schedule  K-1 but that are attributed to the S Portion nonetheless. For QSSTs, Treas. Reg. § 1.1361-10)(8) states that the trust will be treated as the
shareholder for purposes of the income tax treatment of the sale of the S corporation stock held by the QSST. Thus, the
capital gain on the disposition of the S corporation stock by the QSST will be in the Non-S Portion. On contemplation
this makes sense, because the disposition of the stock is an action taken by the trust and not by the S corporation itself.
The Code and the Regulations are silent on the issue of the deduction for interest on acquisition indebtedness of the QSST related to the trust’s purchase of S corporation stock. Because this is similar to the disposition of the S corporation stock, however, it is probable that the deduction for interest on acquisition indebtedness is in the Non-S Portion, too.
Moreover, as explained in the next paragraph, Congress has explicitly treated this deduction and the treatment of the
disposition of the S corporation stock differently in the ESBT context, and one can assume that if Congress intended for QSSTs to have the same treatment, it would have acted accordingly. The authors have confirmed in informal conversations with the Internal Revenue Service (lRS) that the lRS concurs with the analysis outlined above. For ESBTs, lRC § 641(c)(2)(C)(ii) states that any gain or loss from the disposition of stock in the S corporation shall be attributed to the S Portion. In addition,lRC § 641(c)(2)(C)(iv) states that the deduction for interest on acquisition indebtedness of the ESBT related to the trust’s purchase of the S corporation stock also shall be attributed to the S Portion. The acquisition indebtedness interest deduction is only includable in the S Portion for taxable years beginning after December 31, 2006. Treas. Reg. § 1.641(c)-1(d), which states that such interest is attributed to the S Portion but is not a deductible administrative expense for the S Portion, has not been updated to reflect the congressional change in 2006, and is applicable only for tax years before December 31, 2006. Thus, for ESBTs, the gain or loss on the disposition of the S corporation stock and the interest deduction related to the acquisition of the S corporation stock are both includable in the S Portion, which is the opposite result of the QSST rules, which include both items in the Non-S Portion.

In drafting a trust to be used in a sale of S corporation stock, most attorneys will follow the grantor’s desired dispositive scheme. Often little attention is paid to the ultimate income taxation of the trust at the outset because the trust will ini- tially be a grantor trust, taxed entirely to the grantor, regardless of the dispositive scheme and without an election. On determination of grantor trust status, typical- ly as a result of the death of the grantor, the attorney, the trustee, and potentially the beneficiary or beneficiaries will confer and make a decision to have the successor or resulting trust treated as a QSST or an ESBT. Occasionally, because of the terms of the trust, either election will be permissible. In this scenario, the preference, before Congress allowed an ESBT to deduct the acquisition indebtedness interest in the S Portion, was often to make a QSST election to allow for the S corporation income to be taxed at the individual beneficiary’s income tax rates rather than the highest marginal income tax rate mandated under the ESBT rules. To illustrate the different income tax consequences of a trust electing to be treated as a QSST or an ESBT it is helpful to walk through some examples.Before the 2006 legislative change to ESBTs, attorneys drafting a trust to be used
in a sale to an IDGT would guide grantors to draft trust dispositive schemes in a way that allowed for a future QSST election knowing that such an election could be income tax advantageous in the future.
Now that the ESBT has certain income tax advantages not available to the QSST, however, the choice is no longer obvious. By drafting a trust to allow for a future QSST election, the attorney allows the
trustee to make the proper election deci- sion in the future when more facts are known. The downside to this is that a trust with terms that allow for a QSST election will be relatively restrictive and inflexible. The trust can have only one beneficiary, and if there is a reason to not make distri- butions to that beneficiary (for example, the beneficiary is a spendthrift or has sub- stance abuse issues), the trustee must still make income distributions. Instead, if the income tax situation will be more efficient as an ESBT, the attorney can draft the trust without the limitations imposed by the Code for QSSTs.After a 2006 legislative change by Congress, the treatment of interest paid on the indebtedness related to the acquisition of S corporation stock and of the disposition of S corporation stock by a trust is significantly different between QSSTs and ESBTs. As a result, attorneys drafting trusts for use in a sale to an IDGT transaction, which will likely have interest payments related to promissory notes issued in consideration for the purchase of the S corporation stock, must take into account whether the trust will be more tax efficient as a QSST or an ESBT once grantor trust status terminates. In addition, attorneys should review QSST elections made before 2007 to determine if it would be more tax efficient to convert the QSST to an ESBT.

 The word “homestead” has both a popular and a legal significance. In its popular sense, it signifies the place of the home or residence of the family. It represents the dwelling-house in which a family resides, with the usual and customary appurtenances, including the outbuildings of every kind necessary or convenient for family use, and lands used for the purposes thereof . In the legal context, homestead refers to the privilege extended to families and family members to continue to live in their home despite claims of creditors. Although homestead is traditionally described as an estate in land, under modern statutes it is in reality a monetary exemption so long as the value of the property exceeds the amount of the statutory exemption. The principal object of the creation of the homestead estate is to protect the homesteader in the enjoyment of a home and to secure to him or her shelter beyond the reach of his improvidence or financial misfortune. The law gives greater significance to the preservation of the homestead than payment of debts.

Homestead Laws

Homestead rights did not exist under the common law. Such rights are peculiar to the U.S and exist only by virtue of statute or constitutional provision. Homestead laws are designed to protect small individual property owners, such as homeowners, from the ever changing economic climate of the U.S. These laws allow an individual to register a portion of his/her real and personal property as “homestead,” thereby making that portion of the individual’s estate off-limits to most creditors. The idea behind these homestead laws is the preservation of the family farm, home, or other assets in the face of severe economic conditions.

The general rules of statutory construction apply with respect to homestead law provisions. If the meanings of the words are unambiguous, easily understood and plain, no construction or interpretation is required. Since homestead rights are preferred over the rights of creditors, statutory construction is strict towards creditors.

State laws greatly vary with respect to homestead law. Homestead exemption statutes are subject to change at any time according to the will of the state.

Persons Entitled to Homestead Exception

Homestead rights are created by statutory provisions. Most statutes provide that every person at the age of eighteen or over, married or single, residing within the state can hold a homestead exempt from attachment, execution, and forced sale. It implies natural persons regardless of marital status or lack of dependents. However, some statutes restrict homestead exemption to some combination of ranks. Restrictions are generally on the basis of marital status, head of a family, and dependents. Some jurisdictions like Arkansas limit homestead rights to the head of the family.

Generally, it is not necessary that a homestead claimant be married. However, a homestead right is not given to a man and woman living together with an unmarried status . A married couple can claim a homestead exemption on the basis of their marital status. In case of married couples, parties share the single homestead exemption. Moreover, each spouse can claim full exemption. Spouses enjoy homestead rights regardless of property ownership . A person married to a debtor is entitled to an exemption on the basis of a homestead declaration. The declaration of homestead by a non debtor spouse terminates and extinguishes the debtor’s homestead. This is to restrict a debtor from enjoying both spouses’ homestead exemptions. After declaration, spouses are entitled to a single homestead exemption.

A parent can also be a homestead holder. The dependent child must be living with the parent on the homestead property. The parent as head of the family must be controlling the family. A grandparent having a grandchild depending upon him/ her for support can be a head of the family for the purpose of a homestead exemption . An adult child supporting a parent can also be a head of the family for homestead exemption purposes.

Properties Subject to Homestead Exceptions

The rules governing the nature of property entitled to be registered as homestead property adhere to regional patterns. Real property subject to the homestead exemptions vary in value. Generally, an undivided interest in real estate, accompanied by the exclusive occupancy of the premises by the owner of such interest and his/her family as a home, is sufficient to support a homestead exemption. Property subject to homestead exemption is described in each homestead statutes. In order to claim a homestead exemption a homestead holder must enjoy the ownership and occupation of the homestead

A claim to statutory exemption for homestead is limited to:

•Size;
•Value; and
•Character of the land as urban or rural.
Usually state constitutional provisions describe the monetary limit on the amount of an exemption that a debtor can claim. Such statues contain area limits on the exemption. Most states impose a dollar limit on debtors’ homestead exemptions. However, in some states, a homestead exemption is unlimited. A homestead holder has a right to hold as exemption money or profit derived from the use of homestead.

Some statutes exempt money gained from the sale of a homestead property. For a debtor to exempt money gained from the sale of a homestead property, the debtor must establish some link between the money at issue and the homestead in question. In some jurisdictions, an owner is entitled to receive the amount of the homestead exemption on sale of the homestead property. The sale can be conducted voluntarily by the owner or involuntarily by the sheriff pursuant to writ of execution .

Exclusive occupancy of the property by the claimant and family as a home has been held to be a requirement for exemption. However, two separate homestead estates cannot coextensively exist on the same premises at the same time.

Encumbrance of Homestead Property

The owner of a homestead has the right to encumber the homestead. Consent of both the spouses is manifest through the signature of both the spouses on the instrument validating the encumbrance on a homestead. The spousal signature is mandatory in all transactions pertaining to a homestead, except in the case of a purchase-money mortgage.

An owner of a homestead is free to mortgage the property in the absence of contrary stipulations in a statute. However, if there is a statutory prohibition as to the mortgage of a homestead, such mortgage shall be invalid. The mortgaged property may be subjected to sale under foreclosure. When the mortgage covers both homestead and other property, the debtor may require the mortgagor to resort to the other property first.

The Law permits the leasing of a homestead in certain limited instances. One spouse may lease the homestead lands for a reasonable term without the consent of the other spouse, provided such lease does not interfere with the use of the property as the home of the family. A lessee of a homestead cannot change the terms of a contract by entering into an agreement with only one spouse.

Regarding the matter of encumbering a homestead by the husband or wife of an insane spouse, the law differs depending on the state. While some states do not permit such a transaction, some provide procedures by which the sane spouse may obtain a court order authorizing a conveyance. In some states, alienation of the homestead of an insane person is allowed by joinder of the guardian with the sane spouse.

Conveyance of Homestead Property

The homestead estate cannot be casually conveyed. Any conveyance of the estate must be made explicitly, specifically, and in writing. Irrespective of the manner of spousal land ownership recognized in each state, generally, there exist rules that govern the conveyance of homestead property by a spouse(s).

Generally, no spouse may convey homestead property without consent.

by: USLegal,Inc.

A health care directive is a written document that specifies what type of medical care you want in the future, or who you want to make decisions for you, should you lose the ability to make decisions for yourself. Generally, a person must be at least 18 years old and of sound mind to make a health care directive. The document must be signed and notarized according to the laws in your state. Laws governing directives vary by state, so local laws should be consulted for specific requirements in your area. Healthcare directives are the best possible way to assure that decisions regarding your future medical care will reflect your own wishes, in the event that you are unable to voice those wishes. A healthcare directive is also known as advance directive.

Need for a Healthcare Directive

A health care directive becomes important in cases where the patient is in a condition where s/he cannot communicate the health care choices. Having a healthcare directive provides you some assurance that your personal wishes concerning medical and mental treatment will be honored at a time when you are not able to express them. Another advantage is that it can be helpful when there are conflicting opinions among relatives as to what should be done. Further, it may also prevent the need for a guardianship imposed through the probate court. However, even though advantageous, it is not necessary for every person to have a healthcare directive. The decision to have a healthcare directive is purely voluntary.

Choosing an Agent

Choosing an agent is one of the most important decisions to be made while making a health care directive. The agent can be given powers to make those personal care decisions you normally make for yourself. Therefore, the agent appointed should be someone close to and trusted by the individual. It should be someone who cares deeply about your welfare. People often choose their spouse or other close family member to be their agent. You can also limit your agent’s authority if you choose to do so. Generally, an agent will not be legally or financially liable for decisions made as long as they are in accordance with the individual’s wishes and beliefs.

Different Types of Healthcare Directives

The types of health care directives vary based on state law and individual preferences within the states’ legal requirements. The three most common types of healthcare directives are the durable power of attorney for health care, living will and do-not-resuscitate order/declaration.

Durable power of attorney for health care, sometimes called the health care power of attorney or health care proxy, is a power of attorney where the principal appoints an agent to make health care decisions for the principal in the event the principal becomes disabled or incapacitated. This document places a friend or family member in charge of making decisions for the individual and usually provides the agent with guidelines for making those decisions. The agent appointed is can make decisions in accordance with what the individual would have wanted. However, if the individual has specified his/her wishes clearly on the proxy form, they must be followed despite any possible objections from the agent. Even though health care proxies are permitted by all the U.S. states the specifics vary. For example, some jurisdictions place limitations on the persons who can act as agents. Therefore local laws should be consulted for specific requirements

A living will is a document that allows a person to explain in writing which medical treatment s/he does or does not want during a terminal illness. Its purpose is to allow you to make decisions about life support and direct others to implement your desires in that regard. A living will takes effect only when the patient is incapacitated and can no longer express his or her wishes. A living will can be very specific or very general. Although the term living will gives the impression that it is a will, in reality, it is more similar to a power of attorney than a will. Most states have laws in support of living wills. However, these laws vary by state. Some states require two witnesses to witness your signature or that the form be signed in the presence of a notary public, or both.

A do not resuscitate order/declaration ( DNR) is an advance directive that is to be followed when a person’s heart or breathing stops and they are unable to communicate their wishes to refuse treatment that could allow them to die. DNR orders come from physicians, not from patients. If a patient wants cardiopulmonary resuscitation (CPR) to be withheld, he or she has to discuss the decision with a physician and get the order written. Laws regarding do not resuscitate orders vary by state. Some states have standardized forms for DNR orders; if the order is not written on that specific form, it cannot be honored. Whereas some other states are less regimented, honoring any type of DNR order.

by: USLegal,Inc.

Conflicts of interest in a business relationship may arise in several different situations. A conflict may arise when the personal interests of someone in a position of trust clashes with the person’s professional interests. A conflict may also arise when a person has different professional responsibilities and those responsibilities collide. A person who has these types of competing interests may have difficulty in fulfilling professional obligations.

Owners and managers of businesses may encounter conflicts during the course of the business. Conflicts of interest are often the result of a transaction between a business, such as a corporation, and a manager of the business. The manager may take advantage of this relationship and complete a transaction that benefits himself/herself and not the corporation.

In a majority of U.S. jurisdictions, the resolution of a conflict of interest for a controlling shareholder, director, or officer of a corporation focuses on the fairness of the transaction. The person who is involved in the transaction must prove that the transaction is the result of fair dealing and demonstrates a fair price.

Conflicts of Interest Within Huge Corporations

Corporations have always had the problem of conflicts of interest. For that reason, they often have policies requiring complete disclosure from employees as to whether they have any financial interest in transactions the company is about to engage in. thus, if a company is buying land, it would like to know that some officer with responsibility for that transaction owns interest in the land.

Accounting

In the accounting world, a conflict of interest may involve a situation in which an internal auditor, who is in a position of trust, has a competing professional or personal interest. Such competing interests can make it difficult to fulfill his/her duties impartially. A conflict of interest exists even if no unethical or improper act results. A conflict of interest can create an appearance of impropriety that can undermine confidence in the internal auditor, the internal audit activity, and the profession. A conflict of interest could impair an individual’s ability to perform his/her duties and responsibilities objectively.

Handling Conflict of Interest

A person who faces a conflict of interest may not be able to avoid the conflict. In such an instance, the person may be required to take certain steps by law or may need to follow certain practices in order to avoid any appearance of impropriety.

Laws governing businesses handle conflicts by several different means. For instance, partners in a partnership are bound by a duty of loyalty that prevents the partner from competing in a business to the detriment of the partnership.

The following are some of the means by which conflicts of interest may be handled, either by law or as good professional practice:

a. duty of loyalty: in partnership law, for example, a partner is bound by a duty of loyalty, which forbids the partner from personally engaging in a business transaction to the detriment of the partnership.
b. fairness: some laws, such as those governing conflicts of interest within corporations, require that transactions involving such conflicts are fair.
c. full Disclosure: many professionals, such as lawyers and government officials, are required by law to give full, written disclosure of any conflicts of interest.
d. recusal: decision-makers, such as judges or members of government agencies, may choose to recuse themselves in situations where the subject of a decision involves a conflict of interest.
e. third-party evaluations: in some situations, such as where majority shareholders in a corporation decide to buy out minority shareholders, a neutral third party may be used to determine a fair market price for the minority shares.
Impact on Business

Conflicts of interest can lead an organization to bad decisions, additional expense, and increased risk in operations. Periodic overviews of business relationships, expert advisor roles, and business activity can decrease risk associated with potential bias.

by: USLegal,Inc.

Financial Planning for Singles
 
Six basic rules to help you secure your future.

By Cameron Huddleston, Contributing Editor, Kiplinger.com
July 6, 2010
 

 The August issue of Kiplinger’s Personal Finance has advice to help couples who can’t wed (or choose not to) customize their tax and estate planning. Finance Basics for Partners has tips on how unmarried couples can handle everything from property division to child custody to who makes end-of-life decisions.

It also offers these six rules to help singles plan their financial lives:
——————————————————————————–

Protect income. Employer-paid disability insurance typically replaces 60% of your income, but you owe tax on the benefit. Aim to replace another 15% to 20% of your salary through individual coverage. See Why You Need Disability Insurance for more information.

Cover future care. The median cost of a private room in a nursing home is now $206 a day, according to Genworth Financial, and the price is expected to rise rapidly. Pick up a long-term-care policy with inflation to help cover the costs (see Long-Term Care You Can Afford).

Choose a wingman. Use the appropriate legal documents to assign your health-care power of attorney, which lets your representative make medical decisions for you if you cannot, as well as your durable power of attorney, which gives your representative the authority to make financial decisions on your behalf. If you have minor children, you will need to nominate a guardian for them in a legally executed will. (If you don’t have children, see this advice on turning to extended family, friends, neighbors or trusted advisers to make health-care and financial decisions in case you become incapacitated.)

Boost earning power. Your ability to earn money is your biggest asset, says Sheryl Garrett, of the Garrett Planning Network. Burnish your skills with professional training or by getting an advanced degree. See Grad Degrees From a Distance for information about getting your master’s online.

Pump up retirement accounts. At a minimum, you should contribute enough to your 401(k) to get any company match. If you have cash to spare, set up a Roth IRA. You’ll pay taxes on your contributions upfront, but your earnings will accumulate tax-free, and you won’t owe taxes when you withdraw money in retirement (see Why You Need a Roth IRA).

Set up an emergency fund. Aim for enough money to cover your expenses for at least six months or, in this uncertain job market, even a year (see How Much Cash You Really Need).

Read more: http://www.kiplinger.com/columns/kiptips/archives/financial-planning-for-singles.html?topic_id=17#ixzz1GbSFdPzT
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