I, Maxine, being of sound mind and body, do not wish to be kept alive indefinitely by artificial means. Under no circumstances should my fate be put in the hands of doctors interested in simply running up the bills.

It should be presumed that I won’t ever get better. When such a determination is reached, I hereby instruct my appointed person and attending physicians to pull the plug, reel the tubes and call it a day.

Pete Smith began working for Pro-Plumbers a little over ten years ago.  During his time with the company, Pete learned the ins-and-outs of the plumbing profession and became a skilled plumber.  Last year, Pete married his high school sweetheart, and now the two are expecting their first child.  In order to better support his growing family, Pete made the decision to go out on his own and begin his own plumbing business.  “Pete’s Plumbing” opened for business at the beginning of last year.  Initially, Pete operated his business as a sole proprietor.  However, after having bids for projects rejected time after time (even though he was the low bidder) because he lacked corporate status, Pete made the decision to incorporate his company.  On his next free evening, Pete went online to the Colorado Secretary of State website, completed the one page articles of incorporation form, paid the required filing fee, then went off to bed, feeling good that his business was now a corporation.  “This incorporating stuff is pretty easy,” Pete thought smugly to himself, “only a fool would have to hire an attorney to do this.”

 The next day, Pete submitted a bid on an extensive plumbing project for a new hotel – he filled out the requested paperwork, signed it simply “Pete Smith,” and attached one of the business cards his wife had created for him when he first went out on his own; it read, “Pete’s Plumbing: The Pipe Pro.”  A few days later, Pete received word that he had won the bid.  Although excited about the project, Pete realized that he didn’t have all of the tools necessary for such a big job.   Because his company had only a few hundred dollars in the business account, Pete wrote a check for the majority of the equipment from he and his wife’s joint checking account and put the rest on their personal credit card.

 A few weeks later, Pete was working on some pipe on the exterior of the hotel when he received a phone call from his wife telling him that her car had broken down and she needed a ride to the airport to catch her flight.  Pete hurriedly finished connecting the final two pieces of pipe, turned the water back on, and left for the evening.  In his rush to leave, Pete forgot to check the seal on the two pipes.  Slowly water began to leak at the connection site and puddled onto the sidewalk.  In the cold weather, the puddle quickly turned to ice.  The following morning, as the project foreman was making his rounds to see how the project was progressing, he stepped onto the ice, fell, and broke his neck.  After an investigation into the accident revealed the faulty pipe connection, Pete was served with a civil complaint seeking $500,000 in damages.  As part of the discovery phase of the lawsuit, Pete was required to turn over all of his corporate documentation and financial records.  At trial, the court determined that Pete was not entitled to limited liability protection because he hadn’t adequately perfected his corporation by executing Bylaws and holding the required meetings; because he did not hold his business out to be a corporation by signing all contracts as “Pete Smith, President of Pete’s Plumbing, Inc.” and including the “Inc.” designation on his business cards and other marketing materials; and because he had commingled his own personal funds with those of the business.  The Court ruled that the corporate veil should be severed and found Pete personally liable for all of the damages.  To come up with the funds to pay the judgment, Pete had to sell his family’s home and drain most of his personal savings.

Had Pete consulted an attorney while forming his business, he would have been made aware of the steps necessary to obtain and maintain limited liability protection.  And, as his business grew, Pete’s attorney would have been there, by his side, to answer any questions and to provide guidance to ensure that these requirements were met.  Then, when Pete was sued, all he would have stood to lose would have been the business’ assets; he and his family’s personal assets would have been safe.

 Don’t make the same mistake Pete did. Whether you are just starting your business or have been in business for years, you should consult with an attorney to ensure that you have taken the necessary steps to protect yourself and your business.  If you would like to schedule a complimentary consultation to discuss your business’ legal needs, please contact me by phone at 720.635.3218 or by email at jodi@heltenberglaw.com.

1. Loss of Control.  When your child is added to the deed as a joint tenant, he becomes entitled to certain rights with regard to your home…you are essentially giving him half of your property. Once your child is on the deed, he can decide at any point to end the joint tenancy and sell his interest to a third party – without your knowledge or consent.  Worst case scenario – you could end up sharing ownership of your home with a complete stranger.
2. Due on Transfer Trigger.  Nearly every standard mortgage loan contains a due on sale clause, which provides that the lender can demand immediate repayment of the full outstanding balance on the loan if the borrower is no longer the record owner of the property. Even if you simply add your child to the deed, this can trigger the due on sale clause.  Therefore, make sure that, if you do decide to add your child to the deed, you talk to your lender first to ensure that you will not be immediately required to pay off the loan.
3. Effect of Child’s Death/Divorce.  By adding your child to the deed, you could ultimately end up sharing ownership of your home with an unintended third party – e.g., your child’s spouse or even their ex.  If your child were to die, his share of the property could pass to his spouse (or another named beneficiary) in his Last Will or by statute.  What happens if that spouse ends up remarrying?  You could end up sharing ownership of your home with a virtual stranger.  Or, if your child divorces, his ownership interest in the house may be considered marital property and subject to the terms of his divorce settlement, potentially giving your child’s ex an interest in the home.
4. Exposure to Creditors.  When you transfer partial ownership of your home to your child by adding him to the deed, his creditors may look to the value of his interest in your home to pay his debts.  If your son is on the title to your home and is forced to file for bankruptcy, your house could be sold to satisfy his creditors.  Typically, homesteads are protected in bankruptcy, but when you transfer an interest to your child who does not live in the home, it loses its homestead character.  Likewise, if your child fails to pay his taxes, the government could place a tax lien on your home.
5. Capital Gains Tax.  When your child is added to the deed, he takes it with the same basis you have in it.  This means that, should he decide to sell the home at the time of your death, he would face capital gains tax on the portion he owned prior to your death.  For example, assume you bought your home for $100,000.  When you added your son to the deed, his 50% interest has a basis of $50,000.  At the time of your death, the home has a value of $200,000, making your son’s share worth $100,000.  Therefore, upon the sale of the home, he would owe capital gains tax on $50,000.  Whereas, if he had inherited the home at the time of your death, he would have been permitted a stepped up basis in the property and, at the time of sale, would not own any capital gains tax.
6. Medicaid Penalty.   Ordinarily, your residence is considered an exempt asset when calculating whether or not you qualify for Medicaid assistance.  However (except in very specific circumstances – e.g., transfer to a disabled child or a transfer who a child who is living in the home to provide your care), if you gift your home or a portion thereof, you may incur up to a penalty of up to 60 months before you can qualify for Medicaid (the precise length of the penalty depends on the value of the gift).
7. Gift Tax Implications.  Under current law, you are permitted to gift $13,000 per year, per individual tax free (thus, a couple can jointly gift $26,000 per year, per individual).  When you add your child to the deed to your house, unless you receive payment of fair market value from the child, it is deemed to be a gift.  Consequently, if the value of the interest in your home that your child receives is greater than $26,000, it will be subject to gift tax.
8. Unequal Distribution of Estate.  It may be your wish to leave your children equal shares of your estate when you die.  However, even if your Will directs that your children inherit equal shares, by adding a child to the deed, you may defeat that goal.  This is because, by adding a child’s name to the deed, you remove that asset from your estate and no longer control its disposition.  Only the child named on the deed will have rights to the home and only he will be entitled to the proceeds from the sale of the home.

For these reasons, I would recommend thinking twice before adding your child to the deed to your home.  If you would like to discuss your specific circumstances and to learn about other estate planning strategies that may better achieve your goals, please contact me to schedule your FREE one-hour initial consultation.

Dan was a single guy living at home with his father and working in the family business.  When he found out he was going to inherit a fortune when his sickly father died, he decided he needed a wife with whom to share his fortune.  One evening at an investment meeting, he spotted the most beautiful woman he had ever seen.  Her natural beauty too his breath away.  “I may look like just an ordinary man,” he told her, “but in just a few years, my father will die, and I will inherit $20 million.”  Impressed, the woman obtained his business card.  Three days later, she became his stepmother.  Women are so much better at estate planning than men.

A confidentiality agreement, sometimes also referred to as a nondisclosure agreement or NDA, is a signed contract entered into by two or more parties in which the parties agree that certain information disclosed to one party by the other will remain confidential. Such an agreement can serve several functions. First and foremost, the agreement protects proprietary information by prohibiting its disclosure to others. If the information is disclosed, the injured party can sue for breach of contract and can seek injunctive relief and monetary damages.

Second, the use of a confidentiality agreement can ensure that value patent rights are not forfeited. Under U.S. intellectual property laws, the public disclosure of an invention can be deemed a forfeiture of patent rights in that invention. A property drafted NDA can prevent this.

To be as effective as possible and to ensure that they will be upheld, confidentiality agreements should be carefully drafted and tailored to the needs of the specific parties involved. An effective confidentiality agreement should clearly define the rights and obligations of the parties by setting forth precisely what information can and cannot be disclosed. The type of information that can be included within the scope of confidential information is virtually unlimited – data, drawings, software, systems, specifications, customer lists, test results, etc.

Most confidentiality agreements will specifically exclude certain information from the definition of confidential information – for example:  information the recipient can demonstrate that he/she had knowledge of prior to receipt of the information from the disclosing party, information that becomes known to the public through no fault of the recipient, information disclosed to the recipient by a third party who has the legal right to disclose the information, or information required by law to be disclosed. Without such exceptions in place, potential recipients may refuse to sign the agreement.

Another important matter which should be covered within the confidentiality agreement is the standard of care which the recipient will use to protect the disclosed confidential information. Often, the agreement will require that the recipient treat the disclosed information the same way it treats its own confidential information (and utilize the same level of caution to protect it). However, the disclosing party must make certain that this standard is sufficient – i.e., that the recipient has acceptable practices in place to maintain the confidentiality of its own proprietary information.

A final note regard Confidentiality Agreements – don’t wait until it’s too late. As the old saying goes… that’s like closing the barn door after the cows have gotten out. Once you’ve disclosed information, it’s too late to protect it. You can’t force someone to sign a confidentiality agreement after-the-fact or sue them for disclosing information that they were not aware was confidential.

If you would like assistance preparing an effective confidentiality agreement, please feel free to contact me to schedule an appointment to discuss your specific needs.

Proper estate planning is essential.  For many of you, you may have already completed an estate plan and now consider the task “checked off the list,” not to be worried about again.  However, many estate plans will need to be revised due to the passage of time and the inevitable changes which occur in all of our lives.

Many events and life changes necessitate changes to your estate plan.  If, at sometime in the future, you experience any of the following events, your estate plan may need to be revised:

•  Named beneficiaries pass away;
• New beneficiaries are born/adopted;
• You have children and you do not have an appointment of guardian in place;
• Divorce;
• Marriage;
• Personal representatives/Trustees/Guardians pass away or your choice of individuals to serve in these roles changes;
• The value of your estate substantially increases;
• You acquire or dispose of a significant asset;
• You move to a different state;
• You or your spouse becomes mentally/physically disabled;
• A child/beneficiary/agent develops a substance abuse problem;
• A child/beneficiary/agent proves to be financially irresponsible; or
• Your wishes regarding how or to whom your estate will be distributed change.

Changes in tax law can also impact the effectiveness of your estate plan.  While the future of the estate and gift taxes remains uncertain, the government has repeatedly exhibited an unwillingness to do away with the taxes altogether.  Until that unlikely event occurs, if ever, it is important that your estate plan utilize every available strategy to minimize your tax exposure.  There are many estate-planning tools which can limit your estate tax liability and help you to take full advantage of the gift tax exemption. 

For the average client, an estate plan should be reviewed every three to five years (more often if substantial changes have occurred).  You have already invested the time and expense to develop your estate plan – periodically devoting a few additional minutes to review your plan can ensure that your planning documents continue to reflect your wishes and accomplish your goals.

If you would like more information or if you need assistance establishing a password for your business, please contact Jodi Heltenberg via email at jodi@heltenberglaw.com or by phone at 720.635.3218.

]]> http://www.heltenberglaw.com/blog/?feed=rss2&p=90 0 http://www.heltenberglaw.com/blog/?p=83 http://www.heltenberglaw.com/blog/?p=83#comments Wed, 01 Feb 2012 16:39:55 +0000 admin http://www.heltenberglaw.com/blog/?p=83 Jodi Heltenberg’s list of “10 Tips to Drafting Effective Contracts” was recently published on the Colorado SBDC (Small Business Development Center) website.  You can find it here:  10 Tips for Drafting Effective Contracts.

No matter how well you know and trust the person you’re dealing with, when it comes to your business – ALWAYS get it in writing. Without a written agreement clearly setting forth each party’s obligations and expectations, when something goes wrong there is nothing but your word against someone else’s – which can ruin relationships and lead to time consuming and expensive court battles. The investment of a little extra time and effort to reduce your agreement to writing can save significant time, money, and headache in the long run. When drafting a written contract, keep the following tips in mind:

1. Clearly identify each party to the contract. Include the full legal name and address of each party. If you are contracting with a business, make sure that the business (not just the person signing on behalf of the company) is named as a party to the contract.

2. Include a detailed description of each party’s duties/obligations under the contract. You will want to clearly define each party’s duties, including the goods and/or services to be provided and a timetable for delivery/completion.

3. Include a Termination Clause. You should clearly specify which breach of contract events trigger a right to termination of the contract, how much notice is required prior to termination, and whether the breaching party is entitled to an opportunity to cure.

4. Include a Merger/Integration Clause. You should clearly state that the contract represents the entire agreement of the parties. This prevents a party from later claiming that the contract does not reflect their entire understanding, was changed by a subsequent oral agreement, etc. You should also include a requirement that all amendments to the contract be in writing and signed by all parties.

5. Clearly define all important terms. Don’t assume that all parties to the contract will have the same definition for important terms. For example, contracts often call for delivery to be made bi-weekly. What does that term mean? If you look up bi-weekly in the dictionary, “biweekly” can mean either twice per week or every two weeks. If the contract doesn’t clearly state which definition applies, conflict can result.

6. Anticipate Litigation. The contract should include provisions regarding choice of law, forum selection, and attorney’s fees. You may also want to require that alternative dispute resolution methods be utilized (mediation, arbitration) rather than litigation.

7. Include a Savings/Severability Clause. In the event that one provision of the contract is found to be unenforceable, this clause ensures that the rest of the contract will remain in force.

8. Number the pages of the contract. This avoids the possibility that additional pages may be unscrupulously added after signing.

9. Use exhibits to memorialize the specific terms of the agreement. This allows you to use the same base contract over and over again.

10. Consider including provisions regarding the following, if applicable: a. Remedies for nonpayment/late payment fees; b. Copyright ownership; c. “Time is of the Essence” clause; d. Assignability (can obligations under the contract be assigned to a third party?); e. Renewal terms; f. Return of property at expiration of contract; g. Confidentiality; and h. Limitation of Liability/Indemnification.

While the above tips provide basic guidance for drafting a generic contract, they are not tailored to your business’ specific circumstances and needs. It is good practice to consult with an attorney to draft or review all of your important business contracts. Jodi R. Heltenberg, Esq. of Heltenberg Law can help protect your business by ensuring that your contracts are drafted in your business’ best interests. She can be reached at jodi@heltenberglaw.com or 720.635.3218.