Estate Planning for Small Business Owners

Having an estate plan is important for all families, but it’s crucial for small business owners.  Small business owners have a lot at stake and need to plan for the future to ensure their wishes for their company are carried out.  What should you, as a small business owner do to ensure the success of your company long after you’re gone?  KJK put together a few tips to make estate planning seem less overwhelming.

First, you need to sit down and think about what you want to happen when you pass away and how you want to provide for your family and business.  If you don’t come up with a plan, the laws of intestacy will govern how your property and assets are distributed, which doesn’t often match everyone’s desires.  Do you want your minor children to get their share of your assets right away or do you want a trust to hold the assets for your children until they reach a particular age?  As you’re thinking about these things, make sure to also give due consideration to the potential for incapacitating lifetime disabilities.  If you create a durable power of attorney now, which appoints someone to handle your property and financial matters, it avoids the burdensome process of trying to do so when it’s too late.  Durable powers of attorney can be in effect for your entire life, or you can set them to “spring” when you become disabled or incapacitated.  You should also appoint someone to handle your healthcare decisions.  A healthcare power of attorney will make medical decisions for you if and only if you are unconscious or unable to do so yourself.

Second, you need to make preparations for your company.  One of the first things you should do is to make sure your business is structured to protect you from creditors.  Operate as an LLC or an S-Corporation, not as a sole-proprietorship or general partner.  These structures avoid personal liability, although they are not bullet-proof, hence the need for a comprehensive estate plan.  You also need to follow all corporate formalities.  These things can help protect you and your company from liability while you are alive and after you pass away.  You also need to come up with a succession plan that answers the important questions your business partners and employees may have after you’re gone.  Where do you want your stock go when you pass away?  Do you want your spouse, children, or other family members to gain control of the business?  Your business partners may not want your family involved in the business if they are not already a part of it.  In this case, a buy-sell agreement with a funding mechanism (such as an insurance policy on the life of the shareholders) could alleviate your partners’ concerns and still give you plenty of control.  No matter what the answers to these questions may be, make sure to avoid a forced sale.  Forced sales often yield poor prices.

Third, you should implement an asset protection plan now, before liability arises.  Small business owners often sign personal guarantees to acquire assets or credit for their business.  Additionally, if the business owns customer-accessible property (for example, a store as compared to an office or warehouse which customers don’t visit), the owners can be liable for accidents, such as slip and falls, which occur on the property.  It is important to set up an estate plan now to secure assets because if a business owner waits until after they default on a loan or get sued for customer injury, it is often too late to protect assets.  This is because if you make transfers into an estate plan (or to other family members or friends) after liability arises, the court may consider those transfers a fraudulent attempt to hide assets from creditors, and can invalidate those transfers – leaving those assets unprotected.  Essentially, once a creditor or injured party is in the picture, it’s too late to prepare, but proactively establishing an estate plan greatly improves your chances to shield your assets.  Why allow a creditor to undo all of your hard work when you can easily implement an estate plan now to ensure you’re protected?

It is important to keep in mind that making an estate plan should not be a one-time occurrence.  Your estate plan should evolve over time.  Every 3 to 5 years you should review it to see if your needs or decisions have changed.  Please contact KJK’s Wealth Planning practice group to move forward with an estate plan that is right for you and your business.

Dahman Recovers Attorney Fees

Recovering attorney fees is not an easy feat in a lawsuit, especially when defending a case. Here in the U.S., we go by the “American Rule” to determine who pays for legal fees.  Under this rule, with the exception of contracts between the parties and statutes providing for the recovery of attorney fees, each party is responsible for its own fees, regardless of who wins the lawsuit.  The alternative to this, the “English Rule,” which is used in most other countries, provides that the prevailing party in a lawsuit has its attorney fees paid for by the opposing party.  The logic behind the American Rule is to encourage people to seek redress from wrongs and not be discouraged by the threat of having to pay a defendant’s attorney fees if they lose.  The English Rule, which I personally prefer, tends to discourage parties from continuing on with litigation – either as a plaintiff or defendant – when they are not confident that they will prevail.  In essence, the English Rule discourages questionable litigation, while the American Rule does not penalize it.

So the American Rule makes it significantly more difficult to recover attorney fees, especially for a Defendant.  But in a recent matter, I was able to recover my clients’ legal fees defending a civil theft claim because of a fee-shifting provision in the governing statute.  Pursuant to R.C. § 2307.61, if the defendant prevails in a civil theft lawsuit, the defendant may recover from the property owner:

  • reasonable attorney fees;
  • the cost of defending the action; and
  • any other compensatory damages that may be proven.

In this case, I represented an insulating contractor and its owner facing four separate claims, one of which was a civil theft claim.  Through hard work, thoughtfulness, and the plaintiff’s risky claim, I obtained a complete defense verdict in a jury trial.  After trial, I then represented my clients in two appeals of the civil theft claim.  Although the Court ruled in my clients’ favor, the Court did not initially award attorney fees to them.  That did not discourage me or my clients from prosecuting the appeal – mostly because we knew that we would eventually be awarded our fees.  Ultimately, after a hearing on our attorney fees, the Court ordered the Plaintiff to pay our attorney fees associated with the civil theft claim.  So not only did I successfully defend his clients, I also saved them thousands of dollars in attorney fees, an accomplishment that is extremely difficult under the American Rule.

This demonstrates that the American Rule can provide fair and just results for defendants through thorough and diligent representation.


The Critical Role of Subpoenas in Litigation

Lawsuits are about evidence – namely, who has it and how much is there.  For that reason, parties (and their attorneys) devote a significant amount of time to gathering information through the discovery process.  Generally, parties are supposed to play nicely and share their information with the opposing side.  But of course, that usually isn’t the reality.  Frequently, parties will object to sharing information, arguing that it’s not relevant or that it’s too burdensome to produce.  Additionally, obtaining complete and truthful information is often easier obtained from disinterested, third-parties than from parties who have an incentive to only provide information that helps their case, not yours.  This is where the all mighty subpoena comes into play.  The subpoena is so fundamental to litigation that it has its own rule of civil procedure, separate and apart from the general rules governing party-only discovery.

Subpoenas, through Civil Procedure Rule 45, authorize litigants to obtain both testimonial and physical evidence from non-parties.  Non-parties are more likely to truthfully and completely respond to subpoenas than parties through traditional discovery because:  (i) they have a less vested interest in the litigation, and (ii) they can be sanctioned if they do not comply with the subpoena.

Time and time again, I have used subpoenas to obtain critical information and valuable witness testimony that the other side claimed simply didn’t exist.  With this information in hand, I have proven my clients’ claims or disproven adversary’s claims.  In turn, this has resulted in dramatically more favorable settlements and verdicts for the client than if I had solely relied on the word (and delay tactics) of the other parties.  In cases such as this, even if the information turns out to be less valuable than expected, the mere discovery of something the other side was trying to hide can be enough to move the litigation forward.

A couple important points about subpoenas:

  • They cannot be used against parties – only non-parties – but those non-parties include both people and businesses.
  • They can be used for more than just forcing a reluctant witness to testify. You can use a subpoena to request a non-party:
  • produce documents, electronically stored information, or tangible things and permit their inspection and copying;
  • produce and permit inspection and copying, testing, or sampling of any tangible things that are in the possession, custody, or control of the person; or
  • permit entry upon property that is in the possession or control of the person.
  • If you require someone to attend a deposition or trial, you must pay them mileage and fees for the day.
  • Subpoenas can be delivered in person or through the mail, by attorneys, or law enforcement.
  • The applicable rule of civil procedure is nearly identical for federal and Ohio state courts, but parties should carefully review each depending on where the suit was filed.

Of course, subpoenas are not a magic fix for every discovery issue.  First, non-parties may legitimately not have the requested information; hence the repeated phrase within their “possession, custody or control.”  Second, either the person subpoenaed or the opposing party may seek to quash the subpoena (have it thrown out) if, for example, it’s unreasonable or would require the disclosure of privileged information.

In partnership or closely held company disputes, subpoenas are particularly effective to obtain records from financial institutions and accountants, because those entities regularly receive subpoenas and know their duties under the law.  At the end of the day, a skilled litigator always considers the value of subpoenas in the discovery process.

Associate Alex Ebert Graduates from “Leadership Upper Arlington”

Kohrman Jackson & Krantz LLP Associate Alex Ebert graduated from the Leadership Upper Arlington program Wednesday, joining the ranks of notable Columbus-area business and community leaders who graduated the program.

For over two decades, “Leadership UA” has fostered the leadership skills of central-Ohio businesspeople, civil servants and passionate professionals who dedicate time each month to study leadership and plan community betterment projects.  This year, Alex and the other graduates organized a community-wide fundraiser to purchase giant games (Connect Four and Jenga sets as wide and tall as the humans playing it).

The games will be free to use for all Upper Arlington community events, and residents can check them out from the Upper Arlington Parks and Recreation Department.  Alex and the other graduates are teaming up with community organizations and the Special Olympics to stage the games at various Upper Arlington shindigs throughout the summer.

“We wanted something that would entertain children, and children-at-heart, during our community events,” said Alex, who practices business litigation for KJK.  “Meeting our fundraising goal was the icing on the cake of a fantastic year of leadership training.  From civility to community engagement, from philosophy of leadership to practical application, Leadership UA develops character and brings the community together.”

The First Advisory Opinion of 2016 Focuses on Fixed Fees

The first Advisory Opinion of 2016 from the Ohio Supreme Court’s Board of Professional Conduct concerns the newly popular practice of fixed fees.  It is important to note that while Advisory Opinions serve as guidance on a particular point of law, they are non-binding and are responsive to mere hypothetical questions.  The opinion can be found here.

Per the Ohio Rules of Professional Conduct, a fixed fee is “a fee of a set amount for performance of agreed work, which may or may not be paid in advance but is not deemed earned until the work is performed.”  The Board’s opinion mainly addresses how attorneys should handle fixed fees.   Specifically, where should an attorney place a fee that been earned versus one that is prepaid?  This difference is important because of Rule 1.15 of Professional Responsibility, which states that attorneys cannot mingle client funds with their own funds.  For this reason, attorneys must set up a client trust or IOLTA account to deposit client fees, like retainers and court costs, in addition to a general account where earned fees can be deposited.

Depending on the time of payment and service, lawyers must place fixed fees in different accounts.  Generally, if a client pays a fee in advance of work, then that fee must be placed in the client trust or IOLTA account because that fee has not been earned by the attorney yet.  But, if the fee is designated as “earned upon receipt,” it means the fee has been earned at the time of payment, even if the attorney does future work on the same project.  This money is considered the attorney’s and so must be placed in the attorney’s general account.  Additionally, if the fee is paid in advance and the attorney does not complete the project, he or she must return any unearned portion of the fee, even if the fee is designated as “earned upon receipt.”

The Board also clarified some other parameters for fixed fees, which are in line with the general rules for hourly fees as well.  For instance, just like with hourly billing, an attorney cannot charge an excessive fixed fee.  What is excessive depends on several factors, including the time involved, complexity of the matter, and the customary rate in the area.  A fixed fee also cannot limit the attorney’s duty to provide competent and diligent representation.  While these rules may see basic and straightforward, many attorneys face disciplinary charges because of the mishandling of fees, and that risk may be greater for attorneys inexperienced with the newer practice of flat fee billing.

Fixed fees are nothing new to Samir Dahman, Partner-in-Charge of KJK’s Columbus office.  Samir has been offering clients a fixed fee approach for years, and brought the practice with him to KJK when his firm, Dahman Law, joined KJK in August.  Samir has continued to perfect the fixed fee model to both meet professional standards and clients’ best interests, and offers this option on nearly all of his work.

Ohio Legacy Trusts for Attorneys: Strike the Balance Between Control and Security

Around 4:30 A.M. last Wednesday—somewhere between changing diapers and rocking my newborn—it struck me that I need an estate plan… What if tragedy struck, and suddenly I’m not around to support my family?  But, at the same time, I don’t plan on dying anytime soon …  So can I set up a trust  that gives me a say in distributions so I have peace of mind in this life, too?  … And then there’s the possibility of defending a legal malpractice claim.  Can I take preventative steps in my estate plan to ensure my assets are safe in the event of a malpractice claim?

If you’re an attorney like me, these thoughts almost certainly entered your mind.  New research finds attorneys have a 2 to 12 percent chance of facing a malpractice claim each year depending on practice area.  An entire law review journal is dedicated to legal malpractice, and in a time when multi-million dollar judgments against attorneys splash the news, lawyers face tremendous liability from malpractice.

Because of this potential liability, attorneys need an estate plan that both prepares for the worst and hopes for the best.  A plan that offers both control and protection.  Good news: both are possible with an estate plan that utilizes an Ohio Legacy Trust, or “OLT.”

The OLT strikes the balance between asset protection and control that hands-on professionals like attorneys find compelling.  Passed March 2013, the Ohio Legacy Trust Act, R.C. 5816, allows you to create and fund an asset protection trust to guard against creditors, yet retain some control over distributions from the trust.  Here are the highlights:

  • Creditors have a short period of time to make claims against your OLT assets–eighteen (18) months in many cases[1]—after your property has been transferred to the OLT;
  • You can be a beneficiary of your own OLTA,[2] which is not true for other trusts;
  • Although you can’t be the trustee of your OLT, you do retain significant power over distributions, including the power to veto a distribution from the trust;[3] and
  • If you don’t like your trustee’s decisions regarding management or distributions, you have the power to change trustees.[4]

Attorneys and other professionals would benefit from this told because transfers to the OLT can receive significant protection.  Unlike other trusts where creditors can make claims against the trust during your lifetime, future creditors have a short 18-month window to file claims against your OLT assets.  Your existing creditors also have a shortened window: either (i) eighteen (18) months after the establishment of the OLT, or (ii) six (6) months after the OLT could have reasonably been discovered by the creditor if the creditor sues within three (3) years of the transfer to the OLT.[5]

Even if the creditor does file within these windows, the creditor must prove bad faith or intent to defraud by “clear and convincing evidence,”[6] which is the highest standard of proof in civil law.  Thus, once your OLT is properly established and funded, most of your creditors will be precluded from reaching the assets of your trust.

The duality of control and protection makes the OLT a powerful tool.  In addition to the ability to appoint and change the trustee, the person setting up their OLT has the following rights and powers:

  • The power to withdraw up to 5% of the trust assets every year;[7]
  • The ability to fund the OLT with virtually any kind of asset (such as stocks, personal property, artwork, investments, and real property);
  • The power to appoint property to other beneficiaries, all while protecting the property from creditors;[8] and
  • The right to live in a home transferred to the OLT.[9]

In exchange for these benefits and protection from creditors, the OLT must be irrevocable.[10]  For that reason, the OLT should probably be used only for “rainy-day” assets you would like to protect from creditors.  Additionally, the trustee you appoint must be independent—not your relative or someone under your control—and must be located in Ohio.[11]  You will also need to sign an affidavit that states the following:

  1. The assets of the OLT are not the product of illegal activity;
  2. You have the full right to transfer the assets;
  3. You will not be insolvent after the transfer;
  4. You have no intention to defraud creditors;
  5. There are no pending court actions against you;
  6. You are not involved in any administrative proceeding; and
  7. You do not foresee filing for bankruptcy.

Because the OLT can be a powerful guard limiting exposure to assets, attorneys should consider using the OLT as part of their estate plan to plan for their family’s future and to guard against potential malpractice claims.  Please contact the attorneys at Kohrman Jackson & Krantz to set up a time to discuss whether a Legacy Trust is right for your needs.

[1] R.C. 5816.07(B)(1)(a).

[2] R.C. 5816.02(D); R.C. 5801.01(C).

[3] R.C. 5816.05(B).

[4] R.C. 5816.05(I).

[5] R.C. 5816.07.

[6] R.C. 5816.08(A)(5).

[7] R.C. 5816.05(F).

[8] R.C. 5816.05(C).

[9] R.C. 5816.05(J).

[10] R.C. 5816.02(K)((1)(c).

[11] R.C. 5816.02(S)(1)(b).

Provide For Your Loved Ones With The Family Estate Plan

You spend most of your life caring for and supporting your family.  Ensuring that loved ones are taken care of after your death should be no different.  Crafting a detailed and thorough estate plan is the first step in continuing to provide for your relatives after you’re gone.  While some choose to create these documents on their own, the process can be extremely complicated and developing an estate plan that will function according to your desires is not an easy task.  KJK has a number of skilled and experienced attorneys who are ready to assist you in this endeavor.  Samir Dahman offers a comprehensive Family Estate Plan, which meets the needs of most Ohio families.

The most important step in crafting your estate plan is understanding what each document means and how it will affect you and your loved ones.  The following documents are included in the Family Estate Plan:

  • Instructions for Titling Assets. This document identifies how to title your assets, such as insurance policies and retirement accounts so that they are distributed in accordance with your wishes.
  • Pour-Over Last Will & Testament. The last will and testament identifies where your assets will go once you have passed away.  It includes answers to these questions:  What happens to your assets when you die?  Who is the executor of your estate?  Who will be the legal guardians for your minor children?
  • Authorization for Use and Disclosure of Protected Health Information. This is a HIPPA waiver that will allow medical professionals to release your medical records to those listed in this document.
  • Advance Directive – Living Will. This is a legal document giving instructions to your family, your doctors, and your healthcare agent concerning the end of your life.  You can indicate your desire concerning artificial life support, treatment or the termination of treatment.  The document indicates your decision on do not resuscitate orders, the removal of feeding tubes, and the removal of hydration.
  • Durable General Power of Attorney. This power of attorney identifies person(s) you name to handle legal and financial matters for you if you are unable to do so because of a mental or physical disability.  They stand in your shoes and have the ability to pay your bills, collect and sell assets, manage investments, file tax returns, and the like.
  • Health Care Power of Attorney. This power of attorney is for medical and health related decisions.  You name an agent who will have the power to: give and receive medical information; hire and fire healthcare workers; select nursing homes; and give informed consent to treat or to operate.  You may also give the agent the power to remove life support including feeding tubes and hydration at the end of your life.
  • Customized Revocable Living Trust. This document determines the beneficiaries of your assets and how those assets will be distributed.  During life, the creator of a Revocable Living Trust (the “settlor”), can change the distribution plan.  Upon the death of the settlor the Trust then becomes irrevocable and cannot be changed.
  • Bill of Sale. This is a document that transfers tangible personal property to the trust.
  • Affidavit of Trustee. The affidavit is a document that your successor trustee can provide which declares that the settlor has passed away.
  • Certificate of Trust. This is a document that the trustee may provide to a person other than a beneficiary – a bank, for example – instead of a copy of the trust document itself. This allows you to keep the terms of the trust private, but still provide proof of its existence.

These documents provide full and complete instructions for your loved ones that will allow you to continue to provide for them, even after you are gone.  Call Samir Dahman at 614.636.1250 today to learn more information and get started on your estate plan.