On February 4, 2009, the President signed the Children’s Health Insurance Program Reauthorization Act of 2009 (“CHIPRA”).  CHIPRA extends and expands the State Children’s Health Insurance Program (“CHIP”).  CHIP is a federal-state program designed to reduce the number of low income children without health coverage.  This new law permits states to subsidize premiums for employer sponsored group health coverage for eligible children and families. 

            CHIPRA requires most Employers in New York to provide notice to their employees of potential opportunities currently available in New York for group health plan premium assistance under Medicaid and the Children’s Health Insurance Program (CHIP).

            Any New York Employer who provides benefits (directly or through insurance, reimbursement, or otherwise) for medical care for its employees, and contributes at least 40% towards their health insurance premiums, must provide the CHIPRA Notice.

            The notices must inform each employee of the possible state premium subsidy assistance program regardless of the employee’s current enrollment status.  Employers are required to provide notice of this opportunity by the first day of the plan year after Feb. 4, 2010 or May 1, 2010 (whichever is later).  For example, if an Employer’s plan year begins on January 1^st of each year, the notice would need to be provided by January 1, 2011.  Each year, another copy of the notice must be provided to the employee.  The model notices can be accessed at http://www.dol.gov/ebsa/.

            There are civil penalties up to $100 a day for failure to comply with the new notice and disclosure requirements.

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The Statute of Frauds is an often confusing concept, even to legal practitioners. The essence of the doctrine is that certain agreements will be unenforceable in a court of law, unless those agreements are in writing and signed by the party against whom enforcement is sought.  In today’s business climate, where it must be assumed that no business or person is providing services for free, the application of the Statute of Frauds to an oral business agreement can produce some seemingly unfair results.

            Such was the case in Snyder v. Bronfman (2009 NY Slip Op 8667 [2009]), a recent Court of Appeals case.  In this case, the Plaintiff, Robert Snyder, was at first a casual business acquaintance of Defendant Edgar Bronfman, a wealthy New York City investor.  The parties then orally agreed that plaintiff would function as defendant’s “experienced right hand’, ‘sounding board’, ‘loyal ally’, ‘principal advisor’, and most importantly, his ‘consigliore”, in connection with a joint venture to acquire and operate companies in the media business. 

            Thereafter, Plaintiff worked on trying to put together acquisitions for the joint venture. He developed for the parties’ joint venture, a series of business relationships with key figures in the corporate and investment banking communities.  He apparently spent countless hours working on aborted deals, before finally bringing to fruition a deal to acquire Warner Music from Time Warner.  Although there was no debate in the record that Plaintiff was a major contributor to the success of the deal, after the deal had closed, Defendant refused to compensate Plaintiff for his efforts in bringing about the deal. 

            Plaintiff then sued, and the Defendant moved to dismiss the complaint.  The Court, in affirming the lower court’s decision granting Defendant’s motion, held that (1) the parties did not have an enforceable contract because the terms of the parties’ agreement were too indefinite, and (2) that Plaintiff’s quasi-contract claim to recover the reasonable value of the years of work he performed finding Defendant a business to acquire and causing an acquisition to take place, was barred by the Statute of Frauds provision relating to negotiating the purchase of a business opportunity.  As a result, despite the clear understanding of the parties that Plaintiff would be compensated in some capacity for his efforts, the Court held that Plaintiff had, in essence, worked for free in bringing about a $2 billion transaction.    

            While this case does not seem to have changed the law, it does bring forth a stark reminder that potential business partners need to firm up their understandings of a deal and put it in writing, before they begin expending resources to bring it about.  Otherwise, the law may not provide a remedy to the aggrieved party, no matter how unfair the circumstances seem.

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            Someone owes you, or your company, money.  You have been writing letters demanding payment, and maybe you have even engaged a collections agency, or our Firm to collect the receivable. 

But then you learn that the individual who owes you money has filed for bankruptcy.  What does that mean? What do you do? What are your rights?

            As a creditor in Bankruptcy, you do have some rights.  However, the filing of bankruptcy places an Automatic Stay on all actions against a debtor, which protects the debtor and his assets from any collection efforts – including phone calls, bills and lawsuits. Therefore, the very first thing you, as a creditor, have to do is stop all your collection efforts while you evaluate your options. 

            While the Automatic Stay is in place, you can file a proof of claim with the Bankruptcy Court.  If the debtor has listed you as a creditor in the bankruptcy, as the debtor should, you will receive notice informing you of where to file a proof of claim and the deadline for filing one.  This is a form document that allows you to assert, in the bankruptcy, the amount you claim is owed from the debtor. Once you have filed a proof of claim, you, with the help of an attorney, can evaluate your next steps.  There are many issues a bankruptcy raises for the creditors and a discussion of all of such issues is beyond the scope of this article. Key questions to be addressed include:

            1. What type of bankruptcy has the debtor filed? There are three main types of bankruptcies filed by debtors, and your options (and recovery) as a creditor may be dictated by the type of bankruptcy chosen by the debtor. (i) A Chapter 7 Bankruptcy is a liquidation of the Debtor’s assets.  Certain assets will be exempt from the bankruptcy estate and will not be sold, but a trustee will sell the non-exempt assets and distribute any proceeds to the creditors according to the priority of their rights.  After a debtor files for Chapter 7, any wages earned by the debtor belong to it, and are not subject to the claims of the creditors in the bankruptcy.  (ii) Chapter 11 is generally used by corporations or partnerships, but individuals also may file under Chapter 11.  In Chapter 11, the debtor and not a trustee remains in possession of its assets.  The debtor creates a plan of reorganization that may involve repayment of creditors out of future profits, sale of some assets or other corporate transactions to allow the debtor to reposition itself to survive once it emerges from bankruptcy.  This plan of reorganization, once confirmed by the court, provides the terms for repayment of the debtor’s outstanding debts. Creditors may object to the plan for any number of reasons, and often do so, if the plan does not meet certain technical criteria or if it appears to be unfeasible. (iii) A Chapter 13 bankruptcy is available only for individuals with less than $336,900.00 in unsecured debt (and provides a cap on secured debt as well).  In Chapter 13, there is a trustee as in Chapter 7, but the debtor remains in control of the property as in Chapter 11 case.  A Chapter 13 debtor proposes a plan wherein s/he makes payments to the trustee over a period of several years and the trustee distributes such payments among the creditors. 

            2. Is your debt secured? Determine if you have a lien or a security agreement on real or personal property. If so, you may be able to get relief from the automatic stay in order to protect your security interest by selling the asset on which you have a lien.

            3. Is your debt non-dischargeable?  Usually, in bankruptcy, the debtor’s debts are ultimately discharged such that when the debtor emerges from bankruptcy, he gets a fresh start and his old debts are basically forgiven, with the creditors having been paid pennies on the dollars owed.  However, certain categories of debts, including those arising out of fraud or malicious acts, are non-dischargeable, and a creditor of such debts can bring an adversary proceeding in the bankruptcy to assert its rights.  A victory in such a proceeding declaring the debt non-dischargeable preserves the creditor’s right to collect on the entire debt after the bankruptcy, whereas for a debt discharged in bankruptcy a creditor only may end up collecting a small percentage of the amount owed.

            Even if your claim is non-dischargeable, you and/or your attorney should monitor the bankruptcy  – you are in the best position to know if you have specific rights to assert and you may know if a debtor is hiding assets or if he is using the legal process simply to thwart your collections efforts.   This knowledge ultimately may allow you to use various legal devices to attempt to collect more than you otherwise would.

            A case filed under the Bankruptcy Code may be dismissed or converted to another chapter, if it does not meet the requisite criteria, or if circumstances call for such a conversion.  As such, it is important to continuously monitor the bankruptcy, as your rights and recoveries, as a creditor, may be impacted by the dismissal of a bankruptcy or by the conversion from one chapter to another.  For example, payments to a creditor may differ drastically from a bankruptcy plan calling for payments over five years to a liquidation where the debtor’s assets are sold at auction and the creditors receive one lump-sum payment.  As a creditor, with knowledge of the debtor and its business, you may be able to assist the trustee in martialling and maximizing the debtor’s assets, thereby maximizing your recovery. 

            In this economy, with the increasing number of all types of bankruptcies being filed, it is important to know your rights, assert them where necessary and seek attorney advice to protect yourself and your interests.

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      As of January 1, 2010, David Siegfeld will become a named partner and the Firm will be known as Ganz Wolkenbreit & Siegfeld, LLP. This change in Firm name is a recognition of David’s growing contribution to the Firm and his more than 10 years of service. 

      David graduated from the State University of New York at Albany with an Honors Degree in Economics, and from Union University’s Albany Law School. He then worked three years as an Assistant Attorney General for the State of New York and focused on Trusts and Estates and the regulation of charities and not-for-profit organizations.

      When he joined Ganz Wolkenbreit & Friedman in 1999, his practice centered on estate planning and administration as well as business law and, in more recent years, on consulting businesses and real estate transactions. He has attracted numerous clients in the manufacturing, distribution and transportation industries, is frequently appointed by local Surrogates to assist in complicated estates, and works on many commercial real estate and commercial financing projects for small, medium and large businesses.

             In the community, his expertise is sought by various not-for-profits and he presently serves on the Board of Governors of the Endowment Fund of the Jewish Federation for Northeastern New York as Treasurer. David and his wife, Shara, have four young children whose art work is often displayed in David’s office. We are sure that all of you who work with David agree that his recognition as a named partner in the Firm is well deserved.

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While negotiating the purchase of another business, you need to consider how such purchase might impact your company’s unemployment insurance premiums. A company’s insurance premium is based upon an experience rating, which is impacted, in part, by a company’s payment and employment history. The lower the experience rating, the lower the insurance premium.

When you purchase the assets of an existing business, you will most likely be required to accept the transfer of the prior business’s experience rating. This may or may not be beneficial. If it is beneficial, you need to make an election to have such transfer made within a certain time frame. If it is not beneficial, the Department of Labor could allocate to your company the prior business’s experience rating from the date of transfer. A transfer of experience from one employer’s account to another is governed by the provisions of the Unemployment Insurance Law. If there is a “transfer of a business,” in whole or in part, from one employer to another, the statute allows the NYS Department of Labor, Unemployment Insurance Division, to also transfer the experience rating of the business. A transfer of the business is deemed to have occurred whenever any one of the following four conditions are present in the transaction between two parties:

1. The transferee has acquired some of the transferring employer’s good will; or
2. The transferee has assumed some of the transferring employer’s obligations; or
3. The transferee has either continued or resumed the business of the transferring employer, in the same establishment or elsewhere; or
4. The transferee has employed substantially the same employees as were employed by the transferring employer.

What constitutes these conditions has been interpreted very broadly, so as to include situations where the transferee has continued the name of the business, operated out of the same location as the prior employer, resumed the business of the transferring employer, assumed any debts or obligations, or even just operated the same type of business. Attributing nominal value toward the assets in a purchase contract will not be sufficient to avoid these transfer rules.

Accordingly, a purchaser should request specific documentation during the due diligence period in order to verify the transferor’s unemployment insurance experience ratings and premiums. A proper analysis should be made as to how the transfer of such experience rating may impact the insurance premiums for the transferee’s current or new business. While a business deal can potentially be structured in order to avoid such transfer rules, case law is extremely broad and most cases reflect that the transfer of business assets from a transferor that is either discontinuing its business operations or allowing the transferee to take over, will constitute a transfer for experience rating purposes. Depending upon the size of the payroll upon which unemployment insurance premiums are based, even a small increase in experience rating could significantly impact the cost of a deal and should be carefully considered.

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Not only is it important to review your estate plan on a regular basis and to consider any new additions to your family, the acquisition or disposition of property, or the loss of a loved one, it is equally important to consider the current fiscal climate when evaluating new and re-evaluating existing estate planning opportunities.

Those of our readers who have recently secured a mortgage or refinanced their homes may have noticed that interest rates are rising. Although this obviously makes borrowing more expensive, it also brings about new estate planning opportunities.

Rising interest rates, in particular, make two estate planning strategies very attractive: the qualified personal residence trust (“QPRT”) and the charitable remainder trust (“CRT”). This article will focus on QPRTs and we will highlight the benefits of rising interest rates on CRTs in a future newsletter issue. By way of background, the IRS utilizes interest rates to determine the present value of assets placed in a trust. The benchmark is the applicable federal rate (“AFR”) which is tied to the prevailing Federal Reserve interest rate which generally changes each month.

A personal residence or second home/vacation home is often the most valuable and highly appreciated asset in your estate. A QPRT allows the property owner to move that home into a trust but still retain a proprietary use of the residence for a preset number of years. When the trust period finally ends, the home is passed on to the trust beneficiary. When the property owner creates the QPRT, he or she has made a present taxable gift to the beneficiary. But the taxable value of the gift is reduced by the owner’s right to continue using the residence through the life of the trust. The present value of the gift is determined by the prevailing AFR at the time when the trust is established and by the length of the trust. The higher the interest rate and the longer the term of the trust, the lower the present value of the gift.

For example, suppose a 65-year-old grandmother has a $1,000,000 vacation home. If she were to put that home into a QPRT for a 10 year term at a time when the AFR was 4.6 percent, the IRS would determine the value of the final gift to her heirs to be worth $483,000. If the prevailing AFR was 6.5 percent, then the present value of the final gift to her heirs is reduced to approximately $400,000. In that case, Grandma has an additional $83,000 to use toward her $1,000,000 lifetime gift tax credit. In addition, the value of the house is locked for gift tax purposes. Therefore, any appreciation in the value of the house after it is transferred to the QPRT is not subject to gift tax.

The problem is that, for the QPRT to be worthwhile, Grandma must outlive the QPRT. If she dies before the QPRT terminates, the full value of the house is included in her estate. Effectively, it is as if no gift had been made. On the other hand, in the event she outlives the QPRT and wants to continue using the house after the trust concludes, she can simply rent it from the heirs.

If you own your residence or a vacation home, a properly drafted and executed qualified personal residence trust may eliminate federal estate tax and minimize federal gift tax on that asset as described above. We welcome the opportunity to discuss how this estate planning technique might apply to your situation.

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