DBTC Law Firm

Jack Butt

Checklist for Home Purchasers

Don’t let the American dream become your personal nightmare: Purchasing a home is considered by many to be a defining mark of maturity and success.  It is a complex transaction where very much can go very wrong, where responsibilities overlap, and where important issues can be overlooked among the involved group of realtors, title agents, home inspectors, and attorneys. An attorney should review your purchase agreement and closing documents, but there are lots of other things to attend to; this checklist may help.

CHECKLIST FOR HOME PURCHASERS BEFORE CLOSING:

1. Have someone (home inspector, contractor and/or seller) familiarize you with the home systems and provide all available directions and manuals for the following:  (a) kitchen and other appliances; (b) water and water shutoff valve; (c) smoke detectors; (d) location of gas supply; (e) alarm systems; (f) HVAC systems, air filters and changing;  (g) fire  sprinkler systems; (h) pool and hot tub; and (i) landscape irrigation systems.

2. Immediately re-key locks upon possession.

 3. Check school boundaries as they exist and as they may be under review, and confirm with local school district in writing.

 4. Carefully read and understand homeowners insurance coverage.

 5. Check neighborhood rules: These may be a result of city ordinances, property covenants or property owners association: (a) architectural controls on exterior colors, siding or roof style; (b) types and height of fences; (c) limitations on number and type of vehicles, such as campers and boats, that can be parked at property; (d) restrictions on businesses that can be run out of home; (e) restrictions on types, sizes or breeds of animals; (f) erection and maintenance of sheds and outbuildings; and  (g) involuntary dues and assessments.

 6. Check on tax exemptions: Arkansas has a homestead exemption from property tax; other states have exemptions for permanent occupants and transfer taxes– check with tax assessor.

 7. Consider a home warranty.

 8. Be aware of income tax benefits of of deducting interest on the mortgage loan and property taxes; however homeowners’ insurance, the portion of mortgage payments that are principal, and many closing costs are not deductible.

 9. If the house is under the care of a landscaper, meet with the landscaper to understand the cost, services and problems relevant to the landscaping.

 10. Purchase of a new home is a good time to reevaluate critical personal documents: wills, powers of attorney, life insurance, disability insurance and auto insurance.

 11. It is generally a very bad idea to use retirement plan funds to purchase a home: It converts liquid assets into illiquid assets; subjects the retirement funds to loss if the residence has significant problems or gets caught in a bad real estate market; and generally indicates that you are spending too much for a home if you have to use your retirement plan.

 12. Expenses of home ownership are almost always greater than anticipated– especially if you are moving from a rental situation. Installation and revision of cosmetic items (paint, wallpaper, floor coverings and wall coverings); landscaping and equipment costs; and home maintenance costs and equipment can be significant, unforeseen homeowner expenses.

 13. Upon moving in, video, save to disk, and put in your lockbox, each room of the house, which creates at very low expense and trouble a very good record of personal property in the event of fire, theft or other insurable loss.

 14. Schedule and monitor your own renewals: Termite, stucco bonds, alarm systems and homeowners insurance will typically notify you of renewal, but if they fail to do so, or you do not receive the notice, you can lose critical coverage that might not be renewable.

 15. Purchase contracts should always have clauses, which buyers should always take advantage of, allowing them to have a professional inspector review the premises and provide an acceptable report before closing.

 16. Procure and carefully read the Title Insurance commitment to look for limitations on this insurance, including the existence of easements (visible and invisible) for drainage, water and sewage lines, power lines and setbacks.

 17. Without a current survey, the proper location of fences and driveways is not assured. If there is any question at all about whether the existing driveways and fences are properly located with respect to property lines, a current, certified survey may be a very prudent investment.

 18. Request copies of utility bills for the prior three years to properly plan for such expense.

 

The In’s And Out’s Of Divorce In Arkansas

The breakdown of the marital relationship is stressful enough; the actual divorce process should not add to that stress.  By focusing on the legal consequences of divorce – children, property and money – and not the troubled relationship itself (granted, easier said than done), you will be several steps ahead of the general divorcee in getting on with your life.

As I sit with my client in the back of the courtroom waiting for the bailiff to call my client’s name, I glance over at her soon-to-be-ex-husband.  He is unrepresented and is seething with nervousness and anger.  My prior attempts to negotiate visitation rights and child-support payments ended with several choice words being yelled at me over the phone.

Unfortunate, sometimes, is the state of affairs of divorce.  Still, divorce is a necessary evil.  So, how can a spouse protect his or her interest in the divorce but facilitate the divorce so that it brings no more harm than is necessary?  The obvious answer is to hire an attorney.  The additional, not-so-obvious and difficult answer is to come to an agreement with your spouse so that the consequences of divorce are not litigated in court.  The following are a few things to consider:

Custody–First and foremost, who gets the children?  This is not always an easy question to answer.  What is in the child’s best interest determines who is granted custody of the child.  Factors the court considers in making this determination include, among others: the age, gender and health of the child; the moral fitness of each parent; each parent’s attitude toward the child; the parent’s past conduct toward the child; the stability of the child’s social and family relationship; and the reasonable preference of the child.  When these factors are substantially equal, the court will give preference to the parent that has been the primary caregiver of the child.  Traditionally, the mother, as the homemaker, held the role of the primary caregiver.  However, the traditional roles of a husband and wife rarely hold true today, and the determination of who is the primary caregiver is a factual determination.  An attorney will be able to provide guidance on this sensitive issue.

Visitation–After custody is determined, visitation rights will be granted to the non-custodial parent. The court will seek to promote the relationship between the child and the non-custodial parent.  Only in rare circumstances are visitation rights denied to a non-custodial parent.  If the parties cannot agree to a visitation schedule, the court will impose one.  The default visitation schedule includes visitation every other weekend, one late afternoon/evening period per week, alternating holidays and two weeks during the summer.

Child Support–The question is not whether the non-custodial parent will have to pay child support, but how much.  The determination of how much child support is paid is dependent upon how many children are being supported and the non-custodial parent’s income.  Child support rarely has anything to do with the custodial parent’s income.  If you are denied custody of the children, be prepared to pay child support.

Property–Courts have authority to order an equitable distribution of all marital property, or any property that is acquired during the marriage.  Property that was separately brought into the marriage by either the husband or wife will be considered separate property unless it is commingled with or treated as marital property, e.g., wife including her husband on her savings account.  Division of marital property is not always 50/50, but depends upon what the court finds equitable.  The parties’ age, health, status, employment, assets and needs are among many factors considered by the court in dividing marital property.

Alimony–The purpose of alimony is to ensure that the person whose economic dependence has resulted from the marital relationship receives an adequate income stream after the divorce.  Alimony can be awarded to either spouse.  The trend is to award alimony less frequently, and the court considers many factors in determining whether and how much alimony to award.  Factors considered include the parties’ past standard of living, the financial circumstances and needs of the parties, and the parties’ respective earning abilities.

Modification–Custody, visitation, child support and alimony can all be modified by the court.

No divorce is ever without its pains.  With a little foreknowledge, and aid of an attorney, the pains may, however, be lessened.

Serious Illness Or Death After Being in a Toxic Environment Does Not Necessarily A Legal Claim Make

The recent case of Richardson vs. Union Pacific Railroad, 2011 Ark. App. 562, followed the developing Arkansas law that 1) proving the existence of known toxic substances brought into an area by the defendant, 2) which substances are known to cause sickness or death, 3) followed by the sickness or death of a claimant who was for an extended period in that area, is insufficient to make a claim for loss against that defendant. In this particular case, the lawsuit of a cancer-stricken railway employee, who had been exposed over a long period of time to workplace diesel fumes, creosote and pesticides, was dismissed as having an insufficient evidentiary basis.  The Court required specific linkage, through the use of expert testimony, to confirm both the actual level of exposure and a nexus between that particular exposure and the causation of the disease. Though experts were presented by the plaintiff, the expert testimony did not meet the standard required in Arkansas courts. Accordingly, what might appear to the layman as an obvious claim of liability for toxic poisoning must meet very stringent expert proof requirements in the Arkansas courts.

In addressing the admissibility of plaintiff’s proffered expert testimony, the Court first discussed the two-prong test a toxic-tort plaintiff must adduce as to causation: general and specific causation.  General causation addresses only whether a specific agent – in this case, diesel fumes and creosote, among others – can cause a particular illness.  Specific causation, on the other hand, requires a showing that the agent did, in fact, cause the particular plaintiff’s illness.  It was in the plaintiff’s attempt at showing specific causation that the expert testimony fell short, ultimately leading to the dismissal of the plaintiff’s claim.

The plaintiff’s claim was supported by the opinions of two highly credentialed expert witnesses.  One, an industrial hygiene expert, opined that the plaintiff was excessively exposed to diesel exhaust, herbicides and other substances during his employment at the railroad, relying upon anecdotal testimony and the result of the railroad’s carbon monoxide testing performed in July 1986.  The other expert testified that plaintiff’s exposure to diesel exhaust fumes, creosotes, herbicides and pesticides actually caused his cancer, citing to many medical journal articles in support of his opinions.  Simply, the Court found that these expert opinions lacked reliable analysis, failed to discuss the plaintiff’s actual exposure levels, and were not the result of a valid, reliable methodology.  Their opinions were excluded from being introduced at trial.

On appeal to the Arkansas Supreme Court, the plaintiff argued that it was error to require the plaintiff to prove, with a precise “parts-per-million measurement,” his exact exposure to toxic chemicals which he claims to have caused his cancer.  While not going so far as to require testimony describing with precise, mathematical proof the degree of exposure to toxic chemicals experienced by a plaintiff, the Supreme Court requires proof based upon reliable methodology that the plaintiff was exposed to levels of the harmful agent that is known to cause the kind of harm that the plaintiff claims to have suffered.  To that end, an expert’s causation testimony must demonstrate that the defendant’s emission probably – not possibly –  caused a particular plaintiff the kind of harm of which he or she complains.  Because the plaintiff produced no reliable evidence as to his actual exposure to diesel exhaust or benzene, his claim failed.

As a whole, the Richardson vs. Union Pacific Railroad case highlights Arkansas’s strict standards governing a plaintiff’s potential claim for damages based upon long-term exposure to a toxic tort.  While a showing that the toxic substance can cause the ailments complained of meets the general causation element of his claim, a plaintiff must meet the much higher burden of establishing specific causation by demonstrating that, under reliable scientific methodologies, the level of toxic agent to which the plaintiff was exposed often causes the general public similar injuries as those suffered by plaintiff and, specifically, that the toxic agent was the specific cause of plaintiff’s damages.

Accordingly, a very high and specific level of scientific proof must be adduced by a plaintiff to proceed in Arkansas courts on a toxic tort claim.  While finding an expert who is able to meet these highly technical and particularized standards is both difficult and expensive, it is nonetheless essential to a plaintiff who wishes to proceed and file a lawsuit on such a claim.

Putting Family Wealth Beyond the Reach of Creditors: Using the “Spendthrift” Clause.

An ancient and often overlooked drafting technique can have huge ramifications for preserving family wealth, and regularly disappoints creditors of the “wealthy” when debts are not paid. This is the “spendthrift clause,” which has existed under both case law and specific state statutes for centuries. Its concept is simple: when assets are put into trust for various beneficiaries, typically a spouse, children or descendants, if the trust includes a “spendthrift clause” which specifically prohibits the trust assets from being sold, assigned, mortgaged or seized by creditors, then it is possible for the beneficiaries to receive substantial, continuing, long-term benefits from the trust, while all of their creditors are “frozen out” from recovering any unpaid debts from the trust. Sometimes, this creates great surprise to creditors who believe they are dealing with a wealthy person, who lives in an expensive house, drives expensive cars, takes expensive vacations and lives well – all as the beneficiary of a spendthrift trust which the creditor cannot reach. Families are wise to include trusts with spendthrift clauses in their estate planning, and it is essential for creditors of all kinds to scrutinize these trusts before extending credit, lest they find themselves without remedy to collect their debts.  A recent federal case decided in Arkansas, and confirmed on appeal at the United States Court of Appeals for the Eighth Circuit (Wetzel vs. Regions Bank), protected $2.4 million of assets left by a husband for his wife and those assets survived intact for her when she later filed bankruptcy. The Court ruled that the creditors in bankruptcy could not touch the money, because it had been left in a spendthrift trust for the benefit of the wife; the wife then discharged in bankruptcy all of the debts of the creditors, retaining nevertheless the full assets of the trust and her beneficial interests in it.

A spendthrift clause has different important perspectives. From the perspective of a wealthy family, it becomes a tool to preserve almost indefinitely the family wealth for the benefit of the descendants, despite their financial imprudence or misfortunes. From a creditor standpoint, it is very much a trap for the unwary, if the creditor in making lending decisions does not discover that the source of the borrower’s apparent wealth is actually a trust with a spendthrift clause which, for all practical purposes, makes the borrower a very bad credit risk. From the aspect of the estate planning draftsman, it requires care to ensure that the spendthrift clause is properly drafted so that it will provide the family the protection needed.

Clients will regularly ask if they can establish a trust for their own benefit which includes a spendthrift clause, so that they can use their wealth but protect it from creditors. On its surface, this appears to be a valid use of the technique. However, another legal doctrine, that of “self-settled trusts,” generally holds that a person cannot put their own assets into trusts, retain the benefit of them and still defeat the claims that creditors would make against the trust. In summary, a self-settled trust cannot enjoy the protections of a spendthrift clause.

It is thus a cardinal principle that spendthrift clauses can only be used to protect beneficiaries when the money in the trust comes from another source– typically a parent, grandparent, spouse or other family member who has created the trust with wealth during life or at their death. Even with a valid spendthrift trust in place, which has been funded by a third party gift or bequest, the strength of the spendthrift clause is defeated if the trustee of the funds is also the beneficiary of the funds. Thus, leaving funds in trust for a surviving spouse or surviving children, and making that spouse or those children the trustee for their own benefit, has caused some courts to set aside the spendthrift clause because the decisions to distribute are not truly independent of the beneficiary’s own desires. In such cases, it is advisable that the draftsman provide alternate trustees, and if the beneficiary foresees financial difficulties, that they resign in favor of an independent trustee.

Used in ancient English law, the spendthrift clause remains a very viable and effective technique for family wealth planning.

Cheap, Good, Simple Tax Advice:

More simple help than you may ever need on your income taxes can be found at the IRS website, www.irs.gov.  In particular, you can access a number of very helpful publications including Publication #17 with respect to your personal income taxes and Publication #334 with respect to small businesses and  income taxes.  These guides are easy to read, well organized and indexed, comprehensive, immediately accessible and free.  Finally, you can Google “Forbes Tax Guide” for some excellent, easy-to-read articles about a number of facets of taxation. You could probably scan all of these in a couple of hours and pick up a number of tips that would be helpful in managing your affairs and submitting your tax returns in a tax-wise way – and probably save considerable taxes in the process.

$340,000 Home Up In Smoke And No Tax Deduction

You may be aware that sometimes fire departments are allowed by property owners to burn private structures for training purposes. It may be fun to watch, and the fire department will certainly enjoy the training opportunity, but the Tax Court has ruled that there is no tax deduction for the loss. A Virginia property owner purchased a house and lot for $625,000 and then granted to the local fire departments the right to burn the house (appraised at $340,000) for a training exercise. The house was burned over several weeks in training exercises in which half a dozen different fire departments participated. The taxpayer claimed the donation of the $340,000 house to charity, which resulted in a $98,000 deduction on their tax return. The deduction was disallowed, and the IRS position was confirmed in the United States Tax Court.

The case reporting this was Patel vs. Commissioner, 138, T.C.#23, issued on June 27, 2012. It invoked several quite complex provisions of the Tax Code, having to do with the charitable deduction of “partial interests” in property. While there were seemingly angles that could have been resolved in the taxpayer’s favor, the court prominently noted in its Opinion that the taxpayer had purchased the property with the intent to promptly demolish the house existing on it and build a new house.  While that particular facet did not directly relate to the very complex analysis of the charitable gifting provisions of the Internal Revenue Code reviewed by the court, one cannot help but wonder how much the court was influenced by this fact. It is a frequent subject of challenge by the IRS what the value of a particular charitable gift may be: a painting, a tract of real estate or a stamp or coin collection. The taxpayer, of course, wants the highest possible value for the charitable gift; the IRS seeks the opposite. If the starting place for analysis is that the taxpayer really thought the property was worthless, should it be justified as a charitable donation?  The Tax Court thought not in these circumstances.

The “Powerful attorney”

What is the #1, simplest, quickest, cheapest, easiest, most effective and universally-applicable legal action you can take to benefit yourself?  Answer:  A Durable/General Power of Attorney, sometimes jokingly or mistakenly referred to as “the powerful attorney.”

 

Most people are surprised to find that the dictionary does not define “attorney” as a lawyer, but rather an “agent,” a person who is authorized or deputized in behalf of another to act for them.  An “attorney at law” is thus, properly speaking, someone’s agent with respect to legal matters.  However, a “Power of Attorney” is not limited to legal actions, but is simply authority given by one person as the principal, to another person to act as their agent.  It does not have to be in writing, but proving that the attorney has been appointed, and the scope of their duties, is difficult if it is not in writing.

Learning the simple terms:

A “General Power of Attorney” is the granting by one person to another of general and unlimited authority to act in the principal’s behalf.  This is as opposed to a “special” or “limited” Power of Attorney which might be limited to a single transaction (closing on a house, signing a tax return, voting shares of stock, etc.).  Finally, a “Durable Power of Attorney” leaves the appointed attorney/agent with authority to act for the principal, even if the principal is so incapacitated that he cannot legally act for himself.  Thus, a Durable/General Power of Attorney is written authority from one person to another, by which the person appointed as the attorney or agent can act in all matters for the principal, even if the principal, himself, is legally  incapacitated.

Why Is This So Important?

All persons of legal majority potentially have legal actions that must be taken in their behalf– signing tax returns, making medical decisions about their care, signing loan documents or managing their assets, whether that be a $50 checking account or a $50 million investment account. Incapacity can occur at any age and stage of life: it can be a traumatic coma resulting from a car accident to the young head of a family, or age-induced dementia to an older person. Without a Power of Attorney in place, all of the financial, legal and business affairs of a person suffering such disability must be handled through a probate court proceeding called “guardianship.”  Though designed to protect the assets of the incapacitated person, guardianships are quite expensive, quite burdensome and quite inflexible, and can result in the court naming as  guardian a person whom the incapacitated party would never have chosen for that task if they had been given, prior to incapacity, that choice.

Why Is It So Practical?

A person holding a General Power of Attorney has unlimited legal authority to manage all of the affairs of the incapacitated person without the bother, cost, delay or inflexibility of a guardianship, and, most importantly, the person appointed as the Power of Attorney would in fact be the person selected by the now-incapacitated person.

Why Is It So Simple and Cheap?

Durable/General Power of Attorney forms are prepared on standard formats, the fee for which is typically low, relative to other legal services. They can be configured to not come into effect unless and until the principal becomes incapacitated.

How Are They Typically Used?

Typically, a Power of Attorney is given back and forth between spouses; parents and children; and other family members who have a trusting relationship and who are simply designating through the Power of Attorney the person that they would prefer be the guardian if an incapacity occurs.

Caveat:

While a simple document, its ramifications and the details of its implementation are such that the advice of an attorney in implementing a power of attorney should be sought – at the price, it is indeed a “penny’s worth of prevention” to avoid a “dollar’s worth of cure” if it has not been correctly accomplished and is later needed. Also, though a person holding a Power of Attorney is in a fiduciary position, legally obliged to carefully and faithfully exercise the authority so given, it can be abused.  To use that authority to steal funds from the principal or otherwise abuse their interest is a breach of fiduciary duty which may give rise to civil or criminal liability.  Choice of the agent, and empowering them with this document, is a decision requiring careful selection.

 

Typically, a Durable/General Power of Attorney is a single element of a more comprehensive estate plan; however, it is probably the cheapest, most effective and helpful part of an estate plan and can be used, independently, of any other legal actions.

Lawyers and Mandatory Tithing

Mandatory Rules of Professional Conduct regulate the professional behavior of attorneys. A breach of these rules can lead to sanction and even loss of the right to practice law. They cover many areas of which the public is generally aware, such as avoiding conflicts of interests, being truthful and honest to the court, confidentiality of client information, and declining spurious lawsuits. Less known is the ethical obligation of each lawyer, each year, to contribute at least 50 hours of pro bono publico (free) legal services, as well as to contribute financial support for legal services to persons of limited means.  These contributions ethically required of lawyers’ time approximate at least $7,000 per year in free legal services for  the community and its indigents from each licensed Arkansas attorney. Despite abundant criticisms and jokes of lawyers’ ethics, we are proud that the legal profession may be the only vocation that obliges its members to tithe for the public good. Our firm performs these services in many ways, from assisting indigent clients, to providing service to legal boards, to providing support for the proper regulation and supervision of the practicing bar. Sometimes, these donated services can be quite challenging and  interesting.

An exhaustive list of the pro bono publico services performed by this firm would be too lengthy and boring to recite. But here are some examples of how our firm is proud to serve its ethical obligation to assist the public through its legal abilities:

In order to assure competency of new lawyers, each applicant for a law license, in addition to having a law degree, a clean background and recommendations of good character, must pass an intensive and rigorous examination on the law–the “Bar Examination”–which takes two full days and typically has a passing rate of approximately 80%. The importance of fairly, thoroughly and objectively grading these examinations is obvious. The lawyers who grade the exams are chosen from prominent attorneys throughout Arkansas and appointed for a six-year term as “Bar Examiners” by the Arkansas Supreme Court. Such service requires approximately 80  hours per year of uncompensated time. We are pleased that a member of our firm has served as a Bar Examiner.

The formal, written rules of civil litigation, designed to make it as simple, fair and efficient as possible, require periodic review and updating, ultimately for the benefit of everyone who may find themselves in a civil lawsuit. Updating is accomplished through a select committee of experienced lawyers appointed by the Supreme Court. Our members have served and chaired that committee.

Charitable agencies through Northwest Arkansas are necessarily in the business of raising money to spend for community needs. Every dollar that can be saved in their operational costs is a dollar that goes to the good of the community. Service on the boards of these agencies is specifically included within the ethical requirements for public service where such service saves critical resources for the charity’s purposes. Over the years, various members of our firm have been proud to serve on the boards of organizations such as the Northwest Arkansas Community Foundation, Lifestyles Foundation, Inc., Fayetteville Public Library Foundation, Inc., Habitat for Humanity, Inc., Fayetteville Youth Center, Friends of the Fayetteville Public Library, Washington Regional Hospice Program, Fayetteville Autumnfest, The United Way, Buffalo River Foundation and the Legal Aid Equal Access to Justice Panel.  In that capacity, they provide assistance in drawing bylaws, contracts and other legal documents necessary and helpful to those organizations so that their limited resources can be applied to further community benefit.

Our firm has provided presentations to local charities for the disabled on how special trusts can provide benefits for developmentally challenged individuals without losing the substantial government benefits for their care and training.

The firm, through its members, provides substantial financial support to the Arkansas Equal Access to Justice (Legal Aid) Foundation, and accepts assignments to represent clients for free from both Legal Aid and Arkansas Volunteer Lawyers for the Elderly. Such cases that we have handled for free include these:

  • negotiate the restructure of a mortgage to avoid foreclosure for a gentleman whose divorce, followed by his disability, left him with insufficient funds to pay his current mortgage payments;
  • assist in the adoption, by a grandmother, of a child whose parents were imprisoned drug abusers;
  • represent an unemployed father in a custody battle with the unemployed mother of three young children;
  • represent a single mother/student with young children in her claims against a landlord for wrongfully evicting her in the middle of the winter;
  • assist grandmother in securing guardianship of grandchildren from their drug- addicted daughter to her sister;
  • assist a blind client, whose roommate had stolen his identity, cash and credit, with discharging the resulting fraudulent credit charges and criminally prosecuting the roommate.

Though the performance of these free legal services are mandated under our ethical code of conduct, we find that our firm, through its members, regularly exceeds the obligation to perform such services to our community, and are proud to fulfill these obligations to the excess.

One little form, such big dollars

Every U.S. employer is required to have a completed Form I-9 (Employment Eligibility Verification Form) for every employee hired since 1986, to confirm that employee’s eligibility to work in the United States. To many business owners and human resources professionals, this form is considered a simple one-page piece of hiring paperwork.  However, the one page form can carry big monetary penalties for small mistakes and simple human error.  One national retailer recently was assessed over $1 million dollars in fines for incomplete and incorrectly filled out I-9 forms.  Smaller, local businesses are not immune from the scrutiny either.  A Tennessee furniture maker was given ten days to get their I-9 forms up to compliance or risk a minimum $112,500 fine.  The result was over a third of their 900 employees were let go and they paid an undisclosed fine for the violations.

 

Those are just two examples of countless cases of fines being handed out for simple oversight and mistakes on the part of employers.  With increased scrutiny and audits being conducted every year, it is important to double check your business practices and correct any I-9 violations now before it is too late.

 

Audits of employer I-9 forms increased from 250 in 2007 to more than 3,000 in 2012, an 1100% increase over a five-year period.  Fines for simple errors, such as incomplete forms, range from $110 to $1,100 per violation.  Fines increase to $375 to $14,050 per violation for knowingly or continuing to employ unauthorized workers.  United States Immigration and Customs Enforcement (ICE), the federal law enforcement agency under the Department of Homeland Security which conducts the audits, handed out more than $13 million dollars in fines based on violations discovered during these audits last year alone.  Big and small businesses alike are all susceptible to having ICE audit their records for potential compliance issues.  To avoid the potentially high costs of an I-9 violation, employers should keep these three common Form I-9 errors in mind:

 

1.         Failure to Comply with the Three-Day Rule

ICE rules state that the I-9 Form must be completed within three business days of the employee’s first day of work.  This in essence means the newly hired employee must complete section one of the form and provide two forms of identification as listed on the I-9, and these identification documents must be verified by the employer all within three business days.  Failure to do so results in a minimum $110 fine per violation.

 

2.         Incorrect or Missing Forms

Did you know employers are required by law to maintain for inspection original I-9 forms for all current employees and I-9 forms for former employees for a period of three years from the date of hire or for one year after the employee is no longer employed, whichever is longer?  Other common mistakes include incorrect dates, missing signatures, transposed information and failure to check boxes.  These simple errors can also each result in a minimum fine of $110 per violation.

 

3.         Invalid Identifying Documents and Failure to Re-verify

In the excitement and stress of hiring a new employee, it can be difficult for the human resources director or other hiring manager to verify that all the documents given by the employee are valid as required.  An employer must obtain the right combination of documents as prescribed on the form.  All documents must be unexpired and originals when presented for verification.

 

Along the same lines of not obtaining proper identification documents, employers can also be fined for failure to re-verify documents of employees with certain statuses, such as those with Employment Authorization Cards or those with Lawful Permanente Residents status (“Green Card holders”).  These documents are typically valid for one to ten years.  Once the card expires and cannot be supplemented with a new, valid card, the employee is no longer authorized to work.  Fines for employing an unauthorized worker start at $375 for first time offenses but can escalate to more than $14,000 per violation for multiple offenses.

 

It can be extremely time-consuming to manually track the expiration dates for supporting documents and remind employees to provide updated documents in timely fashion.  Furthermore, keeping everything in order and maintaining records properly is something many businesses struggle with.  The Davis Law Firm can audit your records and work with you to address any potential errors.  Call today to set up a consultation.

Too smart for their own good: unintentionally leaving everything to the just-divorced spouse

Most people in the uncomfortable throes of a divorce want to ensure that upon the conclusion of the process, their property salvaged through difficult proceedings will not go, in the event of their subsequent death, to their former spouse.  Both estate planning attorneys and divorce lawyers are aware of this and typically take steps to ensure it won’t happen.  From another practice angle, revocable trusts are generally considered the “smart” or “best practice” alternative for estate planning – but in divorce cases can become a trap for the unwary, of which both clients and lawyers need to be aware. Our experience in a recent case shows that the intersection of divorce and estate planning law and circumstances can result in a divorced spouse receiving the ex’s entire estate.

 

To the extent the settlement agreement or divorce decree doesn’t specifically resolve all property interests, Arkansas law provides a backstop for the presumed intent of the parties. Arkansas Code Annotated Section 9-12-317 (see End Note), provides that upon divorce, any property owned by the divorced parties with rights of survivorship is automatically converted to property held as “tenants in common” where each is deemed to own one-half, with no survivorship rights.  And Arkansas Code Annotated Section 28-25-109 provides that a will or any part thereof is revoked by a divorce as to all provisions in the will in favor of the divorced spouse. One would think (and probably many divorce lawyers presume) that this provision, without further action, takes care of any estate planning done during the marriage by writing the divorced spouse out of it.  Wrong.

 

It has become very popular in recent years to avoid probate proceedings by setting up a revocable trust, which holds all of the clients’ property, is managed by the clients as trustees for their benefit as beneficiaries and has terms identical to what would be typically found in a will for disposing of their property at death. If, indeed, all of the clients’ property is owned by the trust at death, the successor trustee assumes duties and administers and distributes the trust assets informally, completely avoiding probate, and any related costs, hassle and delay. An adjunct will is also drawn, to catch any property that may not have been titled to the trust at death and directs it to the revocable trust so that all of the property will be held in a single “pot” and distributed according to the comprehensive directions in the trust.  Such wills are referred to as “pourover wills.” Revocable trusts are unquestionably a valuable estate planning tool; a complete discussion of them is beyond the scope of this brief post.  However, in a divorce situation, they become a trap for the unwary.

 

Arkansas statutes do not address any effect that a divorce may have on a revocable trust. Thus, if the parties’ house or investment accounts are owned in a trust, which leaves everything to a surviving spouse, unless the divorce settlement or decree specifically addresses those assets, post-divorce, they will still be owned by the trust, and upon the death of the first ex-spouse, will all pass to the survivor.

 

Most attorneys would catch this, and make sure the trust properties were specifically addressed and resolved in the divorce.  Here’s the trap for the unwary: The couple has a revocable trust which holds all of their property, leaving it all upon the first death to the surviving spouse; divorce occurs; the attorneys and court very carefully define and distribute the trust-held property equally between the parties.  Ex-husband later dies, holding separately in his own name half of the formal marital property.  Ex-husband (and apparently his attorney), relying on Arkansas law to void any will provisions for a surviving spouse, has not amended his will.  However, his will, drawn during marriage, leaves nothing to the surviving spouse, but being a pourover will, leaves it all to their (still existing though empty) revocable trust – which has as its primary beneficiary the now divorced wife.  Because the will itself has no “provisions . . . in favor of the testator’s spouse so divorced,” it is not revoked; under applicable law, the revocable trust is a separate legal entity, as distinguished from the ex-wife, and thus receives all of the ex-husband’s estate for the benefit of his ex-wife –  though undoubtedly this is contrary to the deceased ex-husband’s final wishes.  The conclusion: Any divorce proceedings should be accompanied by concurrent, focused and careful estate planning.

 

(End Note:

Arkansas Code Annotated is an indexed organization of all of Arkansas’ written laws, available on the internet; search for “Arkansas Code”  or go to http://www.lexisnexis.com/hottopics/arcode)