|
Herten, Burstein, Sheridan, Cevasco,
Bottinelli, Litt, Toskos & Harz, LLC
REPORT FROM COUNSEL
SPRING ISSUE,
2008
NEWS FROM HERTENBURSTEIN.COM
- In January,
Andrew Fede
was reappointed as the Norwood Borough Attorney for 2008. Mr.
Fede also published an article in the October 2007 edition of
the New Jersey
Lawyer magazine
titled "The Clock is Ticking: Why the Courts or the Legislature
Should Prohibit Adverse Possession and Easement by Prescription
Claims in Municipal Land."
- Terry Paul
Bottinelli was
reappointed as Borough Attorney in Alpine, and as Judge in
Cresskill and Closter. He was sworn in as Judge by former Herten
Burstein partner, and current Superior Court Judge, Menelaos W.
Toskos.
- Thomas J. Herten
and Craig
Bossong were
reappointed Borough Attorneys in Waldwick.
- Terry Paul
Bottinelli's daughter
is expecting a baby, giving the Bottinelli's their first
grandchild.
- Daniel Gielchinsky
was appointed as Special Counsel to the Mayor and Council in
Saddle Brook.
The firm is pleased to welcome
Gianfranco A.
Pietrafesa to the
firm. Mr. Pietrafesa is a business lawyer and litigator. As a
business lawyer, he represents clients in corporate, business,
employment and real estate matters. His extensive experience
includes the formation of business entities, the purchase and sale
of businesses, the preparation and negotiation of various business
contracts and advice to clients on general employment matters. He
also handles real estate matters for his corporate clients,
including the purchase and sale of commercial real estate, land use
applications, the preparation and negotiation of leases, and
commercial mortgage lending.
Mr. Pietrafesa has been a director of
the Business Law Section of the New Jersey State Bar Association and
a member of the Inn of Transactional Counsel since 2002. He is
listed among The Best Lawyers in America in the area of Corporate
Law.
Mr. Pietrafesa received his J.D. from
Seton Hall University School of Law, where he was an editor of the
Seton Hall Legislative Journal. He received his B.S. in accounting,
summa cum laude, from Fairleigh Dickinson University, which better
enables him to provide advice to business clients. Prior to entering
private practice, Mr. Pietrafesa served as a Law Secretary to the
Honorable Nicholas G. Mandak, the Assignment Judge for the Passaic
County Vicinage of the Superior Court of New Jersey.
Mr. Pietrafesa is actively involved in
his community. He coaches baseball, softball and soccer, and has
been a member of the Hawthorne Board of Education for many years. He
has also served as general counsel to the St. Anthony Education
Foundation, and the Hawthorne Education Foundation, New Jersey
Nonprofit Corporations.
- Mr. Pietrafesa
will be one of three speakers at the "Purchase, Organization and
Sale of a Small Business" seminar (NJ ICLE) on March 25 and the
moderator of the 2008 Business Law Symposium on April 29 (NJSBA
Business Law Section and NJ ICLE).
- R.J.
Contant
and Eimi
Thompson
presented a lecture at Friendship House on the contribution of
real estate to a charitable organization qualified under IRC
sections 501(c)(3) and 170.
For those individuals who are
charitably inclined and wish to donate real estate, there are a
variety of reasons and methods to do so. A gift of real estate may
be transferred to a charitable organization qualified under IRC
sections 501(c)(3) and 170 as a lifetime outright gift, by retaining
a life estate in the property, through a charitable gift annuity,
through a split interest with an IRS recognized trust, through a
bargain sale, or a testamentary transfer.
Gifting real estate has advantageous
income and estate tax consequences. Transferring real estate as an
outright lifetime gift is advantageous since the donor will avoid
the payment of capital gains tax and may take a charitable
contribution deduction. Donating real estate can also minimize
estate consequences by removing the value of the property from the
decedent's gross estate.
Friendship House is dedicated to
serving and assisting individuals with mental, developmental or
physical disabilities by providing pre-vocational and vocational
training, transitional and supported employment programs,
psychiatric evaluations, medication management and support groups.
Currently the organization supports 131 people in a variety of
community jobs including janitorial and grounds maintenance, food
services, clerical duties and packaging and assembly work. The staff
at Friendship House is committed to assisting individuals become
functioning members of society and developing a sense of purpose and
self-worth.
NEW COAH REGULATIONS
By Nilufer O. DeScherer
In accordance with the directive
of the Appellate Division in
In the Matter of the Adoption of
N.J.A.C. 5:94 and 5:95 by the New Jersey Council on Affordable
Housing (and related
cases), 390 N.J. Super. 1 (App. Div. 2007), the Council on
Affordable Housing ("COAH") has published a new set of third round
regulations. This new set of rules was published in the January 22,
2008 edition of the New Jersey Register and can be reviewed on
COAH's website at
www.nj.gov/ dca/coah/dec07proposal.shtml.
The COAH website also provides a
general summary of the major changes in the proposed rules. Notable
changes are (1) a significant increase in COAH's determination of
what the affordable housing need is for the state (115,000
affordable units instead of 52,000 based on the original set of
third round rules that was adopted); (2) an increase in development
fees for new construction from 1% of equalized assessed value to 1
1/2 % of equalized assessed value for residential development and
from 2% to 3% for non-residential development; (3) establishment of
a payment in lieu standard averaging $161,000 per affordable unit;
and (4) an increase in the cost of an RCA (Regional contribution
Agreement) from $35,000 per unit to $67,000 to $80,000 per unit (by
COAH region). The deadline for submitting to COAH written public
comments to the proposed rules is March 22, 2008. According to the
Council on Affordable Housing, these new rules are scheduled to
become effective June 2, 2008.
For more information on the
impact of the proposed rules on the development community in New
Jersey, contact Nilufer O. DeScherer.
THE POWER OF A POWER OF ATTORNEY
A power of attorney is an instrument
that authorizes an "agent" to act on behalf of someone else (the
"principal") in a legal or business matter. When an elderly woman
executed a power of attorney that gave her younger sister certain
powers, a dispute arose when the younger sister used her power to
name herself as the beneficiary of the elderly woman's life
insurance policy. The dispute was with the elderly woman's children
and grandchild, who had been beneficiaries under the policy until
the younger sister with the power of attorney put herself in their
place.
The children and grandchild argued to
no avail that the terms of the power of attorney instrument did not
give the younger sister the authority to name herself as the
beneficiary of the life insurance policy. Unfortunately for them,
the instrument language was broad enough to authorize the agent to
change the beneficiaries of the principal's policy, where it
authorized the agent "to transact all insurance business on
[principal's] behalf, to apply for or continue policies, collect
profits, file claims, make demands, enter into compromise and
settlement agreements, file suit or actions or take any other action
necessary or proper in this regard."
It was significant that the power of
attorney did not incorporate by reference the various powers listed
in the Uniform Durable Power of Attorney Act. In cases in which the
powers listed in the Act are incorporated by reference into the
power of attorney, an agent is not authorized to change the
beneficiary of the principal's life insurance policy unless the
principal has expressly authorized the agent to do so within the
power of attorney. Since there was no mention of the Act in the
instrument in question, but only a broadly worded grant of
authority, the sister had not exceeded her powers.
Although the children and grandchild
lost on the issue of how to interpret the agent's powers, they were
still free to raise other arguments if they had factual support.
These included arguments that the elderly woman did not have the
mental capacity to execute the power of attorney, that her execution
of the instrument was not of her own free will but was rather the
result of the duress, coercion, control, and/or undue influence
exercised by her sister/agent, and that the sister/agent's action in
changing the beneficiary of the policy to herself was a violation of
her fiduciary duty to the principal.
A power of attorney can be a valuable
tool in estate planning, but it should be properly drafted to ensure
that the powers contained therein are appropriate. Always consult
with a qualified professional before executing a power of attorney.
REAL ESTATE ROUNDUP
Flood Zone Fraud
A jury recently gave a hefty damages
award to homeowners who sued a real estate company for falsely
representing that the home they were buying was not located in a
flood zone. When the rains came after the homeowners had moved in,
the front yard, backyard, and a patio were under three feet of
water. The house itself was never flooded. While this was fortunate,
it limited the economic damages that a lawsuit would yield,
prompting the homeowners to use an unusual legal theory.
The homeowners successfully argued
that the realty company had committed fraud. The use of fraud as a
cause of action allowed the homeowners to recover noneconomic
damages of the kind not commonly awarded in litigation between the
buyers and sellers of real estate. In addition to recovering damages
for the difference between what they paid for the property and its
real value, the homeowners also received a significant award for
mental anguish, and an even larger amount as punitive damages.
The company and, in particular, its
manager knew about the flooding problem and kept that fact from the
home buyers. There was evidence that others who bought nearby
property from the same company had battled flooding and had
complained about the flooding to the realty company. Moreover, real
estate agents testified that sales contracts with prospective buyers
for the very property that was in dispute had fallen through when
those buyers became aware of the potential for flooding.
The failure to disclose continued in
the time after the purchase, when the company manager unsuccessfully
tried to get the new homeowners to sign a drainage release, which
would have absolved the company of liability for any damage from
flooding.
Condemnation Action Dooms Business
When the District of Columbia
condemned property on which it planned to construct a municipal
office building, the corporation that owned the land received an
award compensating it for the property, "including all interest
therein." The quoted phrase was relevant, because the property had
been occupied by the owner of a gas station and convenience store
business under a franchise agreement with the landowner.
Unfortunately for the holder of the franchise, the agreement's terms
heavily favored the landowner insofar as the impact of a
condemnation was concerned.
First, in the event of a condemnation,
the agreement would terminate 10 days before the effective date of
the condemnation. This meant that the agreement ended before the
condemnation, leaving the business with no remaining legal interest
in the property for which it could receive compensation. Second, the
agreement provided that the landowner would receive all of the money
awarded in the condemnation proceedings.
Left without a share of the
condemnation award for the property itself by the terms of its
agreement, the owner of the business argued that, as part of the
condemnation action, it nonetheless should receive compensation for
the business's losses, for its goodwill, and for other consequential
damages that flowed from the condemnation. The argument failed.
It could have been within the power of
the District of Columbia to authorize such an award for nonowners
situated on condemned property but, in fact, the relevant statute
contained no such provision. As a result, the claim by the business
fell under the rule, announced by the United States Supreme Court in
a previous case, that "absent a statutory mandate the sovereign must
pay only for what it takes, not for opportunities which the owner
[or, in this case, franchise holder] may lose."
For more information on
these issues or any other real estate or real estate litigation
matter, contact Arnold D. Litt or Jason T. Shafron.
INTRAFAMILY LOANS SUBJECT TO TAX LAWS
For parents with the financial means
to do so, there may be a natural impulse to help a child get started
in his or her adult life by making a loan to the child, on terms
that are favorable to the child. Notwithstanding the virtues of such
generosity, the cold reality is that, if the terms are too favorable
to the child, the loan could end up with some undesirable tax
consequences.
The better choice may be to go forward
with the loan, but with the child repaying the loan with enough
interest to avoid the tax bite. Think of this approach as generosity
tempered with practicality and as a borrowing position for the child
that is closer to the "real world" marketplace.
For a loan from a parent to a child,
the IRS measures the interest rate on the loan against a benchmark
interest rate, the "applicable federal rate" (AFR), which it sets
each month. Currently, that rate is about 5%. To the extent that the
interest due on the loan is less than the interest calculated with
the AFR, that amount will be "imputed" income to the parent, even
though it was not in fact collected by the parent. The IRS will also
treat the same amount as a gift to the child, requiring the filing
of a gift tax return. (There would be no gift tax due, however,
unless the parent had used up the $1 million lifetime gift tax
exclusion.) From the standpoint of the child's taxes, he or she may
be able to deduct the amount of the imputed interest on a loan
secured by a residence.
Exceptions
There are two important exceptions to
this scenario. If the amount of the loan to a relative does not
exceed $10,000, and the loan is not used for an income-producing
investment, the IRS will not impute any interest. In addition, loans
of up to $100,000 do not lead to imputed interest if the borrower's
net investment income in a given year does not exceed $1,000.
To avoid the income tax or gift tax
ramifications for all kinds of intrafamily loans, the simplest
approach is to use an interest rate that is at least as high as the
AFR. Also, although it may seem unduly formal among relatives, it is
advisable to set forth the terms of the loan in a written agreement,
signed by all parties. Not only does this protect against faulty
memories, but it decreases the odds that the IRS will consider the
entire transaction to be a gift rather than a loan.
For more information on
intrafamily loans or other planning issues, contact R.J. Contant or
Andrew J. Cevasco.
CAREFUL WHAT YOU CLICK
A Texas online purchaser used her
daughter-in-law's credit card to order some automobile seat covers
and have them delivered to the daughter-in-law in Alabama. When they
were delivered, it was discovered that the covers were the wrong
color. The daughter-in-law sent them back to the company and
reversed the charge on her credit card. The company claimed that it
never received the seat covers, and eventually sued the purchaser
and the daughter-in-law for breach of contract.
The lawsuit against the customers was
reason enough for heartburn, but adding to the problem was the fact
that the action was filed in a state court in Indiana, far from
either of the defendants' homes. The defendants' attempt to avoid
having to defend the suit in Indiana failed. The "clickwrap"
agreement that the customer had accepted with a click of the mouse
when she purchased the items included a requirement that any legal
proceeding between the purchaser and seller had to be filed in
Indiana and governed by Indiana law.
It may be that most customers only
skim the language in a clickwrap agreement, if they read it at all,
while looking for the "I accept" button. However, the agreement, and
everything in it, is no less binding because of that. Both the
customer and the owner of the card she used were bound to litigate
the dispute in Indiana.
The court emphasized that the online
agreement gave reasonable notice of its terms. Its full text was
immediately visible to the customer, who had to take the affirmative
step of clicking on the "I accept" button. Not only that, but the
heading for the "litigate only in Indiana" section was in bold print
and capital letters.
In most cases and for most people, the
legalese in clickwrap agreements is of little practical consequence,
but online customers should be on notice that agreeing to buy a
product may also entail agreeing that any dispute will be litigated
on the other side of the country and be decided according to another
state's laws.
For more information on this
case or any other related matter, contact Patrick Papalia or Carolyn
B. Hand.
|
