Legal Update New Year 2015

A.  Using Appropriate Notary Blocks

B.  Updated Employment Verification Requirement

C. Inherited IRAs Are Not “Retirement Funds”

D. Sale Of A Business

E. Your Spouse May Not Inherit Your Entire Estate If You Don’t Have A Will

A. Using Appropriate Notary Blocks

When preparing real estate documents, it is important to use the correct notary block to validate the document. There are two types of notary blocks: Acknowledgments and Affirmations. Deeds and other real estate instruments require Acknowledgements.
An Acknowledgement certifies important things about the signer, such as that the signer is who he or she claims to be, that document is genuine and signed voluntarily, and that the signer is of sound mind and over the age of 18. All of these characteristics must be met to have a legally enforceable real estate contract.
On the other hand, an Affirmation is an oath about the truth of the information contained in the document, and it does not address the capacity of the signer. While this is important, the capacity of the signer is much more important to a real estate contract.
Title companies in Colorado have been known to use incorrect notary blocks. This can threaten the enforceability of the documents, so make sure that the notary blocks conform to the above guidelines when you sign important real estate documents. Here is an example of an Acknowledgment:

 B. Updated Employment Verification Required For Colorado Employers

The Colorado Department of Labor recently updated the Affirmation of Legal Work Status form that all Colorado employers are required to complete when hiring new employees.  The major change, which went into effect on October 1, 2014, is that the form must be completed within 20 calendar days after each new employee is hired; the previous form only required the form to be completed 20 days after a new hire.  The updated form can be found on the Colorado Department of Labor website: https://www.colorado.gov/pacific/sites/default/files/EVL-MandatoryAffirmationForm9-1-14.pdf

All private and public employers with employees in Colorado must comply with the Employment Verification Law; use of the Affirmation of Legal Work Status form provided by the CDLE is mandatory. Electronic copies of the affirmation form are acceptable, and employers must make and keep copies of the identity and employment authorization documents that are used to complete federal Form I-9 for each newly hired employee (Note: this differs from federal law, which does not require employers to retain copies of the identity and authorization documents).

C. US Supreme Court: Inherited IRAs Are Not “Retirement Funds”

Retirement funds, such as 401ks, IRAs, and SEPPs, are exempt assets under the US Bankruptcy Code. This means that if a person files for bankruptcy, he or she does not have to give up these funds to creditors. Historically, this protection extended to retirement funds to which an individual contributed during his or her working life, as well as to retirement funds that an individual inherited from parents or grandparents.

However, in the recent decision in Clark v. Rameker, Trustee, the Supreme Court has held that inherited IRAs are not “retirement funds” according to the US Bankruptcy Code.  Therefore, individuals must give up inherited IRAs, 401ks, or SEPPs to their creditors if they file bankruptcy. This decision will have profound implications on estate planning, so be sure to keep this in mind and ask how this decision will affect your estate planning needs.

D. Sale of A Business

I was involved in a business transfer wherein my client signed a letter of intent that stated it was binding and governed by the laws of New Jersey.  It was literally drafted by New York City lawyers, who then drafted a 58 page sale document.  My client showed up at my office with the sale document and asked me for a “quick review”.  Needless to say, it was a rough negotiation as the seller was already bound by the letter of intent.  The legal fees over the next 45 days were extreme.

Always see a lawyer before you sign a letter of intent.

The controlling document of a sale or purchase of a business is a detailed contract that must be carefully drafted.  A lawyer generally cannot represent both the buyer and seller.  A client should never rush into a deal before consulting legal counsel.  Most transactions will be Asset Purchase Agreements for small to medium sized businesses.  Some will involve the purchase of stock of an existing entity.  The parties need to seek the counsel of CPAs and attorneys to determine the most advantageous way to transfer a business.

A business sale that involves financing real property or franchise agreements will require additional drafting to address issues related to the assets being transferred and contingencies of the purchase.

Any business transfer has dozens of issues including retention of employees, tax basis of assets, assignment of leases and the disclosure to employees and the public.

The general rule is that a seller who carries a portion of a percentage price will receive a higher sales price, but will also run a much higher chance of seller default and litigation.

Money spent negotiating a contract that is well thought-out and covers every issue is always beneficial.

E. Your Spouse May Not Inherit Your Entire Estate If You Don’t Have A Will

When a spouse dies, the surviving spouse usually receives the assets of the deceased because the assets were owned in joint tenancy or there was a will leaving everything to the surviving spouse.

However, if the property isn’t jointly owned and there isn’t a will, the surviving spouse may not inherit all of the assets if:

(1) The deceased’s parents are living.

(2) The deceased spouse has children or  grandchildren from a previous marriage.

The reverse may also be an issue.  If a person has children and grandchildren from a long-term marriage, and becomes widowed, does that person really want a subsequent spouse to inherit everything?

There isn’t one correct way to do estate planning; it all depends on levels of wealth, family situations, and the needs of dependents.  Consulting with a lawyer to draft a prenuptial agreement or will is the best way to protect your family.