Suttons Bay Law

Going, Going, Gone!

U.S. taxpayers are experiencing a “perfect storm” of opportunity to make tax-free transfers (gifts) of assets such as family businesses, real estate and other wealth from one generation to the next. The gift tax was first enacted in 1932 by the federal government. Over the coming months, we all have what may be the best opportunity since 1932 to gift family assets without a gift tax now and to avoid significant estate taxes later.

Two notable exceptions to the gift tax
Some people are not aware that giving away assets to their children or other individuals may create a taxable event. The “gift tax” referenced above applies to anything of value transferred by one individual to another. There are two notable exceptions to the gift tax. One is an “annual exclusion” which is an exception that allows individuals to gift up to $13,000.00 per year per person without any gift tax consequences. A second exception is an overall gift tax exemption which historically has been limited to $1M during an individual’s lifetime.

The above-referenced “perfect storm” of opportunity is almost certainly short-term in nature. Several key elements have transpired to create this opportunity as follows:

• At the conclusion of 2010, Congress changed the estate tax exemption which allows for transfers of gifts up to $5M per individual ($10M per married couple) of assets with no federal gift tax.
• Asset values, particularly for real estate, are still significantly depressed resulting in a greater opportunity to gift value from one generation to the other. In the State of Michigan, a recent Supreme Court decision also provides a unique opportunity for parents to gift ownership of real estate to their children in such a way that a transfer can avoid a significant increase in future real estate taxes.
• Certain widely accepted techniques used by experienced estate planning attorneys may also result in individuals transferring 10 to 20 times the $5M or $10M gift tax exemption limit without incurring gift taxes based on certain “leveraging techniques”. Although these techniques can be complex, they are well established and have withstood attacks in the past by the IRS.
• Most transfers that are made to take advantage of the gift tax exemption also provide significant asset protection for the assets.
• Many of our Cottage Law clients with family cottages will be able to enjoy long-term tax savings as a result of taking advantage of this opportunity to make tax-free transfers (gifts) of these legacy assets. Visit our Cottage-Law website at www.Cottage-Law.com for additional information.

An appropriate gifting strategy can save significant taxes
Why act now? Unless Congress and President Obama take further action to create a new law, the 2010 Tax Act will automatically expire at the end of 2012 (approximately 13 months from now). The current lifetime gift tax exclusion of $5M per person will drop to $1M. The window of opportunity for gifting significant assets from one generation to the next to avoid potential future estate tax is narrowing. Gifting assets removes the asset’s value in the transferors estate for estate tax purposes. As a result, an appropriate gifting strategy can save significant taxes.

Reducing future tax burdens
It is a widely accepted belief among financial advisors and other financial experts that taxpayers should transfer assets that are depressed in value that may be subject to future estate tax liability as soon as possible. As these assets begin to recover and grow in value in the future, so do an individual’s current and future tax burdens.

The possible benefits
Whether you perceive yourself as wealthy or not, given the possible benefits of making gifts of assets and the unique opportunity that currently exists to do so, everyone should at least evaluate their potential future estate tax liability and how current gifts of assets may reduce that liability.

Please contact me if you would like to evaluate your own situation to determine whether gifting assets at this time is right for you.

Dan A. Penning

Tags: Asset Protection, Business Succession, Cottage Law, Estate Planning, Know it Now by Dan Penning
No Comments »

Judge Rules on Employee and Facebook Post

We have previously provided information regarding social media and how employee postings on various websites may or may not affect the employment status of employees. The Acting General Counsel for the National Labor Relations Board (“NLRB”) recently released a report on August 18, 2011, summarizing the results of 14 employment related cases that center on employees’ use of social media relative to their employment and their employer’s social media policies for employees. The report provides insight into what the NRLB regards as protected speech and also the enforceability of certain social media policies that employers implement. Remember that the NLRB and the National Labor Relations Act apply to most employers, union and non-union alike.

Protected, Concerted Activity

Employers are often surprised to learn that employees can openly discuss their terms and conditions of employment with fellow colleagues on social media sites, such as Facebook, and such activity is largely a “protected concerted activity” according the NLRB, which is behavior protected by section 7 of the National Labor Relations Act (“NLRA”). The medium of expression does not matter if it is “protected, concerted activity.” An employee can openly criticize an employer’s wage and hour policies and employees’ working conditions. Such statements can be very damaging to a company but whether the statements are damaging or not, they are largely protected. Protected speech includes any statements made by the employee that involves wages, hours or working conditions. Concerted is defined as “engaged in with or on the authority of other employees.” Employee statements cross the line, however, when personal attacks are made that meet a high enough threshold of being “so disloyal, reckless or maliciously untrue” that the statements are no longer protected.

Employer Social Media Policies

If you do not have a social media policy.

The NLRB has determined that whether or not an employer has a social media policy in place, the employer cannot take disciplinary action against employees who engage in protected, concerted activity. Such activity can be insulting to the employer, including the use of swear words and sarcastic comments. If you are considering firing an employee, make a careful review of whether the employee was criticizing wages, hours, or working conditions and whether the communication was directed to other employees or whether the employee was communicating on behalf of other employees.

If you have a social media policy.

If your social media policy attempts to control what your employees cannot say about your company, you can run afoul of the NLRA, particularly if the policy is meant to discourage disparaging remarks about the company.

One of the policies that was found to have violated the NLRA absolutely prohibited employees from “making disparaging remarks about the company or its supervisors” and from mentioning the company “in any media without the company’s permission.” This policy is overly broad. Employers should craft its social media policy to protect legitimate business interests such as trade secrets, confidential financial information, and employees’ medical conditions. The intention of protecting business interests, however, cannot impinge upon employees’ rights, such as the right to form a union or engage in protected, concerted activity.

Luxury Car Dealer Terminates Employee for Facebook Postings

In one case the NRLB decided, an employer terminated an employee for posting disparaging remarks and pictures on Facebook about (1) a sales event that the employer held where it served food purchased from a warehouse club and (2) a vehicle that had been accidentally driven into a pond at the dealership across the road that was also owned by the employer. The employer was a luxury car-dealership holding the sales event to draw attention to the launch of a new automobile model introduction. The salespeople were concerned that the choice in food would affect their sales and resulting commissions. The NLRB report summarized the decision in this matter as follows:

“Although the employee posted the photographs on Facebook and wrote the comments himself, we concluded that this type of activity was clearly concerted. We found that he was vocalizing the sentiments of his coworkers and continuing the course of concerted activity that began when the salespeople raised their concerns at the staff meeting. Further, we concluded that this concerted activity clearly was related to the employees’ terms and conditions of employment. Since the employees worked entirely on commission, they were concerned about the impact the Employer’s choice of refreshments would have on sales, and therefore, their commissions. . . . Here, the employee’s postings were neither disparaging of the Employer’s product nor disloyal. The postings merely expressed frustration with the Employer’s choice of food at the sales event. They did not refer to the quality of the cars or the performance of the dealership and did not criticize the Employer’s management. We found it irrelevant that the postings did not clearly indicate that they were related to a labor dispute given that they were neither disparaging nor disloyal.” (Memorandum OM-11-74).

Employers are cautioned to carefully consider how they communicate decisions that may affect employees’ wages, hours, and working conditions because those decisions may be memorialized on an employee’s Facebook page, complete with pictures, that may negatively affect an employer’s reputation in the community.

What the NLRB considers legal and illegal
This remains a developing area of the law and the positions of the NLRB have not been tested in the courts. However, having examples from the NLRB of what it considers to be legal and illegal is very helpful to employers and provides a clearer picture of what may get employers in trouble with the NLRB. The full report is available at here.

Dan A. Penning

Tags: Employment Law, Know it Now by Dan Penning
No Comments »