Posts in: June

Tips on Purchasing Homeowner’s Insurance

June 27, 2016 Asset Protection, Real Estate Comments Off on Tips on Purchasing Homeowner’s Insurance

People who have read Mark Kohler’s Lawyers are Liars know that our philosophy with respect to asset protection is the “multiple barrier approach” to put as many barriers as you can between you and someone who would sue you.  For owners of real estate, one of primary asset protection barriers is your homeowner’s insurance policy.

No insurance policy will cover all risks under any circumstance, and so it is important for owners of real estate to request, understand and procure the right policy for their situation.   Unfortunately, getting the right policy tailored your situation may not as easy as just calling your insurance agent and getting whatever they recommend, but requires a careful understanding and analysis of risks that can be protected by insurance, but most importantly making sure your policy actually covers those risks.  Your insurance agent should assist you in deciding on appropriate coverage, but remember that you, not the agent, knows this property the best and so it is your job to communicate the risks and perils on the property to the agent.   Some guidelines that can help maximize coverage include the following:

  1. Make sure you are Dealing with a Licensed Insurance Company or Agent. Both Insurance Companies and Agents are generally licensed by the state and their information can be found online at the insurance department for the state.   Most state insurance departments have resources online to assist you in purchasing the right insurance, and make sure that the person or company you are dealing with specializes in that specific area of insurance
  1. Understand What Type of Risks and Coverage You Need. Every property is different and may entail different risks.  A typical homeowner’s policy will generally classify coverage for (1) Dwellings or other structures, (2) Damage to Personal Property, and (3) Liability coverage.   Knowing what you are specifically looking for in the form of coverage BEFORE you shop for insurance will help ensure that the actual coverage you buy matches your expectation.   For example, for Dwellings, you want to know, from as reliable a source as possible, the estimated cost to repair or replace the structure with like kind and materials.  Make sure you understand terms used by your insurance company such as the difference between “Actual Cash Value” versus “Replacement Cost” or “Guaranteed Replacement Cost,” with the understanding that insurance companies may define these differently.  For Personal Property, you want to make sure that important items of personal property are covered, how much they are actually worth, and create an inventory or snapshot of your personal property.  For Liability Coverage, you need to be very precise as to what your expectations in terms of what are the most horrible things that could cause significant injuries on the property what the appropriate amount of coverage would be.    Create a list of all the risks and perils that are important for the property so that you can address these with the insurance agent.   Also understand or ask how the deductible amount or other discounts such as alarms or other safety features will impact the premiums.  Look online for tips from state insurance departments websites such as insurance.ca.gov, or consumer oriented websites like www.insuranceconsumers.com   for issues and topics that can help you understand what risks and perils you should be aware.
  1. Keep Detailed Notes of Your Communications with Insurance Representatives and Confirm, Confirm, Confirm. Although the nature of the relationship between the insurance agent and insured could vary depending on laws of the state and whether they are working for the insurance company or an insurance “broker,” you want to be very clear with your insurance representative as to what coverage is important to you, and any specific requests or expectations of coverage should be made or confirmed in writing to the insurance representative.  Ask and confirm with the agent in writing any specific exclusions from the policy.  In other words, if the agent makes a representation of coverage to you that is important, send a confirmation of that representation in writing (e.g. email, fax, etc.) so that a record exists confirming your expectations.  Better yet, ask the agent for a copy of the policy beforehand.  Most agents won’t volunteer this but any agent that has been doing this for any amount of time should have this handy.   Keep copies of everything, including advertisements and marketing as that information could be relevant in a coverage dispute.   If you’re not sure about the type or amount of coverage you need, ask the insurance agent for their opinion and confirm this opinion in writing.  An insurance agent who makes a representation to you concerning coverage could be bound by that representation even if it doesn’t appear in the policy so it is important to document all communications with the agent to hold them accountable for what they say.
  1. Read Your Policy. I’m not talking about the 1-2 page “Declarations Page” that is only designed to show proof of coverage, but 20-30 page insurance “Binder” or “Policy” that contains the details of the actual coverage and exclusions.  No one really enjoys reading insurance policies and don’t be surprised or embarrassed if you don’t understand what you are reading.  It is a well known fact that insurance companies intentionally make their policy language difficult so as to create ambiguities as to their coverage responsibility.    Nevertheless, don’t let the first time you read the policy to be when you need to file claim.   Get ahead of it beforehand which will give you the perfect opportunity to ask questions and to clarify coverage with the insurance agent before a claim arises (See #3 above).   Be assured that if a claim is ever made, the adjusters and defense attorneys will be combing through the policy language with a fine toothed comb to try and evade responsibility.   If you do ask questions about the policy language, don’t be surprised if the insurance agent initially doesn’t understand what the policy says either as that is quite often the case, but make sure you get an answer to your questions in writing.
  1. Coverage for an LLC. For those of you who own rental property in an LLC, check with your insurance agent as to what they would require to add the LLC as an additional insured.  Some companies will simply add the LLC as an additional insured in addition to the owners.  If your insurance agent tries to sell you a different policy such as a commercial policy, consider getting a second opinion, and again, do not rely merely on the verbal assurances of your agent, but confirm it in writing.   If you have a mortgage, be aware that some lenders may periodically ask for proof of coverage, and so there are possible due on sale implications  for adding an LLC as additional insured.

Getting the right insurance coverage should be one of your front line defenses in your overall asset protection strategy.  Doing your homework beforehand, exercising proper due diligence during the process, and making sure there is a paper trail of your dealings with the insurance company will help ensure that there will be coverage in the event of a loss.

3 Reasons to have a Partnership Agreement

June 21, 2016 Business planning, Tax Planning Comments Off on 3 Reasons to have a Partnership Agreement

If you have your own business or are thinking about starting your own business, this article was written for you, particularly if you currently have or are considering having a business partner(s).  Some business owners are hesitant to mention to their business partner(s) the importance of having a written partnership agreement, but this an important step to a healthy business relationship.  Even if you’ve been in business with the same business partner(s) for years, if you don’t have a written partnership agreement, it’s never too late to get one.  Aside from the common reasons you might think someone should have a partnership agreement, such as to set forth what is expected of each partner, what each partner gets in return, and procedures for decision-making, this article is going to discuss three more crucial reasons to have a partnership agreement.

But first, for the sake of clarity, the term partnership agreement as used in this article is simply intended to mean an agreement between business partners.  I’m not suggesting your business should be a partnership; in fact, your business may be an LLC or some other entity type.  Regardless of what entity type you select for your business, if you have one or more business partners, you should have a partnership agreement in some form or another.  Also, if your business operates as an LLC, it is possible or even likely that you have an operating agreement, but an LLC operating agreement is not necessarily synonymous with a partnership agreement.  Typically the purpose of the LLC operating agreement is to help establish the legitimacy of the LLC as a separate legal entity from the owner(s)/member(s) of the LLC and to set forth some minimum standards in terms of management decisions, member meetings, etc.  In any case, you should have your operating agreement reviewed because, depending on your situation, you may want to amend your operating agreement, or you may decide to have a separate partnership agreement in order to make sure you’re properly protected.  You also may decide to have a separate agreement on just one of the items addressed below, i.e., a buy-sell agreement.  Each business partnership is unique and accordingly, the set of documents of the business should be unique and should fit the business arrangement of the partners.

With those caveats out of the way, here are three crucial reasons to have a partnership agreement:

  1. Restrictive Covenants. You have worked hard and put in many hours over the years to build your business.  How would you feel if your business partner left the business to setup shop down the street from you to become a competitor?  How would you feel if they took confidential and proprietary information of the business and used it in the new business?  What if they took clients away from the business for their new business?  Restrictive covenants can protect the legitimate interests of the business and prevent a business partner from taking such actions.
  • There are three main restrictive covenants: a non-compete, a non-disclosure, and a non-solicit.  A strong partnership agreement will contain all three restrictive covenants.  A non-compete can restrict a departing partner from competing with the business for a certain period of time, and within a certain geographical region, as appropriate.  A non-disclosure can restrict a departing partner from taking confidential and proprietary information and disclosing it to third parties or using it in an adverse manner to the business.  A non-solicit can prevent a departing partner from taking clients of the business.
  • Each state’s laws will vary as to what is a sufficient amount of restriction to protect the legitimate interests of the business.  Also, keep in mind that these provisions are like a double edged sword, i.e., you can use them to restrict your business partners but they can do the same to you, so it’s important to not get carried away and make certain the restrictions are reasonable.  Admittedly, it can be difficult to discuss these matters with your business partner(s), but it’s better to talk with them now and put it in writing rather than fight with them later in court over clients, etc.
  1. Buy-Sell Agreement. This can be a stand-alone agreement or drafted within the partnership agreement.  The purpose of the buy-sell provisions is to have a mechanism or procedure to address a situation such as when a business partner dies, or becomes disabled, etc.  Mark Kohler often times refers to the “four D’s”, death, disability, dissolution, and divorce.  You can even include in the buy-sell other situations sometimes known as “triggering events” such as bankruptcy.
  • Have you considered what would happen to your business upon your death or disability?  What if your business partner died, would you want to be “stuck” in the business with your partner’s spouse?  What if something happened to you, how can you be sure your spouse/family is fairly compensated given your ownership interest in the company?  The result of a well drafted buy-sell is that upon the happening of a triggering event, e.g., death of a business partner, the ownership interest of the business partner is bought back by the business or the surviving business partners from the deceased partner’s estate/heirs at a pre-determined price and upon the terms decided upon and set forth in the buy-sell.
  • The benefit of the buy-sell is that it eliminates having to make those decisions in the stress of the moment, when death, disability, divorce, etc., has occurred; it is easier to make those decisions before the crisis/event occurs.  You and your business partner(s) can put forth a mechanism or procedure for establishing the value of the business which will determine the purchase price.  You can also decide how the purchase price will be paid, e.g., lump sum, installment payments, etc.  In the context of death and disability, an insurance policy can be utilized to provide liquidity to pay for some or all of the purchase price.  It is never fun to talk about death or disability, but it is better to address it now rather than later when the event has already occurred, which can be difficult when emotions and stress levels are high.

Here is a great video on this topic by a partner in our firm KKOS Lawyers, Mark J. Kohler:

  1. Partnership Allocations. You and your business partner might have different financial situations, such that it is preferable to allocate partnership items of loss, income, etc., to you and your business partners in a manner other than based on the ownership/interest percentage in the business.
  • For example, your business partner might be in a high income tax bracket in a certain year and desire to claim disproportionately large items of loss, if any, to help reduce his or her income tax liability.  However, the IRS will not recognize such allocations unless they have a “substantial economic effect”.  Particularly, with a real estate based business in which there is the item of depreciation, the partners may want to be strategic about how to allocate depreciation among the partners.  Again, the IRS will not recognize those allocations unless they have substantial economic effect.
  • A well drafted partnership agreement can address these allocations to help the business partnership keep a proper accounting of the financial arrangement of the business so that such partnership allocations will be recognized by the IRS.  Even if the business doesn’t intend to make such allocations, a well drafted partnership agreement will address related matters such as contributions, distributions, etc.

These are just three reasons to have a partnership agreement.  There are many more.  Each business is unique and likewise each partnership agreement should be unique and should fit the business like a well-tailored suit.  If you and your business partner(s) don’t have a partnership agreement that sufficiently addresses these issues, I invite you to call our office.

Top 10 Hottest Legal Tips To Keep You From Getting Burned This Summer

June 7, 2016 Law Comments Off on Top 10 Hottest Legal Tips To Keep You From Getting Burned This Summer

If the mercury is approaching (or maybe even topping) 100 degrees and the kids are out of school, then it must be Summertime – cue the Will Smith!!!  The long days and pleasant temperatures mean this is the season for taking that hard-earned vacation, and whether you’re heading out to rediscover America’s highways and byways in an RV, setting off for that Caribbean cruise, or backpacking through Europe, there are a few relatively simple steps you can take to make sure your dream vacation doesn’t turn into a nightmare.  With all due respect to David Letterman, here are my top 10 tips:

10) Read the Fine Print!  Package tours, vacation home leases, auto rental agreements and travel insurance documents all require you to sign a complex legal document. The fine print often limits the liability of the other party and selects a jurisdiction should legal action become necessary. Some travel packages or rental agreements may involve large sums of money and non-refundable deposits.  You may even want to consider having an attorney review some of these agreements ahead of time to avoid any unwelcome surprises.

9) Know the Cell Phone Laws.  Some states completely forbid the use of a cell phone while driving; others allow hands-free devices while specifically forbidding texting.  The bottom line is that every state is different and the laws (and punishments) are in no way uniform.  If you are hitting the open road, take a look the laws of the states where you will be traveling.  A little research can help you avoid a pricey ticket (or even a trip in the back of a police cruiser).

8) Protect Your Home While You’re Away.  Make sure your house is locked and the alarm is armed. Ask the post office to hold your mail while you’re away.  Put your newspaper subscription (if you still have one) on hold until you get back.  Ask a trusted neighbor to keep an eye on your house while you’re gone.  If you don’t trust your neighbors, then you may instead want to notify local law enforcement that you will be away from home.  Many police departments have programs that will have an officer drive by your home while you are away.  Finally, I know it’s hard, but try not to brag on Twitter or Facebook about the great vacation you’re taking until you get back from your vacation. Thieves have been known to comb social media for information they can use to target victims who are out of town.

7) Make Sure Your License, Registration, and Insurance Are CurrentNothing can end the freedom of that summer road trip then getting pulled over and then realizing that your driver’s license and/or vehicle registration is expired.  Don’t make a stupid mistake.  Double check the expiration dates on these documents, and make sure you have your proof of insurance with you!

6) Beware of Summer Travel Scams.  If you are approached or contacted by a stranded traveler with a hard luck story, beware!  It may not really be Kevin McAllister’s mom trying to get back home to rescue the 8-year-old son she left “home alone.”  It may be a scammer.  Also watch out for companies contacting you on behalf of a buyer offering to purchase your timeshare for a windfall profit.  These scammers will pressure you to pay costs they claim are required for you to close the sale, and then disappear with your money.  Be wary of anyone seeking a wire transfer of funds, as it will be impossible to recover your money after a wire transfer is complete.

5) Don’t Drink and Drive – Ever.  This one sort of goes without saying.  Go out and have your fun, but either designate a driver or plan on taking public transportation (or a taxi, or an Uber) to get back to the hotel.  Remember that no matter which state you are traveling through, drinking and driving is illegal, dangerous, and comes with a variety of harsh punishments. Same goes for drugged driving as well – even if you’re in Colorado or Washington, where recreational marijuana is legal.

4) Understand Airport Security Regulations. The Transportation Security Agency (TSA) website offers a great deal of information about what you can and cannot take with you when you flyTaking the time to look at this info before you are in the security line will help you avoid being forced to leave behind a valuable item at the security checkpoint, and will save you time getting through screening.

3) Think Carefully About What You Carry.  Only carry the personal documentation necessary for traveling.  Don’t let your passport or other important documents out of your sight.  Avoid carrying large amounts of cash while traveling.  Traveler’s checks and credit cards offer more protection in the event of theft.  Contact your bank and credit card company to let them know you will be traveling and check on your credit limits.  If you are exchanging money, use only authorized agents or banks.  Keep photocopies of your passport and credit card information at home in the event you need the information for an emergency.

2) If You’re Traveling to Another State or Country, Make Sure You Understand Local Laws.  Traffic and other laws may vary greatly, especially outside the country. It is important to familiarize yourself with laws and customs of any other state or country where you may travel.  Make sure you don’t just go with rumors about “what you heard” was legal in a given location.  For example, many people believe prostitution is completely legal throughout the State of Nevada.  This isn’t true.  In some counties, it is prohibited entirely.  In the counties where it is legal, it is only permitted in licensed brothels.

1) Protect Your FamilyLeave a trusted friend or family member with a copy of your current trust, will, power of attorney and insurance documents. If you do not have a current estate plan, then you are in luck!  We are currently discounting our estate plans by 25%, but you must move forward by June 10th.  Please contact me or visit our website at www.kkoslawyers.com for more details.