Posts under: Law

Getting Married? You’ll Need a Caterer, a Photographer, a DJ … and a Lawyer!

September 12, 2017 Asset Protection, Law Comments Off on Getting Married? You’ll Need a Caterer, a Photographer, a DJ … and a Lawyer!

The process of getting married can be one of the most wonderful, exciting … and stressful periods in a person’s life.  There’s so much to plan for and do (and so many people to impress) that it can be hard to focus on what’s really important – the fact that you are making a commitment to love, honor and cherish the person who is (hopefully) the love of your life.

In the midst of deciding what flavor of cake to have and who will make the cut in terms of getting an invitation, please don’t overlook the fact that marriage is a change in legal status for both of you.  While certainly not the most romantic of wedding preparations, you may want to think about meeting with your attorney well in advance of the blessed day, to make sure your legal ducks are in a row before you say “I do.”  If you ask nicely, your lawyer might even agree to spread rose petals on the floor of his or her office to mark the occasion (for a small fee of course)!

Anyway, here are five legal questions you will want to consider before you take the plunge:

1) What are your assets? 

In most states, assets acquired prior to marriage are considered the separate property of the spouse who acquired them.  However, under certain circumstances, separate property can become marital or community property.  What are your shared (or unshared) expectations regarding such assets?  Do you have a plan for how assets acquired after the wedding will be handled?  Also, make sure you discuss your business as part of this conversation.  Even if the business doesn’t have many assets, the business itself is an asset that needs to be dealt with.

2) How are you going to handle finances?

Are your separate checking accounts going away and everything will be in one joint account?  Are you going to continue living separate financial lives?  Maybe you’ll play it down the middle and have “his, hers and ours” type accounts.  Regardless of what you decide, I suggest that you make a decision – any decision – before the wedding.  I render no advice about which approach is best, but I know plenty of marital spats could be avoided if folks would make these decisions before the wedding day (instead of trying to make them when one of the newlyweds wants to spend $1,000 to go diving in a shark cage on the honeymoon).

3) What are your debts and obligations? 

Now, I’m not suggesting that you run a credit report or have a minimum credit score requirement for your spouse.  However, I know someone who decided to get married primarily because she liked her new husband’s choice in shoes – so you could use worse criteria.  My bride-to-be and I had this very discussion, and I had to disclose that in addition to my student loans, I had racked up quite a bit of credit card debt during law school.  She still made the mistake of marrying me, but at least she couldn’t say I didn’t warn her about the credit card debt.  Also, like the joint vs. separate checking account conversation, I think it’s better to have this discussion before the wedding day.  You need to know going in how much of the family income will be going to cover debt payments, and whether your spouse will be a help or a hindrance when it comes time to apply for mortgages and other loans.

4) Are we going to bite the bullet and get a prenup? 

“Darling, I love you more than anything.  I can’t imagine my life without you … Whaddya say we each get our own an attorney and hash out how our assets will be divided if we ever get a divorce?!”  Yes, that is what you’re doing when you decide to get a pre-nuptial agreement.  I absolutely understand why people don’t want to do them.  They can be painful and a bit awkward (and, I mean, you probably won’t ever get a divorce).  I also understand why people don’t want to get the vaccination for diphtheria, tetanus and acellular pertussis (DTaP).  The DTaP vaccination can be painful and a bit awkward (and, I mean, you probably won’t ever get diphtheria).  However, in return for the small amount of pain and awkwardness caused by the DTaP vaccine, you get the peace of mind of knowing you have almost no chance of contracting diphtheria.  Similarly, in return for the small amount of pain and awkwardness caused by a prenup, you get the peace of mind of knowing how your assets are going to be divided if you ever get a divorce (and that you won’t have to pay a divorce attorney thousands to fight about it).  At the end of the day, I think both the DTaP vaccine and the prenup are almost certainly worth it.

5) What about our estate plan? 

If neither of you have a will, a trust, a medical or financial power of attorney or a living will, then your impending nuptials are a perfect time to get this work done.  Opt for the cash bar instead of the open bar at the reception, and use the savings to pay for a comprehensive estate plan (I promise your guests won’t mind).  If one or both of you do have these documents, then your marriage likely means they need to be amended.  You want to make sure you don’t unwittingly disinherit your spouse, or allow your mom (instead of your spouse) to have the authority to make decisions regarding your medical care if/when you become incapacitated.

Be aware that asking these questions before marriage may necessitate speaking with an attorney (either separately or jointly with your spouse-to-be).  The thought of visiting an attorney may be frightening to you.  However, just think, if you take that step and consult with an attorney prior to getting married, you may just conquer that fear of lawyers (and your fear of commitment) at the same time!

Essential Tax & Legal Tips for the NEW Business Owner

August 28, 2017 Business planning, Law, Tax Planning Comments Off on Essential Tax & Legal Tips for the NEW Business Owner

Starting a business is a process.  It is MUCH more than filing the one or two page articles/certificate of formation with the state.  At the same time, it doesn’t have to be so complicated and overwhelming that you never start.   Further, not only is starting a business a process, it’s a process that is unique to YOU.  It is not a cookie-cutter one size fits all proposition.  What your business and YOUR situation require may be completely different than anyone else you might know who is self-employed.  Having said that, here are 8 tips that apply to all businesses, but how to USE these tips will be different for each business owner:

  1. Operate out of and properly maintain the appropriate entity formation for YOUR situation. While it is true you can operate your business as a sole proprietorship, I think it’s generally better to operate your business out of an entity such as an LLC or corporation.  First, I think it has a positive impact on your mindset as a business owner in that it makes you feel more “legit”and others will see you the same. More importantly, it is always better to operate your business out of an entity such as an LLC or corporation as those companies prevent liability of the business from extending to the owners.  Lastly, operating out of an entity can in certain situations produce tax savings such as when operating out of an S-corporation to save self-employment taxes. This is generally recommended for operating businesses who have $30-$40k net annual income.
  2. Make sure you have a partnership/ownership agreement if there are other owners. If you have somebody that you trust to own and run your business WITH YOU, that’s a great thing, and hopefully you continue to have a great business relationship with that person(s).  But don’t let that be a reason to NOT get your relationship in writing through a written agreement that you both/all would sign to memorialize the rights and obligations of each other.  If the business fails or one of the owners wants out or isn’t “pulling their weight” and you didn’t address this in writing BEFORE the crisis/event has occurred, that friendly business partner could wind up AGAINST YOU.
  3. Embrace bookkeeping. Embrace the fact that bookkeeping is one of the keys to maximizing tax write-offs and commit to either obtain the right training to do it yourself OR see the value in outsourcing it to someone who knows what they’re doing.  Maybe your strength as an entrepreneur is the marketing/sales side of business, or you have the relationships to be successful, but when it comes to taxes, you must keep good records, and for all your strengths, if you’re not organized, you’re going to get killed in an IRS audit.  So either learn to be organized with your records in terms of tracking expenses and use a good bookkeeping software (Mark Kohler offers a great set of videos that train on how to use Quickbooks), or outsource it to someone else who is good at it so you can focus on what you do best. The clients who embrace bookkeeping usually have more write-offs and deductions come tax-time as they rarely miss an opportunity to expense something.
  4. Have periodic tax and legal consults with your attorney and CPA. Unfortunately, many small business owners don’t use a business attorney ever, and maybe only meet with their CPA once a year, assuming they even use a CPA.  I think the cost of meeting with a good business attorney and CPA at least twice a year is worth the cost.  Prevention is much less expensive than the cost of getting “sick”, whether “sick” is an unnecessary amount or risk exposure that leads to a lawsuit, or whether “sick” is failure to maximize tax write-offs and you’re paying more than necessary to Uncle Sam, OR, maybe without a good CPA you’re TOO aggressive on your taxes or even worse, you don’t file a return at all and the IRS comes knocking.  Not to mention meeting with your attorney and/or CPA is a tax write-off!  On the legal side, it is good to get periodic “checkups” on how your business is structured, what has changed, what’s coming up that is new in your business, etc., so that your business attorney can guide you on mitigating your risks and protecting against liabilities.  On the tax side, it’s good to also get periodic “checkups” to talk about tax strategies and which ones you aren’t maximizing or implementing, or which ones you’re doing wrong that is going to be a problem in an audit, i.e. health care, paying kids, auto, home office, dining, entertainment, travel, tax deductible contributions to retirement plans, owning real estate, etc.
  5. Be sure to have adequate insurance for your business. This legal tip is not new or cutting edge by any means, but the failure to follow it could be catastrophic to your business.  A good insurance broker can help a great deal to match up the appropriate amount of insurance (in terms of amount and policy types) for YOUR business.   You don’t want to spend TOO much of your business income on insurance premiums but if you don’t have any insurance, if/when a liability comes up in your business, and you don’t have an appropriate insurance policy to divert that financial responsibility for that claim/liability to an insurance company, it puts the full force of that claim or liability on potentially ALL of the assets and income of your business.
  6. Make sure to use contracts in your business and don’t rely on verbal conversations or handshake deals. You may have heard that under the law in most situations verbal contracts are enforceable.  That doesn’t mean you should RELY on them, especially with the core aspects of your business i.e. your clients, your vendors, your business partners, etc., you want to properly memorialize the agreement IN WRITING.  This will make it SO much easier to prove your case in court if the other party violates/breaches the written contract versus trying to prove they breached/violated a contract that is not in writing and signed by all parties.  You should have a good service contract or something applicable that is provided to your customers.  This not only helps with enforcing any liabilities or claims you have against them (non-payment for example), but it also is REALLY helpful to clarify the SCOPE of what your business WILL do for them and what your business will NOT do for them.  If you don’t clarify that in writing, you have no idea what your customer assumes or expects, so even it doesn’t result in a lawsuit, it can create a rift between your business and that client and result in bad press about your business on social media, etc.
  7. Make sure you are properly characterizing your workers (independent contractor v. employee). There is a temptation for the small business owner to view/consider ALL of their workers as independent contractors.  The small business owner loves to do that because there’s no payroll tax, no added costs for worker’s compensation, unemployment, employee benefits, etc.  Unfortunately, the federal and state taxing authorities do not take YOUR word alone that your workers are actually independent contractors.  IF you improperly classify workers as independent contractors and the government (state or federal) determines they are employees, you will have fines and penalties.  Don’t misunderstand, you can have workers that ARE independent contractors, so long as they are TREATED as independent contractors, and the key word there is “independent”.  If you’re going to micro-manage what they wear, when they work, how they work, where they work, etc., that doesn’t sound very “independent” and it sounds at lot like an employee, which it is sometimes necessary to have that much control of your workers, but you can’t have it both ways, if you treat them like employees, you have to accept that it comes with things like payroll taxes, unemployment, worker’s comp, etc.
  8. Have an exit strategy (including an estate plan). Understandably your primary concern is getting the business STARTED, so you might think it would be unproductive to think about an exit strategy so early in the “game”, but it is so important to have that in your mind.  Do you want to grow the business and sell it soon as possible or hold onto it and pass it loved ones, or maybe you want to buy out your partner’s ownership (or vice versa).  There are many unknowns that make it difficult to have any certainty about what WILL happen, but it’s very productive to consider the ways in which it COULD happen and form an opinion on what seems most appealing to you.  But REGARDLESS of what your exit strategy is, you should make sure your business ownership and estate plan is coordinated.  Even if you plan to sell the business as soon as possible, and you have no plans of owning the business for the long-term, the spontaneity of death requires that even in that situation, your business ownership be coordinated with your estate plan.  Don’t forget about incapacity either.  This could mean you have power of attorney documents in your estate plan that contemplates ownership/operation of your business if you become incapacitated.

In sum, your business needs you as the business owner to make sure your business is healthy from both a tax and legal perspective.  These tips are a great starting point to make sure that happens.  Our office is available to assist and would love to help you and your business with implementing these and other tips specifically to you and your business.

Pokémon No! How Pikachu Ended Up Getting Served with a Class Action Lawsuit

August 10, 2017 Law, Litigation Comments Off on Pokémon No! How Pikachu Ended Up Getting Served with a Class Action Lawsuit

Remember Pokémon Go? About this time last year, the “augmented reality” game in which players use their smartphones to capture and train various species of Pokémon was a global phenomenon, with nearly seven million daily downloads. It was sort of the “thing to do” of Summer 2016.

While Pokémon Fever has certainly subsided a bit, the game still has plenty of rabid fans. In fact, last month’s Pokémon Go Fest in Chicago drew 20,000 Pokémon Go die-hards to the city’s Grant Park. The Fest was billed as a chance for Pokémon Go “trainers” to compete against each other and bag rare Pokémon characters. Instead, as it turned out, attendees encountered hours’ worth of lines, a lack of data connectivity, problems with the game’s software, and malfunctions of the game’s servers. The Fest has been almost unanimously derided as a disaster.

In an attempt to quell the uproar regarding the fiasco, Pokémon’s parent company, Niantic, Inc., has offered to refund attendees’ the price of admission ($20) and give them $100 of in-app purchase credit. While definitely a nice gesture, that compensation isn’t cutting it for many Pokémon trainers who traveled from across the country, and the world, to attend.

One disgruntled Pokémon Go fan from California has gone so far as to file a class action lawsuit against Niantic on behalf of all who attended Pokémon Go Fest, seeking damages for, among other things, violation of the Illinois Consumer Fraud Act, which broadly prohibits unfair or deceptive business practices. The suit seeks to have Niantic reimburse Fest-goers for their travel and accommodation costs. It also goes after punitive damages to teach Niantic a lesson.

Virtually every state in the Union has a similar “consumer fraud” or “deceptive trade practices” statute. These statutes are designed to protect the public from business activities by that are meant to mislead consumers into purchasing a given product or service.

While each state varies in how offenses are dealt with (i.e. whether a private lawsuit can be filed or a class action is available), the acts that are illegal are at least fairly uniform across state lines. They usually include:

1) False representation of the source, sponsorship, approval, certification, accessories, characteristics, benefits, or quantities of a good or service (Niantic could have a problem here);
2) Representing goods as original or new when, in fact, they are deteriorated, altered, reconditioned, reclaimed, or used;
3) Falsely stating that certain services, replacements, or repairs are needed;
4) Advertising goods or services with the intent of not selling them as advertised, or with the intent of not having enough in stock to meet reasonably expected demand (another possible problem area for Niantic);
5) Disconnecting, turning back, or resetting the odometer of a vehicle to reduce the number of miles indicated;
6) Passing off goods or services as those of another (i.e. selling counterfeit goods); and
7) Representing goods or services as having a sponsorship, approval, sponsorship, or certification of goods or services.

Many of these seem like no-brainers, but as a consumer, it is important to know your rights, and if you are aggrieved to know that you may very well have the weight of a state statute behind you, in addition to common law claims for fraudulent misrepresentation and unjust enrichment.

As a business owner, it is crucial that you know when the conduct of your business may put you at odds with the consumer protection statute(s) in your state – so that you can do your best to make sure that you (as well as your employees and other representatives) DO NOT cross that line.

A little homework can go a long way in helping you protect yourself – both as a consumer and a business owner.

Estate Planning 101: 5 Tips to Avoid Mistakes

July 25, 2017 Estate Planning, Law, Litigation Comments Off on Estate Planning 101: 5 Tips to Avoid Mistakes

As I work with small business owners and investors throughout the year, I want them to see the big picture when it comes to Estate Planning. Many misunderstand what the Estate Plan is all about and think it’s simply an ‘asset protection’ strategy…that couldn’t be further from the truth.

An Estate Plan is about passing on your hard earned wealth to your loved ones, or a project/institution you love.  What a tragedy for a small business owner or investor to spend decades toiling to build wealth, only to have it crumble at the very end of their life because they don’t have an estate plan. YOUR wealth should go to what or who you love, NOT lawyers or to ungrateful and litigious family members fighting over who gets what.

Having said that, estate planning is not just for entrepreneurs or investors – anyone who has assets and/or a family should have an estate plan.  So here are 5 tips for avoiding mistakes when setting up an estate plan:

1. Putting It Off / Procrastination. Nobody likes thinking about dying.  But here’s a motivating factor to not put off your estate plan.  Imagine how you would feel if upon your death your assets went to your worst enemy (or at least someone you don’t like).  Although that’s an extreme thought, the reality is that if you don’t have an estate plan, you lose that control, that ability to decide who gets your assets upon your death.  So before you put off doing an estate plan, imagine your ex-spouse getting everything you own, and hopefully that is all the motivation you need to get your estate plan done.  The first step is to fill out an estate planning questionnaire.  Our questionnaire has all the basic questions you should be asking yourself when setting up an estate plan.  Then I would review those answers and we would schedule a consult to make sure everything is in order.

2. Making Sure the Estate Plan Fits You / Your Situation. It doesn’t make sense to have an elaborate expensive estate plan if that’s not necessary.  It also doesn’t make for a successful business owner or investor to pay $99 for a boilerplate estate plan off the internet.  The key is making sure your estate plan is a good fit for your  You don’t want it bigger and more expensive than it needs to be, but you also want to make sure it is comprehensive and custom-fitting to your circumstances.  Our office can assist with making sure it’s a good fit for your situation.

3. Not Knowing the Difference Between Creating a Trust and Funding a Trust. One of the biggest tragedies is when someone finally gets an estate plan with a revocable living trust but they fail to FUND the trust i.e. put assets into the trust.  Certainly the trust can’t own assets until it is created, but simply creating the trust without funding it is insufficient.  Creating your revocable living trust is a matter of getting the documents drafted and properly executed/signed.  Funding your trust is a matter of actually putting your assets into the trust.  The manner in which this is accomplished depends on the asset.  Some assets require having ownership re-titled into the name of the trust.  Other assets simply require having the trust listed as the beneficiary.  But if you create the trust but don’t fund it, you’re missing arguably the most important step in the process of estate planning.  If you created a trust but are unsure if it’s been funded appropriately, our office can assist with this.

Here is a video by our senior partner here at KKOS lawyers, Mark J Kohler, explaining 4 reasons why you might need a trust. Understanding the role and purpose of a trust can help you fund it and maintain it properly.

 

4. Understanding that Estate Planning is Not Just About Death. If death isn’t reason enough to have an estate plan, what about incapacity?  Imagine the impact on your business and your life if you lost your mental capacity either because of a coma or something less dramatic.  You would no longer be able to make important decisions about your business and your life.  A good estate plan will include documents that address this.  So make sure your estate plan has the appropriate documents for death AND disability/incapacity.

5. Knowing When to Make Changes / Take Ownership of Your Estate Plan. Your estate plan is meant to be a living, breathing thing that should probably be changed as your life circumstances change.  If you plan to setup an estate plan and hope to leave it alone until you die, there’s a good chance either the applicable law will have drastically changed or your intent will be completely different than it was when you first set it up.  So if you put your best friend as a beneficiary of your trust and then you guys become worst enemies, it’s a good idea to update to your trust.  If your trust was written when your kids were little and they’re now adults, it’s probably a good idea to update your trust.  If you put your brother as the successor trustee of your trust with no backup and he died 5 years ago, you need to update your trust.  Basically, if the nature of your relationship with anyone you’ve listed in your estate plan has materially changed, it’s time to update your trust.  Now if someone’s address changes or something minor, you don’t necessarily need an overhaul of your estate plan.  The other part of this tip is making sure you take ownership of your estate plan.  Hopefully you get an attorney to draft it but even so, you should know the basics of your estate plan such as who the trustee(s) is/are and who are the beneficiaries, so that as your life changes and your relationship with these people change, you know if a change needs to be made to your estate plan.  For example, I have talked to many people who obtained an estate plan previously and they don’t know who the beneficiaries are or who the trustee(s) is/are or what the trust owns.  While you don’t need to know the legal jargon you should know these basics about your estate plan.

Hopefully these tips will get you thinking about setting up your estate plan or updating it if you already have one and your situation has changed from when you set it up originally.  Our estate plans come include a one hour consultation so you’re getting sound legal advice tailored to your situation, and not just boilerplate paperwork. Please contact our office at 888-801-0010 to book a consultation with an attorney to start the process. Any retainer will be applied to the cost of setting up the entire estate plan.

Ask Your Attorney if a “Covfefe” Trademark Is Right for You

July 11, 2017 Business planning, Corporations, Law, Litigation Comments Off on Ask Your Attorney if a “Covfefe” Trademark Is Right for You

On May 31st, 2017, at 12:06 a.m. Eastern Time, President Donald Trump unleashed the following tweet: “Despite the constant negative press covfefe.” No one has been able to definitively crack the code (if there is one) as to what “covfefe” actually means. The President took down the tweet six hours later and replaced it with a tweet saying: “Who can figure out the true meaning of ‘covfefe’??? Enjoy!”

Predictably, the word “covfefe” immediately went viral on social media, with several twitter users encouraging their followers to “ask your doctor if Covfefe is right for you” and others thinking it’s what you’re supposed to say when someone sneezes. In the following days and weeks, covfefe has taken on a life of its own and become a bit of a cultural phenomenon. Late night hosts have debated whether President Trump had some sort of minor stroke or simply fell asleep when he typed covfefe, and Hillary Clinton was asked about what she thought it meant in a recent public appearance.

However, it’s not only comedians and 24-hour news channels that are making hay with covfefe. A Google search of “covfefe” reveals dozens of businesses ready to sell you apparel with hundreds of variations on the covfefe theme. To date, my personal favorites are “Make America Covfefe Again” and “What Part of Covfefe Don’t You Understand?”

A check of the U.S. Patent and Trademark Office (“USPTO”) databases shows that in the forty days since the covfefe phenomenon began, 34 trademark applications have been filed using the term. The products and services being tied to covfefe run the gamut from “advice relating to investments” to fragrances, toys, coloring books, and even sandwiches. As you might expect, four different companies have filed applications to use covfefe for beer.

However, easily the most popular application (there are about twenty of them) is to get protection for using covfefe on t-shirts, hats, and other apparel. One applicant for a covfefe apparel trademark even appears to have access to the inner circle of Trump advisors and confidants who know what covfefe really means – after all, its application is for: “COVFEFE – Carry On Vigilantly Fighting Evil For Ever.”

So, the question becomes: which of these applicants will win the coveted “covfefe” trademark for t-shirts? The answer from this trademark attorney is: very possibly none of them! Why? Because the USPTO will generally refuse an application as “ornamental” if what is submitted to the USPTO shows that the use of the mark is only decorative or ornamental. That is, if the use of the mark does not clearly identify the source of the goods and distinguish them from the goods of others – which is required for proper trademark use.

The USPTO’s number one example of “ornamental” use is when a quote is prominently displayed across the front of a t-shirt, such as “The Pen is Mightier than the Sword.” The USPTO’s position is that most purchasers would perceive the quote as a decoration, and would not think that it identifies the manufacturer of the t-shirts (the source of the t-shirts could be Hanes® or Champion®, for example, as shown by the neck-tag).

Other examples of “ornamental use” put out by the USPTO are:

  1. A logo on the front of a hat. When the logo is associated with an organization, like a sports team, which did not manufacture the hat.
  2. Stitching designs on the back pocket of a pair of jeans. Purchasers are accustomed to seeing embellishments on jean pockets and would not think this embroidery design identifies the source of the jeans.
  3. A floral pattern on tableware or silverware. A purchaser would likely see this pattern as merely decorative and would not think it identifies the source of the tableware or silverware.
  4. The phrase “Have a Nice Day” or a smiley face logo. Everyday expressions and symbols that commonly adorn products are normally not perceived as identifying the source of the goods.

While there is no definitive place to affix a mark to goods to avoid an ornamental refusal, the location, size and dominance of a mark have a big impact on how the public perceives it. The USPTO has offered the following examples of proper non-ornamental trademark use:

  1. Discrete wording or design on the pocket or breast portion of a shirt. A purchaser would typically associate the small logo on a shirt pocket or breast area with the manufacturer or the source of the shirt.
  2. A tag on the inside of a hat or garment. A purchaser would associate a logo on the tag with the maker of the garment.
  3. Logo on a tag above the back pocket of a pair of jeans. A purchaser would typically associate this mark with the manufacturer of the jeans.
  4. A small logo stamped on the back of a dinner plate or bottom of a coffee mug. Purchasers are accustomed to seeing a mark used in this location to identify the source of the tableware.

Another way to get around an “ornamental use” refusal from the USPTO is to show that the mark has “acquired distinctiveness.” Long-term use in commerce, advertising and sales figures, dealer and consumer statements, and other evidence can be used to show that consumers directly associate a mark with the source of those goods. While this probably won’t work for the covfefe applicants (since the term has only existed for about six weeks), it could be an option in your situation.

The final option for the covfefe trademark applicants would be to move their applications to the “Supplemental Register.” Registration on the Supplemental Register doesn’t provide all the same legal advantages as registration on the Principal Register, but it does provide protection if and when someone applies for a conflicting mark later. Also, after five years of continual use, you can apply for (and in most cases will be awarded) registration on the Principal Register.

If you feel like you have captured “covfefe-like” lightning in a bottle, and want to talk about how to protect your name and/or logo, please give me a call at 435-596-9366 or shoot me an email at jarom@kkoslawyers.com.

Bitcoin Basics: What is Cryptocurrency?

July 3, 2017 Business planning, Law, Tax Planning Comments Off on Bitcoin Basics: What is Cryptocurrency?


Questions about Bitcoin have increased dramatically as investors have seen the price of Bitcoin rise from 30 cents per Bitcoin in 2011 to $2,550 per Bitcoin in July 2017. This article answers basic questions about Bitcoin and we’ll have two follow-up articles addressing IRA ownership of Bitcoin and about accepting Bitcoin in your business. Needless to say, there’s a “bit” of uncertainty when it comes to whether or not one should invest in Bitcoin (sorry –bad pun) but here’s a breakdown of the basics.

What Is Bitcoin And How Does it Work?

Bitcoin is one type of digital currency also known as crypto currency. Users of Bitcoin pay each other directly without traditional intermediaries such as banks or even governments using what is known as blockchain technology to effectuate transactions. First, you would install a Bitcoin wallet on your device and it will generate a Bitcoin address. When you provide your Bitcoin address, the person paying you can transfer funds to your address and into your Bitcoin wallet. This transaction and all transactions on the Bitcoin network are done using this blockchain technology, which is a ledger that tracks balances. Cryptography i.e. mathematical proofs that provide high levels of security are used to strengthen the security of the Bitcoin network. By the way, cryptography is not some untested technology – it is through cryptography that online banking is currently done. As a Bitcoin user, you would authorize a transaction using a secret piece of data called a private key. A transaction isn’t finalized until it has been mined, which is a confirmation process to ensure the integrity of the transaction. You can learn more at www.bitcoin.org. I will write another article regarding whether a small business owner should consider accepting Bitcoin as a form of payment.

Where Did It Come From And Is It Risky?

Bitcoin was created in 2008 by an anonymous creator. Many executives in the financial sector are cautious or even skeptical, but others are optimistic and confident that it is not going anywhere. Fidelity CEO Abigail Johnson believes in the future of digital currency and has been a proponent of Bitcoin.. One of the biggest complaints against digital currency is the lack of security/protection from hackers. JP Morgan Chase CEO Jamie Dimon has been a notable critic citing its use by criminals looking to transact outside of the traditional financial system. In 2015, a notorious online drug sales scheme was orchestrated using Bitcoin. There was an incident in Japan in 2013 in which digital hackers stole about $450M worth of Bitcoin. A similar incident happened in Slovenia in 2013. Other controversies surrounding Bitcoin include the disappearance of notable Bitcoin start-up companies Neo and Bee in 2014. In 2015 there were arrests when it was learned that Bitcoin company MyCoin was running a Ponzi scheme in Hong Kong. There have been quite a few money laundering cases here in the U.S. involving Bitcoin.

Should I Invest In It And How Do I Invest In It?

Most people investing in Bitcoin are using a relatively small portion of their investment portfolio i.e. I don’t know anyone who is investing most or all their “eggs” in the digital currency. A lot of people are excited about it, but like any investment, if you don’t time it right and/or you don’t know what you’re doing you can and probably will lose money. The concept, however, in simplistic terms is that you buy the digital currency at a certain price and sell it for more than you paid for it. There is the famous story of Kristoffer Koch who paid $27 in 2009 for 5,000 Bitcoins which has now been valued at almost $1M. Currently, 1 Bitcoin equals approx. $2,550 U.S. Dollars, so it would cost you over $10,000 to buy 4 Bitcoins right now. Over the last three or four years, the value of Bitcoin has continued to increase and it is the dramatic increase in value that has caused the recent stir and attention around digital currency investing. Others are attracted to Bitcoin as a protection against government currency. These investors fear a failure in the financial markets, which will dilute and may cause value declines in the dollar or other government currencies. These investors prefer to hold their Bitcoin directly, rather than through a fund.

Assuming you’ve done your research and are comfortable with the process, in terms of actually investing, one option is to invest in the Bitcoin Investment Trust (GBTC). GBTC is a publicly traded security that solely invests in Bitcoin. This allows an investor to use a traditional investment vehicle to realize gains (or losses) as the price of Bitcoin fluctuates without actually possessing and storing bitcoins. However, investing in bitcoin through the GBTC provides only a fractional value of the actual price of bitcoin and so in terms of ease and convenience, the GBTC is a good option, but at least for now, it’s not the best option to capitalize on the full value of Bitcoin. Coinbase, Inc. is another option – it is essentially a digital exchange where you can invest in Bitcoin as well as other cryptocurrencies (see below). Another option is to invest in actual Bitcoin through a self-directed IRA, which I will write about in another article.

What Are Other Types of CryptoCurrency?

Bitcoin is not the only form of digital currency – others include Litecoin, Peercoin, Primecoin, Namecoin, Ripple, Quark, Mastercoin, and Ether(Ethereum).

In sum, like any investment, it requires due diligence and a correct timing of the market(s). As you can tell, there have been some crazy tales of Ponzi schemes and fraud but also stories of incredible returns. In any case, I don’t think digital currency is going away anytime soon – I guess you could say that the stories in this article have been “tales from the crypt”-o currency (it was a stretch but I decided to go for it).

The Realities of Litigation

June 27, 2017 Business planning, Law, Litigation Comments Off on The Realities of Litigation


For most people involved in a dispute, declaring the words “See you in Court!!” can seem like the perfect threat or even feel therapeutic at the least. Some even presume that by stating “I’m going to sue you” is like declaring nuclear war against the other side and the person or company that wronged you will certainly want to ‘settle’ because you have scared them with a lawsuit.

However, people who have actually been participants in litigation soon realize that there is no such thing as “inexpensive litigation,” and many individuals, fueled by the passion of a person scorned, proceed hastily to the courthouse seeking vindication or retribution without having a full understanding of the realities that they are getting themselves into.

Certainly, one of the great hallmarks of our society, and what separates the American system from many others around the world is an independent judiciary. But again, the media frequently oversimplifies what is actually involved in the legal process with its sole focus on sensationalizing the outcome thereby conveying a misleading impression of the actual litigation process.   Here are a few misconceptions I frequently encounter with clients about the litigation process include the following:

  1. Are you ready for the PROCESS? Unless you are in small claims, you generally don’t just file a lawsuit and then get to see Judge Judy the very next day. Media usually focuses on “trials” only, but ignores the months (usually years) of pre-trial procedure needed to get to that point.    Litigation usually begins with a “Complaint” which begins the “pleading” phase where the parties set forth their allegations and responses in defense. Sometimes there could be challenges to the pleadings through the motion process, which add additional expense and delay. Once the pleadings are done, then the parties have the opportunity to require other parties to the lawsuit to answer questions, produce documents, or take testimony of witnesses (the “discovery” phase). It should come as no surprise that parties to litigation are not always so eager to provide information that may hurt their case, and so the discovery process can often take months or years with parties jockeying in court over who should get what.   Assuming the parties have completed discovery, that does not necessarily mean you go to trial.   Trials only occur when there are actual factual or legal issues in dispute which requires a judge or jury to determine, and the reality is that most lawsuits do not go to trial. Although the cost of litigation varies depending on the location and issues involved, what I usually tell clients is the cost to go through these procedures to litigate a normal civil matter from Complaint up to but not including trial, doing a minimal amount of work, can easily run between $50,000 to $100,000. Preparing for and conducting a trial can substantially increase these costs and so unless you’ve retained an attorney on contingency, the expense and delay litigation is definitely an important consideration for most litigants.
  2. Does the Opposing Party have Assets to Satisfy Your Claim?  Usually this is the first question I ask a client contemplating litigation, and many times it is question the client hasn’t considered. It makes no financial sense to pay tens to hundreds of thousands of dollars on a case if the defendant has no money.  Although I’ve had my share of clients walk into the office wishing to sue “on principle” or “just to make a point,” these moral considerations usually get thrown out the window very quickly once we begin to discuss the costs that will be incurred to get them to where they want to be.   So unless the opposing party has significant, identifiable assets that may be exposed in a lawsuit, or there is sufficient insurance to cover the claim, many potential litigants find themselves having no remedy for their claim because the opposing side is essentially “judgment proof.”
  3. Do you realize how unpredictable litigation can be? This should go without saying, but I spoken with plenty of people contemplating a lawsuit express confidence that a judge or jury would find them in the right. In litigation, it is less about who is wrong or right and more about what you can prove. Court decisions are ultimately made by people who come from all types of backgrounds and from all walks of life, and attorneys in high stake cases often employ professional “jury consultants” and perform “mock trials” to gauge how a jury will likely view their case. Despite all the money that is spent on attorneys, consultants, experts and the like, even the best attorneys with the greatest of resources lose cases, and most of us have probably followed cases in which we were surprised by the outcome. From a legal perspective, the reason there are trials is because there are issues of law or fact in which “reasonable people can differ.” If every issue in a case was a “slam dunk,” then there would be no need for a trial.

For these reasons and more, I consider litigation to be the option of last resort. Although the media likes to portray litigation and trials as dramatic and full of suspense (which it certainly can be), they leave out the cost and the time consuming process.

Consider interviewing several litigation firms before embarking on your lawsuit and make sure you weigh all the pros and cons of a long draw out lawsuit. It doesn’t mean litigation shouldn’t be a tool, threat or productive option in your dispute, but just go into the process with your eyes wide open.

What You Should Know about Administering a Family Member’s Estate

May 23, 2017 Estate Planning, Law, Retirement Planning Comments Off on What You Should Know about Administering a Family Member’s Estate

Most of us will, at some point in our lives, be called upon to administer the estate of a departed family member or loved one. While it may seem like an honor to have been entrusted with this responsibility, the reality is often it is a thankless, time consuming job, and even more so if there are disagreements and disputes among the heirs or beneficiaries of the deceased.

Being asked to shoulder the responsibility of administering a decedent’s affairs while still mourning their loss can be challenging. The precise rules and procedures that apply will depend on whether the decedent had a trust that was fully funded, whether probate will be necessary because the either decedent did not have a trust or did not fully transfer all relevant assets into the trust.

It will also depend on which state laws apply as well as the value of the estate. Keep in mind that it is impossible to provide an all-encompassing checklist that applies to each family situation and the procedures may vary greatly depending on if the decedent had a will or a trust. However, here are some general guidelines to keep in mind, some of which may or may not apply depending on the situation:

  1. Seek Professional Advice.   This is something you may only do once in your lifetime and Google is not going to give you all the answers you need.  Also, keep in mind you do not have to go at this alone. Depending on the value of the estate and its complexity, you may want to employ the services of professionals such as attorneys, CPAs, appraisers, etc. to assist in navigating your responsibilities. Typically this would entail an estate attorney, a CPA knowledgeable in estate and income taxes, and a financial advisor, although additional professionals may be needed depending on the situation. Usually, these fees would be paid from the decedent’s estate and so there should be no financial disincentive to seek help if needed. There may be certain actions, decisions, procedures or deadlines that need to be met in a timely manner, which could impact the ability of heirs or creditors to make claims or challenges to the estate. Most people are not aware of these rules and deadlines and so getting the right advice from the start may be good protection for both you and the estate.
  2. Inventory and Secure the Decedent’s Assets & Important Documents. A trustee or administrator of an estate is charged with the duty to assemble, inventory and safeguard the decedent’s assets and important documents. In the immediate aftermath of a death, it could be a chaotic situation with visitors and relatives coming and going and, as the representative of the estate or trust, it is incumbent on you to safeguard the important assets and documents. You will need to determine whether the decedent had a will or trust, and assemble all important documents, contracts, bank accounts, financial accounts, safe deposit boxes, investment accounts, unpaid wages or other income sources, mortgages, insurance policies, retirement accounts, social security or other government benefits, pensions, real estate, businesses, prior tax returns, digital assets (email, social media accounts), etc. of the decedent. It may take some investigation into the files of decedent or interviewing the family members to uncover all potential assets and liabilities, and don’t assume decedent told you everything there was to know. A separate bank account will likely need to be set up for the estate or trust, and never comingle your personal finances with the estate/trust finances. You will need to obtain several certified copies of the death certificate in order to establish control over certain accounts held by third party custodians/banks. Some assets such as real estate may need to be appraised to determine the fair market value for purposes of estate taxes, reporting, or for distribution.
  3. Gather and Assemble a List of Decedent’s Creditors. This does not necessarily mean that you will immediately pay every bill as soon as it arrives. Rather, there could be other expenses that take priority such as funeral expenses or federal and state taxes. As a trustee or administrator of the estate, you could get into trouble by paying expenses that then leaves the estate unable to meet its tax or other priority obligations.   It is important to try and get a broad picture of the Decedent’s overall financial situation, including factoring in potential tax liabilities, in order to establish a game plan for administering the estate or trust and paying creditors. Of course, some debts such as mortgages or car payments need to be timely made to prevent the account from going to default, but have a concerted strategy for handling Decedent’s creditors. If it appears that the estate may not have sufficient assets to cover all liabilities, then professional assistance or assistance from the courts may be needed to determine how to prioritize payments.
  4. Notify Decedent’s Heirs and Beneficiaries. Some states have time requirements on when heirs and beneficiaries should be notified and whether they are entitled to receive a copy of Decedent’s will or trust. Their ability to bring challenges to the trust or estate may depend on when they were first notified and so seek help to determine the requirements in your situation and document your communications with heirs and beneficiaries.
  5. Manage the Assets of the Estate Prudently and Obtain the Consent of Heirs or Beneficiaries for any Major Actions. As the trustee or administrator, you are a fiduciary and must act in the best interests of the beneficiaries or heirs. You generally have a duty to manage and invest the assets as a reasonably prudent investor would and can be held personally responsible for failing to do so. Therefore, seek the advice of legal and/or financial counsel regarding any issues with managing or investing the assets of the estate, and if a decision needs to be made regarding an important asset (such as selling the asset, making significant improvements to real estate, etc.), consider obtaining the written consent of all beneficiaries before authorizing such action.
  6. Distribute the Assets to the Heirs/Beneficiaries. Once all the creditors and taxes have been paid and the estate is in a position to be distributed to the beneficiaries, an accounting may need to be performed and approved by the heirs/beneficiaries, and then the assets of the estate/trust may be distributed and estate or trust closed.

Again, keep in mind these are only general guidelines for administering trusts and estates and there may be specific state or federal requirements and deadlines that will apply to your situation. If you have a particularly large estate that may implicate state or federal estate taxes, there are likely additional requirements and deadlines and so it is recommended that you check with appropriate professionals as soon as possible for large estates.

For smaller estates or assets with lower value that are not held in trust, there may be other options for distributing those assets without the need for probate.   The rules and procedures can be rather complex depending on the state and the situation and so make sure you consult with appropriate professionals to ensure you are complying with your responsibilities as a fiduciary for the estate/trust.

What Being Dragged Off a United can Flight Teach Us about Contract Law?

April 18, 2017 Business planning, Law, Litigation, Small Business Comments Off on What Being Dragged Off a United can Flight Teach Us about Contract Law?

Unless you’ve been in a coma for the past week or so, you’ve probably seen the cell phone camera footage of airport police dragging a kicking and screaming Dr. David Dao off a United Airlines flight at Chicago’s O’Hare Airport last week.

At this point, the story is well known.  United needed to get four additional flight crew employees on Dr. Dao’s flight, so they asked paying customers to give up their seats voluntarily, for increasing levels of compensation.  When there were no takers, United selected four passengers “at random” for involuntary removal from the flight.  Dr. Dao was one of the “lucky” four selected.  However, when the time came to make the walk of shame down the aisle and off the plane, Dr. Dao refused to get up.  That’s when airport security was called in to physically remove him and cell phone cameras started to roll.

This fiasco, and the seemingly incessant media coverage thereof, has been a PR nightmare for United Airlines.  It has also brought an unprecedented amount of attention to the legal term “contract of carriage.”  Simply put, a contract of carriage is an agreement between a carrier of goods or passengers (such as an airline) and the consignor, consignee or passenger. These agreements define the rights, duties and liabilities of both the airline and the passenger.

You agree to your chosen airline’s contract of carriage when you buy your ticket.  The very broad framework for these agreements is established by federal law and the FAA (for domestic airlines), but the contracts can, and do, vary considerably from airline to airline.  Among other things, in your contract of carriage, you agree that you can be bumped from your seat due to overbooking, or because the airline needs to move employees.  You also agree (at least in the contracts of carriage for the four largest U.S. carriers) that you can be removed from or denied boarding to the plane for the following reasons (among many others):

  1. You decided shoes are overrated – boarding can be denied to those who are barefoot or not properly clothed.
  2. You decided showering is overrated – airlines can refuse to board individuals who have or cause a malodorous condition.
  3. You spent your entire long layover in the airport bar – airlines don’t have to board folks who appear to be intoxicated or under the influence of drugs to the degree that they could endanger other passengers or crew members.
  4. You spent your entire long layover in the airport’s all-you-can-eat buffet – if you are unable to sit in a single seat with the seat belt properly secured or are unable to put down armrests between seats for an entire flight, the airline isn’t obligated to give you a seat (or two).

What can we learn from all of this (other than to make sure to wear shoes to the airport)?  I think the takeaway is that even if we don’t know we’re doing so, most of us enter into legal agreements (i.e. contracts) multiple times each day, and it behooves us to know (and when we can do so, also to control) what is in those contracts.

This is especially important in your business.  Do you have a written contract with your vendors/suppliers/customers?  If not, then what happens if there is a dispute?  What is the basis of your agreement?  An email chain?  A phone call?  A face-to-face meeting that ended with a handshake?  If you do have a written contract, when was the last time you looked at it?  Do you understand the language in the contract and your rights and responsibilities under that language?  Have you had a trusted, experienced attorney review the contract to make sure it is in your best interest?

As Dr. Dao’s experience has taught us, the consequences of a contract can be serious, and can even put us in the national spotlight.  Taking the time to review and, if necessary, to change the contracts that you rely on to run your business is absolutely worth the time and effort.  The few hundred bucks you might spend could save you thousands in defending or pursuing a lawsuit regarding a poorly drafted or non-existent contract.

Alternatives for Securing Your Loans or Investments

March 7, 2017 Asset Protection, Business planning, Law Comments Off on Alternatives for Securing Your Loans or Investments

We often advise clients who want to loan money or participate in an investment to “get adequate security” for their investment. The purpose of getting additional security for your loan is so that you have something else that you can go after if the loan goes south.

Ordinarily, if your loan is “unsecured,” it generally means that if the investment tanks, then your only remedy would be to sue the debtor and go through the potentially expensive process of litigation in hopes that you can get a judgment against the debtor, and perhaps most importantly, that the debtor will then have assets from which you can collect.

In our experience, if a debtor has defaulted on your investment, they are likely experiencing financial issues as a whole, and will unlikely have assets for you to recover from even if you prevail in your lawsuit. Moreover, a debtor having financial issues and/or without assets is a likely candidate for bankruptcy, and for those reasons, investors who are reduced to having to resort to the court system to remedy a failed investment are often just throwing good money after bad.

In general, real estate with sufficient equity to secure the investment is the best form of security for the primary reasons that real estate is immovable, and there is a well established public record for recording and determining rights and priorities to real estate.

However, if securing your investment with real estate is not an option, that does not mean your investment must be unsecured. In fact, virtually any type of property or asset can serve as collateral for an investment. Unlike real estate, the process and laws for securing your investment using “personal property” as collateral will depend on the type of property as well as the applicable state, local, and sometimes federal law that apply.   Examples of personal property that can serve as collateral for your loan include the following:

  1. Interests in Inventory, Equipment, or Fixtures – If you are lending to a business and that business has assets, those assets could likely serve as security for your loan. In general, this would require an additional “security” agreement which specifically identifies the assets that are being offered as security for the loan, which then must be “perfected” usually by filing a UCC-1 Financing Statement with the Secretary of State for the state where the business is located. This procedure is most often used by banks and other financing companies for business loans that are not secured by real estate. The benefit is, like real estate, the office of the Secretary of State serves as a central resource where anyone can access to determine the existence of liens against the assets of a business and the priority of those liens.
  1. Interests in Stock or interests in LLCs – If the debtor owns interests in his/her own corporation or LLC, the interest in the corporation or LLC could serve as security for a loan. This is most often accomplished by a “pledge” agreement whereby the debtor offers his/her interests in the corporation or LLC as collateral for the loan. One drawback for stock or LLC interests is, unlike real estate or other asset classes, there is no central resource like a recorders’ office or secretary of state for determining if there are competing or priority claims against privately held interests in businesses.   In addition, a pledge agreement doesn’t mean much if the entity itself has no assets and so adequate due diligence on the entity that is being pledged is essential.
  1. Interests in publicly traded securities and securities accounts – Interests in stocks or other securities held by a brokerage can also serve as collateral for a loan. Usually, this is achieved by having the parties to the loan enter into an agreement with a third party custodian that holds the account (sometimes called a securities intermediary) which provides that upon a default on the loan, the third party custodian will deliver the asset to the creditor without further consent by the debtor.
  1. Interests in Intellectual Property – Interests in Trademarks, Patents, Copyrights, and even Trade Secrets can serve a security for a loan, although the procedures for perfecting these interests in intellectual property will differ and it is often difficult to place a value on intellectual property for purposes of determining whether the value is adequate for the loan.
  1. Interests in Tangible Personal Property – Virtually any item of personal property of value (such as jewelry, equipment, vehicles, etc.) can serve as security for a loan. Usually this would entail delivering the property to a third party who holds the asset similar to an escrow or consignment subject to performance of the terms of the loan. For assets which ownership is evidenced by some certificate of title, there may be a department or organization which provides for registering your lien (e.g. the Department of Motor Vehicles).

Securing your loan or investment with personal property is just one part of the due diligence that you should be performing when considering any particular investment. As this article demonstrates, the documents and procedures necessary to document, establish and perfect these secured transactions may vary widely and so you want to make sure that you follow the correct legal procedures and that your security documents are properly drafted so ensure that your loan or investment is, indeed, secure.