Before You Retire: Steps for Planning In Advance

By Joseph L. Goldman, Esq. and Naomi B. Collier, Esq.

The article below appeared in the November issue of Meadowlands USA newsletter.

As the average life expectancy in the United States seems to increase with each passing year, having a secure retirement plan is more important than ever. Retirement planning encompasses much more than simply saving enough money to live on after you stop working—it is an ongoing and dynamic process.

While it is tempting to put it off, the best time to start planning for retirement is well in advance of when you are actually ready to retire.

Consider the following suggestions as you start down the long, winding road that is your retirement:

  1. Get organized. Organizing and understanding your finances is a great starting point. Create a balance sheet that contains your financial information, including asset type and value, and how owned. Consider how the assets will be distributed upon your death. Consolidate your account log-in information and corresponding passwords—and ensure that your advisors and trusted family members/friends can access the information in the event of your incapacity or death.
  1. Build your team. Pick professional advisors that you trust to work with you towards your goals. Make sure your team works together. By gathering a well-rounded team, including an attorney specializing in estate planning, a financial planner, an accountant and an insurance adviser, you will have put in place a system with built-in checks and balances.
  1. Create a budget and savings plan. Carefully monitor your spending patterns and expenses to determine how much you will need to live during your retirement years. This will enable you to work with your advisors to create realistic current and projected budgets, and tailor your savings approach. Review spending and expenses (at least annually) to reflect any significant changes.
  1. Consider retirement goals. Think about your life after retirement. Consider where you might live, your desired retirement lifestyle, any ongoing obligations, as well as expected and unexpected health care expenses. Consider the impact of these factors on your finances in retirement.
  1. Review your estate planning documents. Review your existing estate planning documents to make sure they still make sense. Have the documents reviewed by a trust and estates attorney to ensure that they reflect current law. If you do not have documents in place (including a will, durable power of attorney, and health care proxy/living will) consult with an attorney qualified to assist you with preparing and implementing these documents.
  1. Review your beneficiary forms. Even if you have estate planning documents in place, be mindful that certain assets pass outside of a will. For example, life insurance, IRAs and retirement plans generally pass to the designated beneficiaries. If your beneficiary designation forms are not coordinated with your estate planning goals, your objectives may not be realized. Be aware that failure to designate individual beneficiaries may also have adverse income tax consequences.
  1. Consider estate tax implications on your estate. It is also important to discuss with your attorney whether your estate will be subject to estate tax. While the federal exemption has increased dramatically over the years ($5,450,000 in 2016, indexed for inflation), some states continue to have much lower exemptions ($675,000 in New Jersey). If your estate will be subject to estate and/or inheritance tax, consider how it will be paid and/or whether you can minimize those taxes.
  1. Consider long term care implications on your estate. Consider how you will fund your long term care, if necessary. Are your assets sufficient to self-fund such care? Alternatively, evaluate whether long term care insurance is a viable option or if qualifying for government benefits might be necessary. Consult an attorney versed in elder law to better understand the options available to you.
  1. Talk about it. Most people do not want to think about what will happen when they die or become incapacitated, let alone talk about it! However, having a discussion with the important people in your life when you still can, before you are in a crisis situation, beats the alternative. Ensure that everyone understands your wishes as related to health care decisions, why you made certain provisions in your estate planning documents and how you wish your affairs to be handled if you are unable to handle them yourself.

Not all roads to retirement are alike and events often occur that require adjustments to your plan.  However, if you create a retirement plan in advance, select the right advisors to help you implement and oversee your plan and make adjustments as necessary, you will go a long way to helping yourself enjoy a successful and rewarding retirement.

New Rule Requires Paid Sick Leave for Workers on Federal Contracts

By James W. Boyan III
jboyan@pashmanstein.com

On September 7, 2015, President Obama signed an executive order (the “Executive Order”) requiring certain employers that contract with the Federal Government to provide their employees with up to seven days of paid sick leave per year.  On September 30, 2016, the U.S. Department of Labor published a Final Rule implementing the Executive Order.

Coverage

The Executive Order will apply to four types of federal contracts that result from solicitations issued after January 1, 2017: (1) procurement contracts for construction; (2) service contracts; (3) concessions contracts and (4) contracts in connection with federal property or lands and related to offering services.  The Final Rule will also apply to any subcontract of a covered contract that falls into one of these four categories.  The rule does not apply to contracts for manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government.  An employee must be working on or in connection with the covered contract to accrue paid sick leave.

Requirements

Employers must provide up to seven days (or 56 hours) of sick leave per year to eligible employees.  Employers are required to provide written notice to eligible employees at the end of each pay period of month of the amount of paid sick leave available.   Employers do not need to provide an additional 56 hours of paid sick leave (or a separate sick leave benefit) on top of their existing sick leave policies – as long as their policies are equivalent to or more generous than those described in the Final Rule.  In addition, employers are not required to pay employees for unused paid sick leave upon termination.  Finally, employers may not interfere with the accrual or use of paid sick leave and may not discriminate or retaliate against any employee for the exercise of rights under the Executive Order or the Final Rule.

The Bottom Line

Federal contractors should determine whether they will be required to provide paid sick leave to their employees as a result of this Executive Order/Final Rule.

 

New Jersey Passes Law Repealing Estate Tax By 2018

By Trusts & Estates Group

On October 14, 2016 Governor Christie signed into law the much discussed gas tax hike bill, ultimately repealing the New Jersey estate tax in its entirety.  Beginning on January 1, 2017, a decedent will not be subject to New Jersey estate tax unless his or her taxable estates are greater than $2,000,000 (a significant increase from the current $675,000 New Jersey estate tax exemption).  For individuals dying on or after January 1, 2018, the New Jersey estate tax is repealed entirely.  A decedent domiciled in New Jersey and dying in 2016, however, will remain subject to New Jersey estate tax if the value of his or her taxable estate exceeds $675,000. MORE

New Jersey Supreme Court Provides Test To Determine Whether A Limited Liability Company Member Can Be Judicially Expelled

By Steven Walder, Esq.
swalder@pashmanstein.com

The New Jersey Supreme Court recently addressed in IE Test, LLC v. Carroll, ___ N.J. ___ (2016), the circumstances under which the member of a limited liability company (LLC) can be judicially expelled.  The IE Test decision is important as LLC’s are among the more common form of business organization throughout New Jersey.  By providing seven factors for New Jersey trial courts to consider, guidance has now been provided to determine whether it is “not reasonably practicable” for a member to remain associated with an LLC that wishes to continue operating.

The dispute that prompted the IE Test litigation resulted from the failure of a prior business, Instrumentation Engineering, LLC, in which IE Test’s three LLC members were involved. Defendant Kenneth Carroll was the co-owner of Instrumentation Engineering with Patrick Cupo, while Byron James was employed at the company.  In 2009, following a series of financial setbacks, Instrumentation Engineering filed for Chapter 7 bankruptcy.  During the bankruptcy proceeding, Carroll claimed that Instrumentation Engineering owed him more than $2.5 million.  Ultimately, Instrumentation Engineering failed to repay this debt to Mr. Carroll.

As Instrumentation Engineering’s business was failing, its owners contemplated establishing a new business.  Ultimately, IE Test was formed as a New Jersey LLC shortly before Instrumentation Engineering filed for bankruptcy.  IE Test had three members, which included Cupo at 34%, with Carroll and James each at 33%.  From the outset of IE Test, Cupo and James played an active role in the business, while Carroll was a passive member.  While the intention of the three members of IE Test was to enter into an operating agreement, this never came to fruition, primarily due to the fact that Carroll was seeking compensation that would allow him to recover some of his lost investment in Instrumentation Engineering.

By early 2010, as a result of the members’ failure to enter into an Operating Agreement, in addition to the belief of Cupo and James that they could no longer work together with Carroll, IE Test filed a lawsuit against Carroll seeking to remove him as a member.  Specifically,   IE Test alleged in its complaint that Carroll had engaged in conduct which made it “not reasonably practicable” pursuant to N.J.S.A. 42:2B-24(b)(3) of the New Jersey Limited Liability Company Act (“LLCA”) to carry on the activities of IE Test with Carroll as a member.

The trial court agreed that it was not reasonably practicable for IE Test to continue as a business with Carroll as a member and entered an order expelling him from membership.  Carroll appealed the trial court’s decision, which was ultimately affirmed by the Appellate Division.  The basis for the Appellate Division’s ruling in March of 2015 was that N.J.S.A. 42:2C-46(e) of the Revised Uniform Limited Liability Company Act (“RULLCA”), which had replaced N.J.S.A. 42:2B-24(b)(3) of the LLCA in 2013, required that a trial judge engage in predictive reasoning in order to evaluate the future impact of an LLC member’s current conduct.  Utilizing predictive reasoning, the appellate panel found that the continued operation of IE Test with Carroll as a member was “not reasonably practicable” because Carroll’s relationship with Cupo and James never recovered from Carroll’s demand that he be compensated in a manner that permitted him to recoup his lost investment in Instrumentation Engineering.

The New Jersey Supreme Court reversed the Appellate Division ruling that LLC members seeking to expel a fellow member are required to clear a high bar.  The Supreme Court indicated that neither N.J.S.A. 42:2B-24(b)(3)(c), nor its counterpart N.J.S.A. 42:2C-46(e)(3), authorizes a court to disassociate an LLC member merely because there is a conflict.  Instead, both provisions require the court to evaluate the conduct of the LLC member relating to the LLC, and assess whether the LLC can be managed notwithstanding that conduct, in accordance with either the terms of an operating agreement or the default provisions of the statute.

In an effort to guide trial courts in the evaluation whether an LLC member should be expelled under the “not reasonably practicable” standard, the Supreme Court provided seven factors to be considered.  The factors include: (1) the nature of the LLC’s members conduct relating to the LLC’s business; (2) whether, with the LLC member remaining a member, the entity may be managed so as to promote the purposes for which it was formed; (3) whether the dispute among the LLC members precludes them from working with one another to pursue the LLC’s goals; (4) whether there is a deadlock among members; (5) whether, despite that deadlock, members can make decisions on the management of the company, pursuant to the operating agreement or in accordance with applicable statutory provisions; (6) whether, due to the LLC’s financial position, there is still a business to operate; and (7) whether continuing the LLC, with the LLC member remaining a member, is financially feasible.

The Supreme Court summarized its view that a trial court considering an application to expel an LLC member should conduct a case-specific analysis of the record using the seven factors, as well as other considerations raised by the record, with no requirement that all factors support expulsion, and no single factor determining the outcome.

Pashman Stein Walder Hayden’s Corporate Group is available to answer any questions that you may have about the recent New Jersey Supreme Court ruling and its impact on LLC’s facing internal disputes among its members.

Can A Third Mortgage Have Priority Over A First Mortgage?

By Louis Pashman, Esq.
lpashman@pashmanstein.com

Perhaps surprisingly, the answer is yes, at least under certain circumstances.

Rosenthal & Rosenthal entered into a factoring agreement with a borrower. That agreement allowed Rosenthal to make optional advances in its sole discretion.  On August 21, 2000 the lender recorded its first mortgage.  On April 12, 2005 it recorded its second mortgage.

A law firm providing legal services to the borrower recorded its mortgage on the same property, the third mortgage on the property, on April 13, 2007.  In August 2007 Rosenthal sent an email to the law firm and demanded that the law firm subordinate its mortgage to any new Rosenthal mortgages.  The law firm refused.  Rosenthal continued to make optional advances and the law firm continued to provide legal services.

When the borrower defaulted on its loan obligation Rosenthal filed a foreclosure action naming the law firm as a defendant.  The law firm disputed the priority claimed by Rosenthal.

The trial court granted summary judgment against the law firm.  The appellate division reversed and the case was appealed to the New Jersey Supreme Court.

That court held, in  Rosenthal & Rosenthal v. Benun, 226 NJ 41 (2016) that

When a lender holds a mortgage that secures optional future advances the prior lien loses priority for advances made after actual notice of an intervening mortgage.

Rosenthal had actual notice of the law firm’s intervening lien (indeed requested subordination) yet continued to make optional advances.  Its mortgage securing those optional future advances was subordinated to the law firm’s intervening lien.

 

 

Municipal Paid Sick Leave Ordinances

By the Employment Group

One of the more remarkable developments in New Jersey employment law in recent years has been the emergence of city ordinances requiring employers to offer paid sick leave to employees who work in those cities.   These ordinances have been passed in reaction to the failure of the Governor and State Legislature to enact a statewide paid leave statute.  To date, eleven cities have adopted such laws:  Bloomfield, East Orange, Elizabeth, Irvington, Jersey City, Montclair, Newark, New Brunswick, Passaic, Paterson and Trenton.

While there are differences between them, the ordinances are all substantially similar and require most employers to provide one hour of paid sick leave for every 30 to 35 hours worked, up to a maximum of  40 hours per year.  Most of our clients offer at least that much paid sick leave to employees.  However, it is important to know that the ordinances were designed to ensure that paid leave is available to workers at the very bottom of the wage scale.  As such, employees only need to work 80 hours in a year to qualify for some paid leave, which may conflict with your policy on paid time off accrual.   Furthermore, the ordinances require employers to allow employees to “bank” up to 40 hours of paid sick leave for use in future years, which may also conflict with your policy.  Please let us know if you would like us to analyze your policies to ensure compliance with the ordinances in any of the cities where you have operations.

Municipalities have very limited authority to fashion civil remedies for violations of ordinances.  Thus, the paid sick leave ordinances impose quasi-criminal sanctions for violations of paid leave requirements, subjecting employers and employer representatives to fines and potentially even jail time.   Cases are to be brought in municipal courts.

These new ordinances raise many issues and undoubtedly there will be court challenges to their enforceability and perhaps constitutionality.   One important concern is the degree to which municipal courts, certainly not accustomed to such matters, will be asked to weigh in on the question of whether independent contractors are in fact statutory employees entitled to paid leave.  Another issue is whether employees who believe that they were discharged for complaining about the failure to provide paid sick leave will be able to use the ordinances to claim that their terminations were in violation of public policy, thereby providing them with a Superior Court wrongful discharge remedy.   Perhaps most alarmingly, it is possible that cities and towns will now attempt to regulate other aspects of the employee/employer relationship, thus creating numerous new, and possibly even conflicting, standards that will have to be learned and followed.

It is expected that unless the State Legislature acts to pass a statewide paid sick leave law, other cities and perhaps smaller towns will pass such ordinances.   Even if your operations are not covered by a paid sick leave ordinance today, they may be soon.

We are of course available to answer any questions you have about the paid sick leave ordinances.  If you would like a copy of any of the ordinances, please let us know.

Samuel Samaro
Maxiel Gomez
James Boyan

 

 

New Overtime Rules in Effect December 1st, 2016

The United States Department of Labor (DOL) recently announced new rules to determine whether an employee is entitled to overtime.  The new rules take effect on December 1, 2016.

Here is the bottom line:  Unless you are paying an employee at least $47,476 per year, he or she will be entitled to overtime (with some limited exceptions). If you pay them less, it does not matter what they do or how you pay them, they get overtime.  You can apply what employees receive in non-discretionary bonuses, commissions, and incentive pay toward 10% of the $47,476 threshold.

However, be aware that just because you pay employees at least $47,476 does not mean that they are exempt from overtime.  Employees must still qualify for one of the overtime exemptions (such as the Executive, Administrative or Professional exemptions).  Most of the exemptions require you to show that the employee is a white-collar employee, paid on a salary basis, who exercises authority or meaningful discretion in his or her daily activities.

There is also an exemption for highly-compensated employees which is easier to satisfy.  However, under the new rules, such employees must be paid at least $134,004 per year.  Also, they must still primarily perform non-manual tasks and so care must still be exercised to ensure that the exemption applies.

Perhaps the most important takeaway is that these new rules have received significant media coverage.  You must assume that your employees will be aware of them, particularly with regard to the new $47,476 salary threshold.  To the extent that you have made overtime determinations with which you are uncomfortable, now would be the time to address them.

For further information about this new rule or any other employment-related issue, please contact: Sam Samaro (ssamaro@pashmanstein.com), Maxiel Gomez (mgomez@pashmanstein.com), or Jim Boyan (jboyan@pashmanstein.com).