Spring 2008 Issue
REPORT FROM COUNSEL
APRIL 16, 2008 HAS BEEN DESIGNATED NATIONAL HEALTHCARE DECISIONS DAY
Henningson & Snoxell, Ltd. along with Fairview Maple Grove Medical Center are offering two opportunities for you to learn more about Advance Care Planning and Advance Care Directives. Please join us:
Wednesday, April 16, 2008 at 11:30 a.m.
or
Thursday, April 17, 2008 at 7:00 p.m.
Henningson & Snoxell, Ltd. along with Fairview Maple Grove Medical Center are offering two opportunities for you to learn more about Advance Care Planning and Advance Care Directives. Please join us:
These Information Sessions are free, but due to limited space, registration is required. Please call (763) 560-5700 to register or if you have any questions. Join us for information and tools about how to make future healthcare decisions known to family, friends and health care providers. Door prizes and refreshments will be available.
Location: These Information Sessions will be held at Fairview Maple Grove Medical Center, 14500 - 99th Avenue North Maple Grove, Minnesota.
Directions: I94 to Maple Grove Parkway/95th Ave.; right on Maple Grove Parkway to 99th Avenue North;turn right on 99th Avenue; you will see Fairview Maple Grove Medical Center on your left, at the corner of 99th & Fernbrook Lane.
THE POWER OF A POWER OF ATTORNEY
A power of attorney is an instrument that authorizes an "agent" to act on behalf of someone else (the "principal") in a legal or business matter. When an elderly woman executed a power of attorney that gave her younger sister certain powers, a dispute arose when the younger sister used her power to name herself as the beneficiary of the elderly woman's life insurance policy. The dispute was with the elderly woman's children and grandchild, who had been beneficiaries under the policy until the younger sister with the power of attorney put herself in their place.
The children and grandchild argued to no avail that the terms of the power of attorney instrument did not give the younger sister the authority to name herself as the beneficiary of the life insurance policy. Unfortunately for them, the instrument language was broad enough to authorize the agent to change the beneficiaries of the principal's policy, where it authorized the agent "to transact all insurance business on [principal's] behalf, to apply for or continue policies, collect profits, file claims, make demands, enter into compromise and settlement agreements, file suit or actions or take any other action necessary or proper in this regard."
It was significant that the power of attorney did not incorporate by reference the various powers listed in the Uniform Durable Power of Attorney Act. In cases in which the powers listed in the Act are incorporated by reference into the power of attorney, an agent is not authorized to change the beneficiary of the principal's life insurance policy unless the principal has expressly authorized the agent to do so within the power of attorney. Since there was no mention of the Act in the instrument in question, but only a broadly worded grant of authority, the sister had not exceeded her powers.
Although the children and grandchild lost on the issue of how to interpret the agent's powers, they were still free to raise other arguments if they had factual support. These included arguments that the elderly woman did not have the mental capacity to execute the power of attorney, that her execution of the instrument was not of her own free will but was rather the result of the duress, coercion, control, and/or undue influence exercised by her sister/agent, and that the sister/agent's action in changing the beneficiary of the policy to herself was a violation of her fiduciary duty to the principal.
A power of attorney can be a valuable tool in estate planning, but it should be properly drafted to ensure that the powers contained therein are appropriate. Always consult with a qualified professional before executing a power of attorney.
IS IT "WORK" TO DRESS FOR WORK?
Six times a day, for 6 to 10 minutes each time, workers at a chicken processing plant were required to put on, take off, and clean safety and sanitary clothing that they had to wear while on the job. The special gear consisted of smocks, hairnets, gloves, earplugs, and safety glasses. When a dispute arose between the workers and their employer over whether the employees were entitled to be paid during this time, the workers claimed a right to compensation under the federal Fair Labor Standards Act (FLSA).
A jury initially ruled against the workers on the ground that the dressing, undressing, and cleaning activities were not "work" within the meaning of the FLSA. The jury had been instructed that, under the FLSA, the activities were not work without a sufficiently laborious degree of exertion, such as may be required if the gear were cumbersome, heavy, or required significant concentration to put on and take off.
An appellate court disagreed with the "exertion" standard and ruled in favor of the workers. Under the FLSA, it is not appropriate to focus on whether an activity requires a certain level of exertion in deciding whether it is "work." Instead, the key for treating an activity as "work" is finding that it is an integral and indispensable part of the primary activities undertaken for the employer's benefit, and that it is controlled or required by the employer.
Even though the dressing, undressing, and cleaning jobs done by the poultry workers were, in a sense, peripheral to the main tasks, they still were an essential part of the job, for which the workers had a right to compensation. (Do not expect a similar result if you are a white-collar worker hoping to be paid for the time taken to put on a coat and tie in the morning.)
INTRAFAMILY LOANS SUBJECT TO TAX LAWS
For parents with the financial means to do so, there may be a natural impulse to help a child get started in his or her adult life by making a loan to the child, on terms that are favorable to the child. Notwithstanding the virtues of such generosity, the cold reality is that, if the terms are too favorable to the child, the loan could end up with some undesirable tax consequences.
The better choice may be to go forward with the loan, but with the child repaying the loan with enough interest to avoid the tax bite. Think of this approach as generosity tempered with practicality and as a borrowing position for the child that is closer to the "real world" marketplace.
For a loan from a parent to a child, the IRS measures the interest rate on the loan against a benchmark interest rate, the "applicable federal rate" (AFR), which it sets each month. Currently, that rate is about 5%. To the extent that the interest due on the loan is less than the interest calculated with the AFR, that amount will be "imputed" income to the parent, even though it was not in fact collected by the parent. The IRS will also treat the same amount as a gift to the child, requiring the filing of a gift tax return. (There would be no gift tax due, however, unless the parent had used up the $1 million lifetime gift tax exclusion.) From the standpoint of the child's taxes, he or she may be able to deduct the amount of the imputed interest on a loan secured by a residence.
Exceptions
There are two important exceptions to this scenario. If the amount of the loan to a relative does not exceed $10,000, and the loan is not used for an income-producing investment, the IRS will not impute any interest. In addition, loans of up to $100,000 do not lead to imputed interest if the borrower's net investment income in a given year does not exceed $1,000.
To avoid the income tax or gift tax ramifications for all kinds of intrafamily loans, the simplest approach is to use an interest rate that is at least as high as the AFR. Also, although it may seem unduly formal among relatives, it is advisable to set forth the terms of the loan in a written agreement, signed by all parties. Not only does this protect against faulty memories, but it decreases the odds that the IRS will consider the entire transaction to be a gift rather than a loan.
BASEBALL STRIKES OUT ON STATS
Millions of sports fans participate in fantasy sports games in which the participants "draft" the names of real professional athletes and compete against other teams based on the actual statistical performances of the athletes during their seasons. In the case of baseball, until several years ago a fantasy sports company licensed the use of the names and information about big league players from the Players Association for Major League Baseball (MLB). When that deal expired, the Association instead gave an exclusive license to an online arm of the MLB, which operated its own fantasy baseball business.
The excluded company sued the MLB, seeking a ruling that it could use the names and statistics of the players, even without a license. Essentially, the question was whether the players themselves, or the public at large, own that information. A federal court sided with the excluded company. Simply put, the information at issue was already placed in the public domain, and there is a First Amendment right, available to everyone, to make use of it.
The court rejected an argument by the MLB that the names and information about the players are not "speech" at all. On that issue, the names and statistics in a fantasy game are not appreciably different from the constitutionally protected pictures, graphics, concept art, sounds, and other components of video games.
Fantasy baseball may not represent the purest form of protected speech--it is mainly about entertainment more than informing the public--but the information comes within the protection of the First Amendment. There is some informational value to the information in the fantasy games, since, as the court put it, "[t]he records and statistics remain of interest to the public because they provide context that allows fans to better appreciate (or deprecate) today's performances."
THE MURKY WATERS OF WETLANDS PROTECTION
It has been over a year since a splintered United States Supreme Court issued a decision on the scope of the federal government's jurisdiction under the Clean Water Act to regulate wetlands. In that time, confusion has reigned as lower courts have interpreted the decision. The Act, now 35 years old, prohibits dumping certain pollutants into the "waters of the United States," which are defined as "navigable waters." Property owners of isolated wetlands have the "murky" task of determining whether their property is protected or not.
The question before the Court was whether wetlands into which fill material was deposited were "navigable waters." The Court set forth a confusing standard to guide the analysis. On the one hand, it said that the term "navigable waters" includes only relatively permanent, standing, or flowing bodies of water, not intermittent or ephemeral flows of water, and that only those wetlands with a continuous surface connection to such waters are covered by the Clean Water Act. At the same time, it said that wetlands may be protected by the Act if they have a "significant nexus" to navigable waters or could "affect the chemical, physical and biological integrity of other covered waters." Lower courts have been split as to which standard to apply.
In an effort to clarify, the Environmental Protection Agency and the U.S. Army Corps of Engineers have published a Guidance that identifies those waters over which the two agencies will assert jurisdiction categorically and on a case-by-case basis. (Go to www.epa.gov.) Essentially, the agencies have not picked one of the competing standards from the Supreme Court over another, but instead will use both of them.
There definitely will be assertion of Clean Water Act authority over wetlands that abut tributaries that come within the "relatively permanent" standard. This refers to tributaries that typically flow year-round or that have continuous flow at least seasonally. Wetlands adjacent to waters not fitting in the "relatively permanent" category will be assessed on a case-by-case basis, using the "significant nexus" test. Perhaps eager to make some kind of pronouncement that is unequivocal, the authors of the Guidance also state that Clean Water Act authority will not be stretched so far as to cover swales, gullies, and ditches that drain only uplands and do not carry a relatively permanent flow of water.
QUOTABLE
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.
Winston Churchill
