Frequently Asked Questions (FAQ)

  • Are all attorney fees paid by a contingent fee arrangement taxable to the plaintiff?
    Personal injury contingent fees, and those arising from a physical injury such a loss of consortium or wrongful death claims are still non-taxable recoveries. In addition, attorney fees paid pursuant to a contingent fee agreement that arise from allegations of discrimination or other enumerated civil rights violations listed in the American Jobs Creation Act of 2004 are also not includable in the plaintiff’s gross income.
  • Do the new Federal Court rules require that I keep my electronic documents forever?
    No. you can satisfy the Federal Court rules by developing a consistent policy about what is being stored, where it is being stored and how long it is being stored.
  • If I am in a business dispute in Philadelphia, in what court should I bring my case?
    In the past, if you had a choice, the answer was clear: federal court. Since 2000, however, the Philadelphia Court of Common Pleas has created a specialized program to hear business cases, typically known as the “Commerce Court”. Three judges are assigned as Commerce Court judges, and each case is heard by one of those judges from beginning to end. Thus, you not only get the benefit of a single judge assignment as in federal court, but the benefit of a specialist judge who is only hearing business and commercial, unlike federal court. You should always weigh the choices with your lawyer in choosing a litigation forum, but you can now expect a reasoned and prompt decision in both the state and federal courts.
  • Should I be worried that a punitive damages award could be wildly in excess of any compensatory damage judgment?
    Over the last decade, the U. S. Supreme Court has been putting the brakes on excessive punitive damages awards, seemingly limiting such award to a single-digit multiple of any compensatory damage award. It appears that a 3 to 1 or 4 to 1 ratio is in the proper range for cases with a sizable compensatory damage award. Despite the Highest Court’s previous warning to lower courts to limit punitive damages, however, in Williams v. Philip Morris, Inc., Oregon’s Supreme Court permitted a punitive damages award nearly 100 times greater than the compensatory damages judgment. The Oregon Court found an exception for huge awards where the conduct is analogous to a crime and is particularly reprehensible. The U. S. Supreme Court has taken that case up for review, and its decision will either re-iterate the direction it wants these cases to be going, i.e. limitations on punitive damages, or will create an exception that may swallow the rule.
  • What impact does a potential or actual lawsuit have upon the company’s document retention policy?
    If a lawsuit is a possibility or you have been sued, place a “litigation hold” on all electronic documents that may be related to the dispute. Those potentially relevant electronic materials must be identified and not disturbed.
  • What type of claims are not covered by the American Jobs Creation Act of 2004?
    The American Jobs Creation Act of 2004 does not cover claims for the recovery of debts, breach of contract, consumer claims, fraud and others. If the plaintiff were on a contingent fee arrangement with his or her lawyer for cases such as these, any recovery payable to the lawyer would be taxable income to the plaintiff.
  • Which employees must be made aware of the Company document retention policy?
    The policy must be adequately communicated to all employees to make them aware that any data they create may be discoverable and subject to the document retention protocol.
  • Do I need an estate plan even if I am not wealthy?

    Estate planning accomplishes more than just saving taxes. Even if you do not have a sizeable portfolio, an estate plan is needed to express your wishes and manage your affairs. If you have children, and estate plan is necessary to make sure that your preference of a guardian is expressed and that any inheritance they may have, however large or small, will be properly administered in the child’s best interest.

    Additionally, your estate planning documents will serve to express your wishes when you cannot. If you become incapacitated, your power of attorney will enable your designated agent to manage your affairs while you are unable, without having to first obtain a court order. Even if you do not have a large estate, executing a will ensures that your estate will be administered by individuals chosen and trusted by you and that your assets will go to your desired beneficiaries, not those required by statute.

  • How can I minimize the tax liability of my estate?
    There are a number of strategies that can be incorporated into Wills and other documents to minimize the tax liability of an individual’s estate. These include creating trusts at a person’s death to make use of the unified credit, the possible use of a life insurance trust, and more advanced strategies such as the use of family limited partnership, limited liability companies, personal residence trusts, grantor retained annuity trusts, and the like.
  • I am recently divorced, but I have not yet removed my former spouse as the designated beneficiary of my Will/Power of Attorney/insurance policies/annuity contracts/pension plan/profit sharing plan. If I die before changing the designation, will the designation of my former spouse be honored?
    For Pennsylvania residents, any revocable designation on such contracts in favor of a former spouse will not be effective and will be construed under Pennsylvania statute as if the former spouse had died before you, provided that the wording of the designation or a court order does not indicate that such designation was intended to survive the divorce. It should be noted however, that an insurance company, pension or profit sharing plan administrator or other obligor is not liable for paying the proceeds to a former spouse if such payment would be proper but for this statute. In such a case, the contingent beneficiary could only pursue a claim against the former spouse who received such proceeds. Therefore, the safest way to ensure that the proceeds are paid to a desired beneficiary is to change the beneficiary designations of such contracts upon divorce. Furthermore, since the statute does not apply to individuals who are merely separated, beneficiary designations in favor of the soon-to-be former spouse should probably be changed upon separation whenever possible.
  • I formed an Irrevocable Life Insurance Trust several years ago. Under the UTA, am I required to provide initial and/or annual notices to the beneficiaries?
    No. The notice requirements are not required if the settlor is still living unless the settlor is adjudicated as an incapacitated person.
  • Is a corporation required to have annual minutes?
    It is very advisable to have minutes to document the corporate action taken during the course of the year. This documentation indicates that the corporation has followed the corporate formalities of conducting business and will protect the shareholders from individual liability. Protecting the shareholders from personal liability is a key attribute of the corporate form. A properly-formed corporation will normally shield its shareholders from being personally liable for the corporation’s debts and obligations.
  • Should I have a contract and/or terms and conditions of sale or use when providing goods or services over the Internet?

    Yes. The Internet is simply a new means for providing goods and services. While there may be some distinct issues created by that new media, it is important to address the basics. You are forming a deal for buying or selling a good or service, and there should be clear terms and conditions governing that deal.

    What kind of terms and conditions should be included, and where should they go?

    To address the second question first, this depends on whether you are physically providing a product or service beyond the computer screen, and whether you are entering a contract that requires your customer’s signature. If the entire transaction occurs over the Internet then you have to assure that there is a clear and readily accessible statement governing purchase and use. If a physical product is being purchased by an end user whom you may never see, then you will also need a written set of terms and conditions included with the physical product and/or in your manuals. If the agreement involves direct negotiations and a signed written contract, then that contract should address terms and conditions, but you may very well want or need terms and conditions on your web site as well.

    As to the terms and conditions themselves, you should be considering the same issues involved in any transaction, for example: a clear description of what you are providing; a clear and legally precise statement of what warranties, if any, that you are providing, and maybe more importantly, what warranties you are not providing; limitations on your potential liability; and indemnification terms. In the borderless cyberworld, you should also be setting forth, to the extent possible, which law will govern any disputes, and specifically where those disputes will be heard if an action arises. Also, since we are in the cyberworld, you need to consider and include language protecting you against liability for such phenomena as hackers, viruses, trojan horses and password misuse. The bottom line is that potential risks must be identified and addressed before any problem arises, so that you can be sure you are doing the most you can to protect your business.

  • What are the main advantages of incorporating your business?
    The two main advantages of incorporating a business are personal liability avoidance and tax flexibility. Disadvantages arise depending on the type of corporate structure that is chosen for the business. For example, general partnerships or sole proprietorships do not offer personal liability protection and C-corporations do not have tax flexibility
  • What is required to incorporate my business?
    In order to be incorporated, a corporation must file Articles of Incorporation (“Articles”) with the Secretary of State in the state in which it wishes to be incorporated. Among other things, the Articles contain the name of the corporation, the corporation’s purpose, and the number and class of shares the corporation is authorized to issue. In addition, all states require corporations to maintain a registered office and a registered agent in the state. The main purpose of the registered office and agent is that anyone who wishes to sue the corporation can make service of process on the corporation by serving the agent at the registered office. Also, tax notices and other official communications are sent to the registered office. The incorporators then elect the initial directors of the corporation. Once the corporation has been incorporated, bylaws (or rules governing the corporation’s internal affairs) are adopted. At the initial meeting of the corporation, the initial corporate shares are issued, officers are elected, the bylaws are approved, and a resolution authorizing the opening of bank accounts is usually passed.
  • What is the purpose of a Living Trust?
    The term Living Trust refers to a revocable trust that is created by and for the benefit of an individual, the Settlor. The Settlor retains the right to alter or amend the trust document to withdraw any assets held by the trust and to revoke or terminate the trust at any time. Typically, all of the Settlor’s assets are retitled into the name of the living trust. At the Settlor’s death, the assets of the trust pass directly to the beneficiaries listed in the trust document. A number of commentators and speakers have promoted the living trust as a document every individual should have. Such commentators usually claim that a living trust will avoid the cost and delay of probate and insure privacy and save taxes. In some states, such as California, Florida, New York and Delaware, probate involves formal and involved court procedures which add to the cost and delay in distributing the estate to the beneficiaries. In Pennsylvania and New Jersey, however, the probate process is straightforward and uncomplicated.
  • What is the purpose of a living Will?
    A Living Will or an Advance Directive for Health Care, as it is referred to in Pennsylvania is a document in which an individual can state what sorts or what kinds of medical treatment he or she is to be given if he or she ever finds himself or herself unable to communicate and in a permanent coma, or a terminal condition. This document gives one the ability to state whether or not you want to be kept alive if you have no real hope of achieving a conscious state again.
  • What is the purpose of having a Power of Attorney?
    A Power of Attorney is a document in which an individual appoints someone to serve as his Attorney-in-Fact or as his agent. This individual may handle the financial affairs of such a person as if the agent or Attorney-in-Fact owned the property himself. A durable Power of Attorney becomes effective the date it is signed and remains effective until the maker revokes the document or dies. Each person should carefully consider who they appoint as their agent or Attorney-in-Fact. If such an individual does not have the utmost confidence and trust and his Attorney-in-Fact, a durable Power of Attorney is not an appropriate document. The benefit of a durable Power of Attorney is that it allows the Attorney-in-Fact to continue to pay the expenses and to conduct the business of the maker if the maker suddenly becomes incapacitated or disabled. A durable Power of Attorney avoids the necessary of going to the Orphans’ Court in Pennsylvania, or the Surrogate’s Court in New Jersey to have a guardian appointed for such an individual.
  • Why do I need a Will?
    Traditionally, the Will is the centerpiece of each estate plan. A Will is a document that directs who will receive your property and how they will receive it. If a person dies without a Will, his property passes intestacy typically in part to his spouse and in part to his children, depending on his state of residency. This can be a problem if the decedent wanted his entire estate left to his spouse, or if his children are minors (under the age 18), in which case a formal guardian of the estate would have to be appointed for each minor child.
  • Why do interest rates matter when you plan your estate?
    Answer -Interest rates are important with regard to estate planning for a number of reasons. First, they may provide opportunities to transfer wealth at a reduced cost, or on a leveraged basis, as is discussed in the newsletter article, “Lower Interest Rates Can Give Your Estate a Boost”. Secondly, they are a reflection of the current market rates. A gift today not only removes that asset from your estate, but also the income earned by that asset as well as its future appreciation. Interest rates give us an indication today of just what that savings a current gift may yield in the future.
  • How is real estate taxed in Philadelphia?
    Under the Pennsylvania Constitution, all real estate, whether residential, industrial or commercial, must be taxed on the same basis. In Philadelphia, a single tax is imposed on real estate for the benefit of both the City and the School District. City assessors or evaluators determine the market value for each property on a uniform basis, then calculate the corresponding assessment; and the Department of Revenue then bills property owners for the tax based upon the millage rate determined by City Council and the Mayor. The tax is imposed on a calendar year basis, unlike in many other counties where the school district tax is imposed on a fiscal year basis. The taxing system and its governing legal principles are very complex, although Philadelphia has announced plans for a new simplified process. Real estate taxes should be fair, equitable and uniform, but many inequities can exist in a city with over 565,000 properties. Any property owners who believe their assessments are unfair should seek legal advice about a tax assessment appeal.
  • What is the real estate tax abatement program in Philadelphia?
    Philadelphia City Council and the Mayor have passed several Ordinances that provide economic incentives to encourage development and redevelopment of real estate in the City. These incentives are in the form of tax abatements or deferrals of the City real estate taxes on properties. They are mostly intended to encourage development of residential properties, either new or rehabilitated, although some programs exist for other types of properties. If a property and owner qualify for such a program, the real estate taxes applicable to the increased value attributed to the improvements are abated for a period of up to 10 years. Taxes must still be paid on the value of the land and the original unimproved property. While this is a great benefit, it is not automatic. An application for such abatement programs must be timely filed, and certain requirements must be met initially and annually. Interested developers or property owners should get legal advice about these complex programs.
  • How can I avoid the alternative minimum tax?
    One of the things most people can do to minimize the effect of the alternative minimum tax (“AMT”), is to do whatever they can to reduce their adjusted gross income. These are the expenses or payments listed on lines 23 through 35 on the first page of the Form 1040. Practically, what this means for most people, is that they should contribute to their self-employed, SEP, simple or qualified plan, should contribute the maximum amount possible to their 401(k), and should take any other expenses or deductions to their gross income that are reflected on those particular lines, including moving expenses, self-employed health insurance, student loan interest, tuition and fees, health savings account deduction, and the like.
  • How has the American Jobs Creation Act of 2004 changed the rules regarding the donation of vehicles to charities?
    Previously, taxpayers were permitted to deduct the fair market value of vehicles that were donated to charity. Starting January 1, 2005, the reporting requirements for donations of cars, boats, and planes became more onerous if the deduction is greater than $500. Additionally, if the charity sells the vehicle, within 30 days of the sale, the charity must give the donor a written acknowledgment that states how much it received from the sale. The allowed deduction is limited to the proceeds from the sale. If the vehicle is not sold, the charity must give the donor an acknowledgment within 30 days of the contribution and indicate in the acknowledgment its intended use of the vehicle. The taxpayer is now required to attach the acknowledgment to his or her tax return.
  • How has the Working Families Tax Relief Act of 2004 extended tax relief to those taxpayers affected by the marriage penalty?
    The marriage penalty refers to a peculiarity that requires two-income married couples each year to pay more in federal income taxes together than they would owe if each spouse were single. Previously, the tax law provided a degree of relief from the marriage penalty in two ways. First, the basic standard deduction for a married couple filing a joint return was increased so that it equaled twice the basic standard deduction for an unmarried individual filing a single return. Second, it increased the size of the 15-percent rate bracket for married couples filing joint returns. However, these provisions were due to expire on December 31, 2004. The Working Families Tax Relief Act extends both these provisions through 2010. Thus, for 2005 through 2010, the basic standard deduction for married taxpayers filing jointly will be twice the basic standard deduction of single taxpayers and the basic standard deduction for married taxpayers filing separately will be equal to the basic standard deduction of single taxpayers. Likewise, for 2005 through 2010, the endpoint of the 15% tax bracket for joint returns will be twice the endpoint of the 15% tax bracket for single returns.