The Legal Beat

No Estate Plan? No Swank.

By Nubiyn M. Mzekewe, Esq.

It seems with age, we hear more and more stories about the fights and frustrations of families with no explicit direction on how to divvy up the property of a deceased relative. We think to ourselves, “My family would never act like that.” Then, most of us proceed by never getting around to planning for that inevitable and uncertain day.

Well, it’s time. 

Even if 40 is the new 50, and 30 is the new 40, and 20 is the new 30, and so forth; you would be ahead of schedule by committing to an estate plan right now. And, believe it or not, an estate plan has never aged or killed anyone. It simply smoothes the transfer of property at your death, because you are prudent enough to plan while you still look (and sometimes frolic as someone) 10 years younger.

Take a serious look at the time-honored principles of basic estate planning, which is comprised of wills, administration of estates, petitions for widow years support, living wills and cost (in the state of Georgia). Not only is adopting these principles wise, but you can encourage family and friends to adopt these principles, especially those doing so to protect a dependent spouse and children (as you plan to do).

LAST WILL AND TESTAMENT

The first thing needed is a Last Will and Testament. It shows organization and tells the whole world how you intend to dispose of your valuable property at death, and who you would like to receive that property as beneficiaries. You may change the will at any time prior to death which includes changes to beneficiaries, with one exception. The state of Georgia will not allow a testator (the one who makes the will) to cut a dependant spouse and minor children out of the estate. It protects a dependant spouse and minor children with a right to support despite any contrary provisions in the will. 

Just as vital as deciding how to dispose of you property is choosing the right person to carry out your wishes. That person is called an Executor (or Executrix) who should be reliable, prudent and honest. In many cases, a testator chooses a spouse, sibling, parent or adult child to serve in this capacity. However, it is not uncommon for a testator to name an attorney to act as an executor.  Regardless of your choice, keep in mind that this in not a glam job. Though the title may sound posh and grandiose, it carries fiduciary obligations that call for good-old-fashioned diligence and caution.

More specifically, an executor is directed to pay off, settle and compromise all debt claims against the decedent’s estate; distribute the decedent’s property according the will; settle any disputes among beneficiaries; among other things. It is also important to realize that anything of worth in the estate, whether high-priced or an invaluable family keepsake, deserves proper consideration under the will and by a prudent executor. To encourage caution, a testator may require an executor to post a bond to minimize any risk of mismanagement. Because of these responsibilities and risk, an executor is usually paid a reasonable fee. Compliments and "thank yous" may not be adequate payment.

Though you are not required to hire an attorney, there are rules governing how a will is prepared and witnessed to be legally enforceable. If you have little or no property, few obligations and few bequests, you can draft a simple will with no help from others. Otherwise, contacting an attorney is always helpful.

ADMINISTRATION OF ESTATE

In case you die without a will while domiciled in Georgia, the laws of intestacy will determine who shall receive the personal and real property, and who shall act as Administrator. The powers of an administrator are similar to an executor but granted by a letter of administration issued by county Probate Courts of the decedent’s residence. This process is like the latte you didn’t order — not as sweet or creamy and you already left the building.

However, your closest family member typically has priority in applying to serve as Administrator.  This may change in the event of an agreement among heirs. In some cases, even creditors may apply for this job where debts are owed and no family relative has come forward to take on the process. Unfortunately, it is also typical for family members to fight over the appointment of an Administrator.

If you are married with children at the time of death, the law authorizes the spouse and children to receive the estate, with the spouse receiving not less than one-third of the estate. For example, if there is a surviving wife and two children, each person receives an undivided one-third interest in the estate. As another example, if there were a wife and four children, the wife receives one-third of the estate while the four children will divide the remaining two-thirds equally among the four of them. If this is not how you planned it, tough luck.

By comparing testate and intestate situations against each other, you will find that testate situations (where a will was created) offer much more protection and less room for misunderstanding intentions to dispose of your estate. Nonetheless, in both situations, there is a six-month grace period allowed before initiating the process to pay debts, distribute property and wind up the estate. What’s the bottom line? If you asked for a double shot of espresso, soy milk, honey and whip, test it before you leave.

WIDOW/WIDOWER YEAR'S SUPPORT

One of estate planning’s most unusual options is the right to file for a widow/widower year's support. This device makes it very difficult for someone to disinherit a dependant spouse and minor children under Georgia law. In fact, a year's support may be awarded to a spouse and minor children for 12 months support after a testator’s death. With a slight similarity in Pennsylvania, it is virtually unknown in other states.

A petition for year's support can be defined as real or personal property being set aside from the estate by a Probate Court for the support of a dependant spouse and minor children for one year after death. However, this is not a distribution of inheritance, and there is no one-third interest limitation as done for intestate administrations of an estate. Persons who are entitled to an award of year's support are the surviving spouse and minor children. Minor children of the deceased, legitimate or not, may also be provided for.

After receipt of a year's support award, the estate may be administered by will or administration if any property remains in the estate. In small estates, the widow's year's support may exhaust the entire decedent’s estate. Under special circumstances, a year's support may be extended for additional years.

Conversely, a right to year's support may be lost in several ways, including a lapse of three years from the date of death and the year’s application; remarriage; an election to take under a will; or a prior assent to devise of property, among others. 

This bottom line is obvious: Georgia fervently protects spouses and children.

LIVING WILL

Estate planning also deals with your financial and medical affairs in the event of incapacity. Technically, a living will is not a will at all, since you are giving someone other than yourself powers over financial and medical affairs while you are still alive. Though it does not dispose of property in your estate, it gives important direction on how you want medical care and sustenance to be given in the event you are incapacitated and unable to communicate. 

The person given this authority by the living will is often called the Personal Representative.  Historically, living wills gave authority to hospitals and medical facilities to make decisions about continuing medical care, food and water. However, living wills have now evolved to the point where that authority is given to the Personal Representative, who decides on and gives directives to medical providers. This minimizes liability risk for hospitals and medical providers since they are acting on the instruction of the Personal Representative.

A living will is usually prepared in conjunction with a special kind of power of attorney giving the attorney-in-fact the authority to handle affairs for another because of mental inability or medical and life-threatening condition. You may disagree, but I suggest a personal representative and an attorney-in-fact who can handle the pressure loving and caring for you.

Why? Because the execution of a Living Will must be handled as carefully as a Last Will and Testament because of the importance of the subject and the long term consequences of the decision. And you should consult competent legal counsel.

COST

Factoring in quelled fears and reduced confusion, the cost of estate planning is very affordable. A simple will may cost as low as $300, whereas a will containing trust and offshore corporations may push the price above $1,000. Administration of estates, petitions for widow years support and living wills are priced very similar to wills. If circumstances are simple, their costs are between $300 and $500. If circumstances are not as simple, these costs increase accordingly. However, you should be aware that it is much more expensive, monetarily and emotionally, if you provide no direction to dispose of property prior to dying. 

In other words, without an estate plan, your swank will stank.

Contact Info:
Mzekewe & Associates, LLC
Attorneys and Counselors at Law
1963 Highway 138, SW
Riverdale, GA 30296
Bus: 770-997-0334
www.mzekewe.com

Franchise Negotiation Considerations

The wild world of entrepreneurship is a high risk, high reward realm in which to play. Those who step into the rocky waters of self-employment and business building turn in the security of steady and predictable compensation for the unpredictable ebb and flow of eating what they kill. A total lack of control over policy and business approach is exchanged for complete control over management, administrative duties, marketing and every other aspect of business operations. Indeed it takes a special kind of person to go out on a limb and attempt to start a business from scratch. For those quasi-special people who are brave enough to undertake running a business, but do not quite want to start one from scratch, franchising is a great option.

Operating a franchise is a good idea for the more risk-averse entrepreneur because franchises have proven systems that are articulated clearly and definitively in a franchise manual, and typically entail support from the franchisor to help make the business successful. I know, I know ... that sounds like the franchisor sales pitch doesn’t it? Well, I will temper my exuberance with a sampling of the legal issues a franchisee should consider when embarking upon a franchise venture – or otherwise find oppression from a new boss in the form of a franchisor.

Franchises typically entail licensing intellectual property from the franchisor, with that intellectual property being the basis upon which the franchisee will conduct its business. Therefore it is important to ensure you are licensing everything you will need to start up, operate and grow your franchise. Some unsuspecting franchisees find that after entering into a franchise agreement, they do not have the right to use certain valuable intellectual property owned by the franchisor that is useful, and in some cases necessary, to achieve the full profit potential of the franchise. When negotiating a franchise agreement, make sure you receive the right to use all names, trademarks, systems, processes, and other intellectual property you anticipate using to implement the franchise. If you don’t, you may be required to pay additional fees just conduct basic actions required to succeed in your franchise enterprise.

Franchisors often times upgrade their brand images, logos, facility standards, etc. When they do, they require their franchisees to incur costs to implement changes at their franchise location consistent with these changes. The costs associated with these changes can be very extensive, and unexpected. The best way to limit these costs is to establish a cap for the expenditures required to be undertaken in connection with such upgrades in the franchise agreement during initial negotiations. Moreover, include a reasonable notice provision requiring the franchisor to give you a sufficient amount of time to implement the changes. This will afford you the opportunity to budget and plan for the expense as the requirement comes down from the franchisor.

Another big matter to address in managing a franchise is the opportunity to be rewarded for the business you build. Franchisors love to horn in on a franchisee’s sale of the franchise. They will require a payment in connection with any sale of the franchise, usually some percentage of the sale price. This is sometimes in addition to a franchise fee that must be paid by the new franchisee; basically allowing the franchisor to double dip. While negotiating this provision away is usually contentious, it will make your franchise more marketable as you seek to exit and cash out down the road, and is worth the effort.

Franchising is a nice middle-of-the-road approach to entrepreneurship, but to get that real feeling of controlling your own destiny, fight hard to keep the strong arm of the franchisor from around your neck.

 

Contributed by Travis Townsend Jr. 

Copyright Registrations: A Waste of Money?

About a month ago, one of my partners came into my office and plopped down in the chair across from my desk. It was a busy afternoon so I did not pay him much attention until he said, “I finally found you guys’ hustle.” I quickly glanced at him but did not stop typing. “What are you talking about?” I asked. “The I.P. hustle,” he explained between bites of the sandwich he was finishing, “you know, services that I.P. attorneys offer that your clients do not really need.” I stopped typing and looked up from my computer screen, curiosity piqued. “Okay, you have my interest. What is the I.P. hustle?”  “It is copyright registrations,” he said, apparently proud, “I just found out that everyone owns copyrights in their written product the minute it is written down. My thought is, if you already own the copyright, registering the mark just records the property you already own. It is a bit like registering software after you purchase it. It is a formality. Why pay for a formality?  Am I right or am I right?” I chuckled and went back to typing, “Not even close my friend.”

Many people have the same understanding of copyright law as my partner. Consequently, many people reach the same conclusion as my partner. The problem with their understanding of I.P. law is not necessarily that it is incorrect, but that it is incomplete. A more complete understanding of copyright law suggests that a federal copyright registration is not only very valuable, but that it is, in many instances, a business necessity.

My partner’s general understanding is basically correct. Copyrights protect original works of authorship that are fixed in a tangible medium of expression. For a work to be “fixed,” it must be sufficiently permanent or stable to permit it to be perceived, reproduced, or communicated for a period “of more than transitory duration.” Copyright law would recognize a work as being “created” as soon as it is fixed in a copy for the first time. Consequently, the minute you write down the verses to a poem you came up with or audio-record a song that you created, you have protectable copyrights in those works. On that front my partner was correct.

Much of a copyright’s “bite,” however, lies with its registration. First, a copyright owner cannot sue for copyright infringement unless the owner has a federal registration for the infringed copyright. Obviously, a copyright that cannot be enforced in court has severely limited value. Second, a copyright registration establishes a public record of the copyright claim and provides deterrent effects. Preventing infringement is likely the most cost-effective method of protecting your work. Third, if the copyright work is registered before or within five years of its publication, the registration will establish prima facie evidence in court of the validity of the copyright and of the facts stated in the certificate of registration. Fourth, if the copyright registration is made within three months after the work is published or prior to an infringement of the work, copyright owners can recover statutory damages and attorney’s fees in a court action. Fifth, copyright registration allows the owner of the copyright to record the registration with the United States Customs Service for protection against the importation of infringing copies.

Obtaining a federal copyright registration is generally advisable for any work of significance. Obviously, practical considerations prevent the registration of every copyrighted work. A qualified I.P. attorney should be able to assist in determining whether a copyright registration is appropriate in your case.

Legal Alignment: Choose Your Lawyer Like You Choose Your Doctor

A few years back, I was playing a game of 5-on-5 pickup basketball at a local high school gym after work. During a drive to score by the opposing team, I got in the passing lane and stole the ball for a fast break lay-up on the other end. As I was racing towards the basket full speed, the guy from whom I had stolen the ball was in hot pursuit in an attempt to prevent me from scoring. We met at the basket, jumped in the air, I made the basket and my opponent banged into me causing me to crash awkwardly into the bleachers, twisting my ankle. Thick-headed, I continued to play on the swelling ankle for the remainder of the game. That decision resulted in me waking up immobile the next morning with an ankle swollen like a tennis ball.

It became apparent I needed to visit a doctor. So, I began my search and immediately determined I needed to see someone who specialized in foot care and ankle injuries. I was not just looking for any doctor -- oh no. I was looking for a podiatrist, preferably one who specialized in sports-related injuries. My ankle was in serious pain and it was urgent that the expert I sought out was all about ankles. This doc needed to be knee-deep in ankles. I am reminded of that awful experience from time to time while working on a business acquisition or a money raising stock offering and the counsel on the other side is a highly skilled and highly professional attorney, but in a field totally unrelated to mergers and acquisitions or corporate finance.

While every lawyer worth his or her salt is able to provide counsel and services in a wide breadth of areas, it is always best to line up your specific legal needs with an attorney having considerable expertise in the areas of your particular needs. Your family lawyer may very well be the best darned criminal prosecutor in the county, but that does not guarantee that she is the right lawyer for you when you are selling your company or negotiating a $25M credit facility for your business. She is, undoubtedly, a great place to get preliminary feedback and recommendations for experts in your area of need. However, remain vigilant in seeking that attorney who is well-versed in what you specifically require.

Sophisticated business transactions are best serviced by attorneys with numerous transactions under their belt, a history of commitment to learning the laws relevant to transactional matters, and a solid foundation in understanding the focus and goals of business operations. This latter point is very important. Legal services provided in connection with business transactions should always be delivered with the client’s profit-making interest foremost, coupled with a keen attention to potential liabilities the client faces as it takes its calculated business risks. While every client that engages a lawyer for assistance in conducting its business operations expects that lawyer to protect it from risks of loss, every such client has an equal need for their lawyer to enhance the profit-making capacity of their business and not become an impediment to the company’s success.

If you’re having heart problems, go to a cardiologist not a dermatologist. And if you want a lawyer to help you with your business, hire a business transactional lawyer. 

 Travis Townsend Jr. is managing partner at Townsend Lockett & Milfort, LLC

Kick the Tires Before You Buy

There are essentially two types of used car purchasers in the world. First there is the “price buyer.” A price buyer typically visits various dealers, checks for prices on the car makes and models of choice, and buys the desired car at the lowest price, satisfied that the best deal was obtained … until the car breaks down several times over the next six months. The second type is the “tire kicker.” Tire kickers do what price buyers do, with the added steps of having their own mechanic inspect the cars, retrieving car histories, and peppering salespeople and prior owners with questions. Tire kickers, request price breaks and extended warranty coverage based on the items their research uncovers, and they rarely leave the lot without scoring a good deal and good protection against unanticipated breakdowns of the vehicle. Tire kickers let the items under the hood dictate the deal they will accept.

Tire kickers set a great example for those seeking to purchase a business. The deal you accept when buying a business should be dictated by a sound due diligence review. Checking transaction prices and deal terms of acquisitions involving similar businesses is a good way to begin, but it is imperative you investigate the target from top to bottom before setting a purchase price and entering into a binding acquisition agreement. An attractive offering price may very well be your good fortune. It could also be the bait for a bad deal. The only way to know is to dig into the components of the business and its operations, and see what’s what.

Reviewing the target’s financial statements is no brainer. If you’re looking to buy a business you probably understand the importance of profit and loss statements, cash flow analysis and balance sheets. But where many business acquirors get in the weeds is the legal due diligence review. A poor legal diligence review can leave an acquiror at risk of a total loss of investment dollars when the smoke settles.

A thorough legal diligence review is required to ensure, among other things, that the transaction is properly authorized and approved. This helps to limit costly court disputes regarding the validity of the transaction after the deal has closed and money has exchanged hands. A legal review is also necessary to accurately determine the current ownership of the target and its assets, and to determine who should be involved in the items transferred in the transaction. The last thing an acquiror wants is to find out it did not receive the shares or assets it paid for because there were some unaccounted shareholders or property owners out there of whom it never heard.

Additionally, a detailed legal review process can also help determine whether major contracts will be terminated, or whether penalty payments to third-parties are required in connection with the company sale. This is important because lost profits from major contracts and penalty obligations inherited by the buyer impact the value of the business. If armed with this information, an acquiror acting like a tire kicker can ask for a reduction of the purchase price or get an indemnification obligation from the business seller.

Remember, companies that look very sharp from the outside can have some real serious problems on the inside. So don’t be a price buyer. Do your homework and check underneath the hood before taking the proposed purchase price and terms. Otherwise you might be stuck with a business that’s a lemon.

 Travis Townsend Jr. is managing partner at Townsend Lockett & Milfort, LLC