FCC Ruling Streamlines Compound Expansion Rules for 5G Deployment


In order to advance wireless infrastructure deployment, the FCC voted on October 27 to streamline the agency’s rules for ground compound expansion at existing tower site bases.  The new order will make it easier to co-locate antennas and other equipment on existing infrastructure, while also continuing to “preserve state and local government’s ability to manage and protect local land-use interests.” The new ruling revises Section 6409a of the Spectrum Act of 2012 that directed State and local government to not delay certain modifications to existing wireless infrastructure that does not “substantially change” the physical dimensions of the structures. At the time the Spectrum Act was passed, clear guidance was provided about the amount of height increase allowed for an existing tower.  The ruling this week goes further and provides clear guidance to the permissible increase at the base of towers by allowing excavation or deploying transmission equipment in an area no more than 30 feet beyond the existing site boundaries.

“While the vast majority of the public desires to have enhanced wireless connectivity in our communities, there remains much debate on the level of local government review required for wireless infrastructure development,” said Miller, Miller & Canby’s Sean Hughes, a twenty plus year wireless development attorney.  “Here, the FCC has sent a strong message and mandate to local governments everywhere.  I suspect that this debate is not over and we will hear much about this order from local government in the days to follow,” he added.

According to Wireless Infrastructure Association President and CEO Jonathan Adelstein, the new ruling is critical to the advancement of emergency communications that preserve and protect public safety.  According to Adelstein, necessary equipment such as new competitors, edge data centers, small cell hubs, and emergency generators have “negligible environmental impact.”

Cathy Borten of Miller, Miller & Canby’s telecommunications’ land use team shared, “The streamlined rules could be a big win for consumers of wireless who desire faster and enhanced connectivity where they live, work and play”.

The telecommunications land use attorneys at Miller, Miller & Canby are experienced in Maryland, D.C. and Virginia and are closely monitoring the impacts of the FCC order and the efforts of state and local governments to craft small cell legislation in order to advise telecommunications and property owner clients.

Sean P. Hughes
is an attorney in Miller, Miller & Canby’s Land Use practice group. His career spans more than two decades of focus in zoning and wireless telecommunications and he has represented clients in land use and zoning matters throughout the Mid-Atlantic.  To learn more about the firm’s Land Use and Zoning practice, click here.

Cathy Borten
is an associate in the firm's Real Estate practice group, where she focuses her practice in commercial real estate transactions and leasing, real estate litigation, and commercial financings and settlements. She has also handled land use and zoning matters, appearing before county and city government bodies and pursuing zoning and text amendments in cities and counties and has represented clients in contested proceedings in both trial courts and appellate matters. Contact Cathy here.




 





Estate Planning for Athletes Part 1: Your Financial Game Needs a Winning Strategy Too


In the sports world, success often brings significant monetary compensation. While high earnings are a dream come true for many, it is important to take prudent steps to safeguard this new wealth. Most assume that the biggest challenge is to spend wisely and to live within one’s means. While limiting extravagant spending can be a problem for some athletes, proper planning should consider and address a few other important issues:
 

Taxes: Create a Game Plan for These If You Play in the United States

1.    Gift tax
As you increase your income, it is natural to want to give gifts or support your loved ones. However, be aware that those gifts could generate a tax. The gift tax is a tax on the transfer of property from one person to another when nothing, or less than full value, is received in return. Fortunately, not all gifts are subject to the gift tax because each person has an annual gift tax exclusion amount ($15,000 in 2020). This cap is the amount or value someone can give another person during the calendar year without the IRS (Internal Revenue Service) assessing the gift tax. This amount is per person, meaning that you can give up to $15,000 to as many people as you want in 2020. An easy way to avoid the gift tax is to make sure you are not giving a friend or loved one more than the annual exclusion each year.

Alternatively, if you want to make a larger gift, keep in mind that every US citizen has a lifetime estate and gift tax exclusion of $10 million adjusted for inflation ($11.58 million in 2020). However, this is the maximum aggregate amount you can give during your lifetime; it is not per person like the annual gift tax exclusion. Be aware that this exclusion amount is set to return to $5 million (adjusted for inflation) on January 1, 2026, so if you wish to make large gifts, it is better to do so now while the exemption is high. Although you should file paperwork with the IRS, there should be no gift tax due as long as you have your exclusion. We can discuss your gifting desires and offer ways to make gifts, save taxes, and protect the gift recipient from wasting the money.

2.    Estate Tax
The estate tax is not assessed until death, but you must think about and plan for it now. As mentioned above, the lifetime estate and gift tax exclusion is currently high, but will return to $5 million (adjusted for inflation) on January 1, 2026. Because we cannot predict the future and determine when you are going to die nor can we know what the estate tax exclusion amount will be at that time, we have to plan early and adjust your plan as your career progresses and the laws change. As an athlete, your income potential is great, and you will likely receive income in large lump sums. Invested properly, those large lump sums should grow even larger.

Insurance: Guarding Your Money and Property
Your first line of defense is having a proper insurance plan – you need the right kind of coverages at the proper amounts. This includes homeowner’s, automobile, long-term care, disability, and life insurance. If the need for cash arises to pay a claim or satisfy a judgment, these policies will be available first before looking to the rest of your money and property. You should periodically review these policies with an experienced insurance professional to ensure that you are adequately covered. As your income increases, so should the amount of your life insurance. As you acquire more money, assets, and property, you should also adjust your other policies’ value to reflect these increases.

As a further step, there are sophisticated asset protection planning tools we can use to provide you with more protection. One common strategy is an irrevocable life insurance trust (ILIT). An ILIT is an irrevocable trust created by transferring an existing life insurance policy into the trust or by the trust purchasing a new policy. Using your annual gift tax exclusion, you make cash gifts to the ILIT in order to pay the premiums on the insurance policy. Upon your death, the death benefit is paid to the ILIT, and the money is distributed according to the instructions you have left in the trust document. Not only does this strategy allow you to utilize your annual gift tax exclusion and remove the value of the life insurance policy and death benefit from your estate, but it also allows you to direct and protect the money you are leaving for your surviving loved ones. You can also use an ILIT to provide cash to your loved ones without increasing the value of your accounts and property that are subject to estate tax.

Next Player Up: Managing Your Money and Property If You Cannot
While you may currently manage your money and property yourself or with a professional’s help, have you considered what would happen if you were unable to continue managing your money and property? You may be injured or afflicted with a condition that renders you incapacitated (unable to communicate or make decisions for yourself), or if you play for a team in a state or country other than where you permanently reside, you may be unavailable to handle necessary transactions in your home state.

A revocable living trust (RLT) is a trust that you create during your lifetime and that you can revise at any time prior to your incapacity or death. This planning tool enables you to name yourself as the current trustee (the person or entity charged with managing, investing, and handing out the money and property) and to designate a co-trustee or alternate trustee if you are unable to act as the trustee. An RLT also allows you to: 1) continue enjoying the money and property during your life even if you become incapacitated; and 2) specify what you want to happen to your money and property upon your death.

For RLT to work as intended, however, your financial accounts and property must be funded into the RLT. Funding the RLT involves changing the ownership of the accounts or property from yourself as an individual to yourself as the trustee of the RLT. If the RLT does not own a particular account or property, the trust terms may not control what happens to it.

Finally, not only does an RLT allow for continued management of your accounts and property if you become unable to act for yourself, a properly funded RLT allows those accounts and property to avoid the probate process at death. This means that upon your incapacity or death, the people that you have chosen can handle your financial matters privately and keep the details out of court records and the media. One caveat, however: an RLT will not protect your money and property from your creditors or judgments.

You’ve Been Benched: Caring for Your Physical Well-Being
Since injury often comes with physically demanding occupations, having proper healthcare documents is crucial. These include an Advance Medical Directive (AMD) and a HIPAA authorization form.

An AMD allows you to name a trusted healthcare decision-maker to communicate your medical wishes in the event you are unable to do so. You should name someone who will respect your wishes and enforce them when you are unable to communicate them to the appropriate medical professional.  An AMD also allows you to express your wishes in writing regarding end-of-life decisions. Absent specific instructions from you, your medical decision-maker may not know what you would want to happen in certain circumstances. Uncertainty in this difficult situation can cause additional grief to your loved ones and potentially cause conflicts among your family members.

A HIPAA authorization form allows you to grant certain individuals access to your medical information (e.g., to get a status update on your condition or receive your test results) without giving those individuals the authority to make any decisions on your behalf. Providing your loved ones with access to your medical information can help calm the anxieties and uncertainties that often arise during times of emergency. This may also help alleviate tensions between your medical decision-maker and the rest of your family. Although only one person should be making the healthcare decisions for you, the rest of your family should be able to understand the reasoning behind those decisions.

Click here to read Estate Planning for Athletes Part 2: Notable Real-Life Examples.

Let MM&C Be Your Estate Planning Team
Proper estate planning is necessary for everyone. However, athletes and those in other high-risk occupations must also address and manage tax, asset protection, and other financial concerns.  You also need to protect yourself and your family in the event you are injured on the job. We welcome the opportunity to work with you and any other financial professionals on your team to help craft a winning game plan that will have you and your loved ones scoring for years to come. To accommodate your busy schedule, we are available for both in-person and virtual meetings.

David A. Lucas
is an attorney in the Estates & Trusts and Business & Tax practice groups at Miller, Miller & Canby. He focuses his practice in Estate Planning and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning. Contact David at 301.762.5212 or send him an email.

To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.  



 





Wealth Transfer Strategies to Consider This Election Year


With the Democratic Party pushing to return federal estate taxes to their historic norms, taxpayers need to act now before Congress passes legislation that could adversely impact their estates. Currently, the federal estate and gift tax exemption is set at $11.58 million per taxpayer. Assets included in a decedent’s estate that exceed the decedent’s remaining exemption available at death are taxed at a rate of 40 percent (Note: Maryland adds an additional state estate tax for estates over $5 million). However, each asset included in the decedent’s estate receives an income tax basis adjustment so that the asset’s basis equals its fair market value on the date of the decedent's death. Therefore, beneficiaries realize capital gain upon the subsequent sale of an asset only to the extent of the asset’s appreciation since the decedent’s death.

If this year’s election results in a political party change, it could mean not only lower estate and gift tax exemption amounts, but also the end of the longtime taxpayer benefit of stepped-up basis at death. To avoid the negative impact of these potential changes, it would be prudent to consider a few wealth transfer strategies before the year-end.

Strategy #1: Intra-family Notes and Sales

In response to the COVID-19 crisis, the Federal Reserve lowered the federal interest rates to stimulate the economy. Accordingly, donors should consider loaning funds or selling one or more income-producing assets, such as an interest in a family business or a rental property, to a family member in exchange for a promissory note that charges interest at the applicable federal rate. In this way, a donor can provide a financial resource to a family member on more flexible terms than a commercial loan. If the investment of the loaned funds or income resulting from the sold assets produces a return greater than the applicable interest rate, the donor effectively transfers wealth to the family members without using the donor’s estate or gift tax exemption.

Strategy #2: Swap Power for Basis Management

Assets like real estate, stocks, and mutual funds gifted to an irrevocable trust do not receive a step-up in income tax basis at the donor’s death. Gifted assets instead retain the donor’s carryover basis, potentially resulting in significant capital gains realization upon the subsequent sale of any appreciated assets. Exercising the swap power allows the donor to exchange one or more low-basis assets in an existing irrevocable trust for one or more high-basis assets currently owned by and includible in the donor’s estate for estate tax purposes. In this way, low-basis assets are positioned to receive a basis adjustment upon the donor’s death, and the capital gains realized upon the sale of any high-basis assets, whether by the trustee of the irrevocable trust or any trust beneficiary who received an asset-in-kind, may be reduced or eliminated.

Example: Jim purchased real estate in 2005 for $1 million and gifted the property to his irrevocable trust in 2015 when the property had a fair market value of $5 million. Jim dies in 2020, and the property has a date-of-death value of $11 million. If the trust sells the property soon after Jim’s death for $13 million, the trust would be required to pay capital gains tax on $12 million, the difference between the sale price and the purchase price. But, let’s assume that before his death, Jim utilized the swap power in his irrevocable trust and exchanged the real estate in the irrevocable trust for stocks and cash having a value equivalent to the fair market value of the real estate on the date of the swap. Now, at Jim’s death, the property is part of his gross estate, resulting in the property receiving an adjusted basis of $11 million. If his estate or beneficiaries sell the property for $13 million, they will only pay capital gains tax on $2 million, the difference between the adjusted date-of-death basis and the sale price. Under this scenario, Jim’s estate and beneficiaries avoid paying capital gains tax on $10 million by taking advantage of the swap power.

Strategy #3: Installment Sale to an Irrevocable Trust

This strategy is similar to the intra-family sale, except that the income-producing assets are sold to an existing irrevocable trust instead of directly to a family member. In addition to selling the assets, the donor also seeds the irrevocable trust with assets worth at least 10 percent of the assets sold to the trust. The seed money demonstrates to the Internal Revenue Service (IRS) that the trust has assets of its own and that the installment sale is a bona fide sale. Without this seed money, the IRS could re-characterize the transaction as a transfer of the assets with a retained interest instead of a bona fide sale, which would result a very negative outcome: the entire interest in the assets are includible in the donor’s taxable estate. This strategy not only allows donors to pass appreciation to their beneficiaries with limited estate and gift tax implications, but also gives donors the opportunity to maximize their remaining gift and generation-skipping transfer tax exemptions if the assets sold to the trust warrant a valuation discount.

Example: Sally owns 100 percent of a family business worth $100 million. She gifts $80,000 to her irrevocable trust as seed money. The trustee of the irrevocable trust purchases a $1 million dollar interest in the family business from Sally for $800,000 in return for an installment note with interest calculated using the applicable federal rate. It can be argued that the trustee paid $800,000 for a $1 million interest because the interest is a minority interest in a family business and therefore only worth $800,000. A discount is justified because a minority interest does not give the owner much, if any, control over the family business, and a prudent investor would not pay full price for the minority interest. Under this scenario, Sally has removed $200,000 from her taxable gross estate while only using $80,000 of her federal estate and gift tax exemption.

Strategy #4: Spousal Lifetime Access Trust

With the threat of lower estate and gift tax exemption amounts, a Spousal Lifetime Access Trust (SLAT) allows donors to lock in the current, historic high exemption amounts to avoid adverse estate tax consequences at death. The donor transfers an amount up to the donor’s available gift tax exemption into the SLAT. Because the gift tax exemption is used, the value of the SLAT’s assets is excluded from the gross estates of both the donor and the donor’s spouse. An independent trustee administers the SLAT for the benefit of the donor’s beneficiaries. In addition to the donor’s spouse, the beneficiaries can be any person or entity including children, friends, and charities. The donor’s spouse may also execute a similar, but not identical, SLAT for the donor’s benefit. The SLAT allows the appreciation of the assets to escape federal estate taxation and, in most cases, the assets in the SLAT are generally protected against creditor claims. The SLAT is a powerful wealth transfer tool because it transfers wealth to multiple generations of beneficiaries and provides protection against both federal estate taxation and creditor claims.

Example: Mary and Bill are married, and they are concerned about a potential decrease in the estate and gift tax exemption amount in the upcoming years. Mary executes a SLAT and funds it with $11.58 million in assets. Karen’s SLAT names Bill and their three children as beneficiaries and designates their friend, Gus, as a trustee. Bill creates and funds a similar SLAT with $11.58 million that names Mary, their three children, and his nephew as beneficiaries and designates Friendly Bank as a corporate trustee (among other differences between the trust structures). Mary and Bill pass away in the same year when the estate and gift tax exemption is only $6.58 million per person. Even though they have gifted more than the $6.58 million exemption in place at their deaths, the IRS has taken the position that it will not punish taxpayers with a “clawback” provision that pulls transferred assets back into the taxpayer’s taxable estate. As a result, Mary and Bill have saved $2 million each in estate taxes assuming a 40 percent estate tax rate at the time of their deaths.

Contact an MM&C Estate Planning Attorney

If any of the strategies discussed above interest you, or you feel that potential changes in legislation will negatively impact your wealth, we strongly encourage you to call Miller, Miller & Canby at your earliest convenience and definitely before the end of the year. We can review your estate plan and recommend changes and improvements to protect you from potential future changes in legislation.  

David A. Lucas
is an attorney in the Estates & Trusts and Business & Tax practice groups at Miller, Miller & Canby. He focuses his practice in Estate Planning and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.
Contact David at 301.762.5212 or send him an email.

To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.  


 





Miller, Miller & Canby's Diane Feuerherd Joins Appellate Seminar Panel


Join our own Diane Feuerherd and other speakers on September 14 at 5:30 pm for the Prince George's County Bar Association and Maryland State Bar Association Appellate Seminar 2020. This program will include a discussion of new appellate rules, final judgements for appeals, issue recognition and drafting questions presented.

Date: September 14, 2020
Time: 5:30pm

Moderator: Michael Wein, Esq.

Speakers:
Hon. Douglas R. M. Nazarian
Court of Special Appeals & Member of Maryland Rules Committee

Hon. Joseph F. Murphy, Jr. (Ret.)
Chief Judge, Court of Special Appeals

Hon. Erek L. Barron
Partner - Whiteford Taylor  & Preston

Timothy Maloney, Esq.
Shareholder - Joseph, Greenwald & Laake, PA

Diane Feuerherd, Esq.
Miller, Miller & Canby

For more information and to register click here.





Best Lawyers in America® Announces 2021 Best Lawyers Awards; Recognizes Five MM&C Attorneys


Miller, Miller & Canby is pleased to announce five firm attorneys have been recognized as Best Lawyers in America.® for 2021. James (Jim) Thompson, Joel (Jody) Kline, Donna McBride and Joseph (Joe) Suntum have been recognized in their respective areas of practice as “Best Lawyers” and Diane Feuerherd has been recognized as a Best Lawyers “One to Watch”, an honor for attorneys who are earlier in their careers, typically in practice nine years or less. 

Mr. Thompson
concentrates his practice in eminent domain and real estate valuation litigation, in addition to civil litigation involving complex real estate and business/commercial disputes. He has led Miller, Miller & Canby’s Litigation practice group for close to 30 years. He has been named to the Best Lawyers list every year since first being recognized in 2007.

Mr. Kline
joined Miller, Miller & Canby in 1974, has been a principal of the firm since 1981 and has served as head of the firm’s Land Use & Zoning practice since that time. His practice concentrates on land use, zoning and subdivision law, representing private clients, nonprofit entities, and municipal corporations and agencies. He has also been named to the Best Lawyers list every year since first being recognized in 2007.

Ms. McBride
is a partner in Miller, Miller & Canby’s Litigation practice, where she focuses in complex business matters for corporate clients, as well as insurance-related litigation and trust litigation. In 2019 she was admitted to the American College of Trial Lawyers as a Fellow, an honor reserved for experienced trial lawyers who have mastered the art of advocacy and whose professional careers have been marked by the highest standards.

Mr. Suntum
is a principal in the firm and the leader of the Eminent Domain and Condemnation group. His decades of trial experience and his in-depth knowledge of real property valuation and the law of eminent domain allow him to protect his clients' property rights and maximize their compensation when their properties are targeted for condemnation. He is the Owners’ Counsel of America member  attorney for the state of Maryland, a selective membership restricted to only one attorney per state. The firm’s Eminent Domain practice has been honored as a Best Law Firms Metropolitan “Tier 1” practice.

Ms. Feuerherd
is an attorney in Miller, Miller & Canby's Litigation practice with a focus in appellate, business and real estate litigation. She has successfully represented individuals, property owners, and businesses in a wide variety of matters, ranging from administrative hearings before the Board of Appeals, to jury and bench trials in state and federal courts, and to appeals before the Court of Special Appeals and Court of Appeals. In addition to her work she is active in state and local bar associations.

Best Lawyers in America is the oldest and one of the most respected attorney ranking services in the country. Recognition is based entirely on peer review. For more than 30 years, the organization has assisted those in need of legal services to identify the attorneys best qualified to represent them across hundreds of areas of practice.

Best Lawyers publishes a stand-alone publication which announces recognized attorneys. Best Lawyers lists are also published in local, regional, and national print and digital versions of leading publications, including The Wall Street Journal, The New York Times, and the Washington Post.

ABOUT MILLER, MILLER & CANBY
In 2021, Miller, Miller & Canby will celebrate 75 years of serving the legal needs of metropolitan Washington, DC. As the oldest law firm in Montgomery County, MD, the firm recognizes that this milestone reflects the relationships built and maintained with our clients, friends and the business community, many spanning multiple generations. The firm maintains its focus on its core areas of practice: Land Use & Zoning, Real Estate, Litigation, Eminent Domain, Business & Tax and Trust and Estates Law. The firm's moderate size allows its attorneys to maintain close contact with clients and have the opportunity to develop and foster trusted, lasting relationships. In all of our practice areas, an overarching concern for quality of product and efficiency of accomplishment assures clients that we strive for true value in legal representation. Miller, Miller & Canby is proud to have maintained this standard of service since the firm’s founding in 1946. For more information, visit www.millermillercanby.com.
 





U.S. Ninth Circuit Upholds FCC’s Small Cell Wireless Deployment Order Designed to Promote 5G


On August 12, 2020, The United States Ninth Circuit Court of Appeals upheld major portions of the Federal Communications Commission's attempts to speed up 5G deployments on existing infrastructure. The order is largely “in accord with the congressional directive” and “not otherwise arbitrary, capricious, or contrary to law,” a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit wrote in a 2-1 decision. The FCC’s 2019 order was challenged by a host of local governments, including Montgomery County, City of Rockville and City of Gaithersburg, Maryland.  (Click here to view full petition ruling.)

The City of Portland v. Federal Communications Commission filing questioned the FCC's One-Touch Make Ready order and its subsections, the Small Cell Order, the Moratoria Order and the One Touch Make-Ready Order, all of which faced major criticisms from dozens of major cities.

The agency’s actions were an attempt to create a unified broadband infrastructure rollout plan, but have been met with turbulence because of the complex interplay between federal, state and local policies and zoning review authority. The decision notes that “expansion has been met with some resistance where 5G is concerned however, particularly from local governments unhappy with the proliferation of cell towers and other 5G transmission facilities dotting our urban landscapes.”

The court upheld the Federal Government’s actions, calling them “reasonable attempt[s] by the FCC to prevent unnecessary costs for attachers,” as well as being “an appropriate exercise of the FCC’s regulatory authority under the Telecommunications Act.”

Miller, Miller & Canby’s Sean Hughes noted that, “The Court’s decision is a big win and paves the way for a wireless industry better equipped to deploy small cell technology across the country more rapidly.”  The ruling allows the FCC to cap rates, allowing easier access.

Attorney Cathy Borten added, “This decision allows the industry to move forward in delivering the much sought-after benefits of small cell and 5G technology in a streamlined and consistent fashion.”

The decision is also a win for big telecom companies like T-Mobile and Verizon.

FCC Chairman Ajit Pai praised the decision, saying, “Today’s decision is a massive victory for U.S. leadership in 5G, our nation’s economy and American consumers. The court rightly affirmed the FCC’s efforts to ensure that infrastructure deployment critical to 5G — a key part of our 5G FAST Plan — is not impeded by exorbitant fees imposed by state and local governments.”

The telecommunications land use attorneys at Miller, Miller & Canby are experienced in Maryland, D.C. and Virginia and are closely monitoring the impacts of the FCC order and the efforts of State and local governments to craft small cell legislation in order to advise telecommunications and property owner clients.

Sean P. Hughes
is an attorney in Miller, Miller & Canby’s Land Use practice group. His career spans more than two decades of focus in zoning and wireless telecommunications and he has represented clients in land use and zoning matters throughout the Mid-Atlantic.  To learn more about the firm’s Land Use and Zoning practice, click here.

Cathy Borten
is an attorney in Miller, Miller & Canby’s Real Estate practice group. She focuses in commercial real estate transactions and leasing, real estate litigation, land use and zoning and commercial financings and settlements. Cathy has over 10 years' experience in leasing, land use and zoning in the wireless telecommunications industry. Cathy also participated in the drafting of the Montgomery County and City of Gaithersburg original small cell ordinances. To learn more about the firm’s Real Estate practice, click here.
 





Estate Planning Tip: Be Aware of a Recent Tax Court Ruling that “Loan” Is Actually a Gift


In a recent tax court case, Estate of Bolles v. Commissioner, T.C. Memo. 2020-71, 119 T.C.M. (CCH) 1502 (June 1, 2020), the court recognized that where a family loan is involved, an actual expectation of repayment and an intent to enforce the debt are crucial for a transaction to be considered a loan. Many people use trusts and gifts as estate planning tools. Be aware of the requirements of “loans” v. “gifts” when using lending as an estate planning tool.

Background
Mary Bolles made numerous transfers of money to each of her children from the Bolles Trust, keeping a personal record of her advances and repayments from each child, treating the advances as loans, but forgiving up to the annual gift tax exclusion each year. Mary made numerous advances amounting to $1.06 million to her son Peter, an architect, between 1985 and 2007. Peter’s architecture career initially seemed promising, and during his early career, it seemed that Peter would be able to repay the amounts advanced to him by Mary. However, his architecture firm, which had begun to have financial difficulties by the early 1980s, eventually closed. Although Peter continued to be gainfully employed, he did not repay Mary after 1988. By 1989, it was clear that Peter would not be able to repay the advancements.

Although Mary was aware of Peter’s financial troubles, she continued to advance him money, recording the sums as loans and keeping track of the interest. However, she did not require Peter to repay the money and continued to provide financial help to him despite her awareness of his difficulties. Although Mary created a revocable trust in 1989 excluding Peter from any distribution of her estate upon her death, she later amended the trust, including a formula to account for the loans made to him rather than excluding him. Peter signed an acknowledgment in 1995 that he was unable to repay any of the amounts Mary had previously loaned to him. He further agreed that the loans and the interest thereon would be taken into account when distributions were made from the trust.

Upon Mary’s death in 2010, the IRS assessed the estate with a deficiency of $1.15 million on the basis that Mary’s advances to Peter were gifts. Mary’s estate asserted that the advances were loans. Both parties relied upon Miller v. Commissioner, T.C. Memo 1996-3, aff’d, 113 F.3d 1241 (9th Cir. 1997).

Requirement for Advances to be Considered a Loan
The case of Miller v. Commissioner, T.C. Memo 1996-3, aff’d, 113 F.3d 1241 (9th Cir. 1997) spells out the traditional factors that should be considered in determining whether an advance of money is a loan or gift. To establish that an advance is a loan, the court should consider whether:
(1) there was a promissory note or other evidence of indebtedness,
(2) interest was charged,
(3) there was security or collateral,
(4) there was a fixed maturity date,
(5) a demand for repayment was made,
(6) actual repayment was made,
(7) the transferee had the ability to repay,
(8) records maintained by the transferor and/or the transferee reflect the transaction as a loan, and
(9) the manner in which the transaction was reported for Federal tax purposes is consistent with a loan.

Court Ruling
In the Estate of Bolles case, the tax court recognized that where a family loan is involved, an actual expectation of repayment and an intent to enforce the debt are crucial for a transaction to be considered a loan.

The court found that the evidence showed that although Mary recorded the advances to Peter as loans and kept records of the interest, there were no loan agreements, no attempts to force repayment, and no security. Because it was clear that Mary realized by 1989 that Peter would not be able to repay the advances, the court held that although the advances to Peter could be characterized as loans through 1989, beginning in 1990, the advances must be considered gifts. In addition, the court found that Mary did not forgive any of the loans in 1989, but merely accepted that they could not be repaid. Thus, whether an advance is a loan or a gift depends not only upon the documentation maintained by the parties, but also upon their intent or expectations.

Lending as an Estate Planning Tool
As the Estate of Bolles case demonstrates, intra-family loans can be a smart estate planning tool for many families IF properly structured and well-documented. Lenders (usually grandparents or parents) can essentially give access to an inheritance without any immediate gift or estate tax problems, generate a better return on their cash than they could with bank deposits, and borrowers (usually children or grandchildren) can take out loans at interest rates lower than commercial rates and with better terms. In fact, the Internal Revenue Service allows borrowers who are related to one another to pay very low rates on intra-family loans. Furthermore, the total interest paid on these types of transactions over the life of the loan stays within the family. These loans may effectively transfer money within the family, for the purchase of a home, the financing of a business, or any other purpose.

There are several points to keep in mind regarding these types of loans: the loan must be well-documented, lenders should usually ask for collateral, the lender should make sure the borrower can repay the loan, and the income and estate tax implications should be examined thoroughly.

Express Intent in Estate Documents
While you were kind enough to help a member of your family by lending him or her money, do not let this become a legal dilemma in the event of your incapacity or after your death. Instead, use your estate plan to specifically express what you want to have happen regarding these assets. Before lending money, it is important to carefully consider how the loan should be structured, documented, and repaid.

We are Here to Help
If you or someone you know has lent money and has questions about how this affects your estate plan, contact MM&C estate planning attorney Dave Lucas today to discuss the options.

David Lucas
is an attorney in the Estates & Trusts and Business & Tax practice groups at Miller, Miller & Canby. He focuses his practice in Estate Planning and Trust and Estate Administration. He provides extensive estate and legacy planning, asset protection planning, and retirement planning.

Contact David at 301.762.5212 or via email. To learn more about Miller, Miller & Canby's Estates & Trusts practice click here.  

 





The Daily Record Announces Annual VIP List Winners; Names MM&C Attorney Diane Feuerherd to List


Miller, Miller & Canby is pleased to announce attorney Diane Feuerherd has been named to the Daily Record VIP list for 2020. The VIP list recognizes leaders in the State of Maryland based on their professional accomplishments, community service and a commitment to inspiring change. Honorees are 40 years old or younger. They are selected by an outside panel of judges, which includes previous winners and business leaders.

“We are extremely proud to announce this well-deserved honor for Diane, who has been an instrumental part of our firm since she joined us in 2013,” said Managing Principal Robert Gough.

Added senior Principal Donna McBride, “Diane makes a tremendous positive impact here for our clients, and also in the broader legal community through her many volunteer and leadership roles.  She has accomplished a great deal in a short period of time, and we look forward to continuing to celebrate her achievements as she advances in her career.”

Diane Feuerherd
is an attorney in Miller, Miller & Canby's Litigation practice with focuses in appellate, business and real estate litigation. She joined the firm after serving for two years as an appellate law clerk to the Honorable Lynne A. Battaglia of the Court of Appeals of Maryland, the State's highest court. She has successfully represented individuals, property owners, and businesses in a wide variety of matters, ranging from administrative hearings before the Board of Appeals, to jury and bench trials in state and federal courts, and to appeals before the Court of Special Appeals and Court of Appeals.

In addition to her work, she is active in state and local bar associations. She serves as co-chair of the Maryland State Bar Association’s Judicial Appointments Committee, Blog Manager of the Maryland Appellate Blog, Board Member of the Maryland Bar Foundation and a past Fellow of the MSBA’s prestigious Leadership Academy.

"This year's VIP List honorees are an impressive group of young professionals with a strong work ethic and a drive to succeed," said Suzanne Fischer-Huettner, group publisher of The Daily Record. "They are making significant contributions to their professions and to improving their communities. The Daily Record is pleased to honor them."

Click here for more information about the Daily Record VIP list for 2020 and celebratory event on September 17, 2020. Click the Download Attachment link below to view the entire list of VIPs.

Take a peek at the write-up about Diane on the Daily Record website by clicking here.

ABOUT MILLER, MILLER & CANBY
In 2021, Miller, Miller & Canby will celebrate 75 years of serving the legal needs of metropolitan Washington, DC. As the oldest law firm in Montgomery County, MD, the firm recognizes that this milestone reflects the relationships built and maintained with our clients, friends and the business community, many spanning multiple generations. The firm maintains its focus on its core areas of practice: Land Use and Zoning, Real Estate, Litigation, Eminent Domain, Business and Tax, and Trusts and Estates Law. The firm's size allows its attorneys to maintain close contact with clients and have the opportunity to develop and foster trusted, lasting relationships. In all of our practice areas, an overarching concern for quality of product and efficiency of accomplishment assures clients that we strive for true value in legal representation. Miller, Miller & Canby is proud to have maintained this standard of service since the firm’s founding in 1946.





Widening Washington D.C.’s Beltway & I-270 for Toll Lanes in Maryland: June 2020 Project Update


If you live in Montgomery or Prince George’s Counties, or you regularly commute into Washington D.C. or Northern Virginia, you are likely already aware of plans to widen the I-495 Beltway and I-270 to make way for new toll lanes.  Miller, Miller & Canby’s eminent domain and condemnation attorneys are closely monitoring this major infrastructure project.

The Landscape
This project is a priority of Governor Hogan, which is emerging out of the I-495 & I-270 Managed Lanes Study launched in March 2018 by Maryland Department of Transportation’s State Highway Administration (MDOT SHA).  A Public-Private Partnership (P3) has been established to manage and indeed fund the project’s development, design and construction.  The P3 releases periodic newsletters and maintains this project website.

On January 8, 2020, Maryland’s Board of Public Works (BPW), comprised of the Governor, Treasurer and Comptroller, voted 2-1 to approve Phase-1 of the project.  On February 7th the P3 posted an announcement on its website (click here to view) clarifying that the BPW’s vote “only allows the solicitation process to move forward for a Phase Developer to assist the MDOT SHA with preliminary development and design activities, which is allowable under federal regulations.”   Once the project’s new toll lanes are constructed, the P3’s development contractor will retain some level of ownership interest in those lanes while operating and maintaining them for a given time period – purportedly 50 years.

Prior to January’s BPW vote, the National Environmental Policy Act (NEPA) process was already well underway for the I-495 & I-270 Managed Lanes Study.  In fact, the Draft Environmental Impact Statement (DEIS) was scheduled to be released earlier this year for public review and comment until the COVID-19 situation introduced delay.  The P3 is working to release the DEIS in the mid-July timeframe, and it will be followed by an announcement scheduling public hearings, which will most likely be held virtually, but in-person hearings have not yet been ruled out.  P3 also announced that the minimum-required 45-day review period will be extended.


The Plan for Phase 1
The P3’s February 7th website post included a map of Phase-1 as planned, a copy of which is provided below.  Phase-1 will widen I-495 and I-270 for toll lanes, beginning by replacing and widening the American Legion Bridge that crosses the Potomac River from Virginia, and extending northward to I-70 in Frederick County.  Current plans are to divide Phase-1’s delivery, first widening I-270 up to its intersection with I-370 in Montgomery County.  However, since the project’s details remain undefined, the extent of privately owned real estate that will be required to support the widening remains unresolved.  At present, there is an interactive map posted online by MDOT SHA for preliminary planning purposes, which remains subject to change.


Failure of Legislation Proposed to Stop the Project
This project remains highly controversial.  In fact, Bills S.B. 229 & H.B. 292, cross-filed in both chambers of the General Assembly in the 2020 regular session, proposed to prohibit the State from constructing toll roads or bridges without the consent of the majority of the affected Counties.  The Bills proposed to rewrite an existing law (Maryland Transportation Code Section 4-407), which already requires majority County consent for toll projects, but only amongst nine named Counties all located east of the Chesapeake Bay Bridge.  If successfully enacted, the new law would have extended that majority consent requirement to ALL Maryland Counties and Baltimore City.  

However, on March 16, 2020, the House Environment and Transportation Committee voted 16-5 against HB292 and issued an unfavorable report.  The Senate’s version of the Bill, S.B. 229 technically died in the Finance Committee by March 18th, when the regular session prematurely adjourned due to the COVID-19 situation.

While the General Assembly’s debate over the 495/270 widening project may carry on due to its passionate opponents, they find themselves in the minority – so it seems highly unlikely the General Assembly will enact legislation that even potentially threatens to curb the project.


About Miller, Miller & Canby
Miller, Miller & Canby has extensive experience in protecting property owners’ rights throughout the eminent domain process. Jamie Roth is an Associate in the firm’s Litigation Practice Group, concentrating his practice in real estate litigation with a focus in eminent domain. Prior to becoming an attorney, Jamie enjoyed a distinguished career spanning over twenty years in the private and public sector with experience in project management, strategic planning, asset management and risk mitigation, including eleven years as a successful real estate consultant in federal eminent domain matters.

If you have any eminent domain-related questions or questions about the project or its potential impact to your property, please contact Jamie at 301.762.5212 or via email.

Visit our firm’s website for general information on the eminent domain process and our firm’s services by clicking here.

 





New Guidance on PPP Flexibility Act and New 3508EZ Forgiveness Application


On June 5, 2020, the Payroll Protection Program Flexibility Act (Flexibility Act) was signed into law, amending the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  Central to the Flexibility Act was expanding the 8-week forgiveness period under the CARES Act for which businesses must spend their PPP loan proceeds to qualify for loan forgiveness.  Now, under the Flexibility Act, businesses may opt to spread their forgiven period over twenty-four (24) weeks, beginning on the date the PPP loan proceeds was disbursed.

Payroll Compensation Thresholds
Upon enactment of PPP loan program, it was unclear how to spread payroll costs out over the new 24-month period for individuals earning more than $100,000 per year.  Under the CARES Act, businesses are capped at $100,000 of annualized pay per employee, with a maximum amount paid to such employee capped at $15,385.  The SBA had arrived at that maximum amount by dividing the $100,000 amount by 52 weeks and multiplying by 8 weeks (100,000/52 x 8).  Last week, the Small Business Administration (SBA) released an Interim Final Rule (IRF) to address the confusion for whether the maximum amount under the 24-month forgiveness period would be the same as the 8-week forgiveness period.  Per the IFR, payroll costs are still capped at $100,000, but the maximum amount jumps to $46,154 per employee. In doing so, the SBA swapped the 8 weeks with 24 weeks (100,000/52 x 24).  Accordingly, businesses that opt for the 24-week forgiveness period are permitted to allocate almost 3 times as much PPP loan proceeds to employees making over $100,000 than they would under the 8-week forgiveness period.

The IFR also clarified owner compensation.  Now, under the Flexibility Act, owners may pay themselves either 1) 8 weeks’ worth (8/52) of 2019 net profit (up to $15,385) for an 8-week forgiveness period; or 2) 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week forgiveness period.  The IFR stated that, for self-employment income earners opting for the 24 week forgiveness period, the SBA limited the forgiveness of owner compensation to 2.5 months’ worth of 2019 net profit (up to $20,833) since the maximum loan amount is generally based on 2.5 months of the borrower’s total monthly payroll costs during the one-year period preceding the loan.

PPP Loan Forgiveness EZ Application
On June 17, the SBA released an EZ version of the forgiveness application, Form 3508EZ, that applies to borrowers that:

•    Are self-employee with no employees; or
•    Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or
•    Experienced reductions in business activity as a result of health directives relating to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

The EZ application requires fewer calculations and less documentation, and can accessed here.

SBA Guidance on Loan Forgiveness
On June 22, 2020, the SBA issued a clarification to its IFR whereby it detailed, among other things, when a borrower may apply for loan forgiveness.  Per this new guidance, borrowers may submit their forgiveness application any time on or before the maturity date of the loan, including before the end of the covered period, if the borrower has used all the PPP loan proceeds for which the borrower is requesting forgiveness. However, if the borrower applies for forgiveness before the end of the covered period, and the borrower has reduced any employee’s salaries/wages in excess of twenty five percent (25%), the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period.  In addition, in the event the borrower does not apply for loan forgiveness within ten (10) months after the last day of the covered period, or if the SBA determines that the loan is not eligible for forgiveness (whether in whole or in part), the PPP loan will no longer be deferred, and the borrower must begin paying principal and interest.

For businesses interested in learning more about the loan forgiveness application or how to navigate their way through it, please contact Chris Young at 301-738-2033.

Chris Young
is an associate in the Business & Tax practice at Miller, Miller & Canby. He focuses his practice on corporate legal agreements, business formation, tax controversy work and helping clients deal with new tax regulations. View more information about Miller, Miller & Canby's Business & Tax practice by clicking here.
 





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