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Volume 3, Issue 1, dated January 31, 2002 (pdf)

• Ten Estate and Tax planning tips for 2002

• Get a job, young spouse

• Enron... could it happen to you?

• Protecting immigrants, catching terrorists

• Cost of living increases for the Estate and Gift Tax

• Do you know enough about international franchising?

• My pet issues

Ten Estate and Tax planning tips for 2002

by Kelly Phillips Erb

1. The beginning of the year is an excellent time to review your Wills, Trusts, Powers of Attorney and Living Wills to make sure that they adequately reflect your wishes.

2. Make charitable donations a part of your tax planning. Be sure and get receipts for donations of property - as well as cash gifts in excess of $250.

3. It's not too early to start saving for college. Make tax-deferred contributions to education savings plan or open your section 529 savings account today!

4. Check your designations of beneficiary for nonprobate assets such as life insurance and retirement accounts. Outdated designations of beneficiary can result in confusion, extra administrative expenses and tax and Medicaid consequences.

5. Looking for an additional deduction for 2002? Schedule and pay for your annual physical, eye or dental exam by December 31 in order to claim your deduction. Besides, it's good for you!

6. New baby in the house? New additions must have a valid Social Security number in order to be included as an exemption on your tax return.

7. If you are the Trustee of an Irrevocable Life Insurance Trust, make sure you get your Crummey letters out on time! Keep copies for your records.

8. If your employer provides you with a medical savings account, budget your out-of-pocket medical expenses accordingly. Remember that what you don't spend, you lose.

9. Review your contribution levels for IRAs and 401(k) plans to make sure they're appropriate; this is a great way to put away tax deferred savings for retirement.

10. Gifts are a great way to reduce your estate - and make other people happy. Remember that in 2002 you can make gifts of up to $11,000 per person per year ($22,000 for married persons if you "split" gifts) without any gift tax consequences.

Get a job, young spouse

by J. Christopher Erb

Many multinational companies have expertise in their home countries which is irreplaceable. Whether this knowledge is in the form of proprietary manufacturing processes or merely a superb understanding of the product and its market, companies entering new markets often rely on personnel from their headquarters (and their home company) to make these investments work.

Unfortunately for those investing in the United States, the transfer or employment of foreign personnel critical to the new venture often came at a price. Although visas are generally readily available for qualified personnel in these situations, and spouses and children were allowed to accompany the primary visa holder, in the past there was no provision allowing those dependents to work while in the United States. While this might have been acceptable to many in the past, more and more spouses were vetoing transfers abroad if it meant their career had to be put on indefinite hold.

Recognizing this, Congress recently passed two bills, signed by President Bush on January 17, 2002, which would allow the spouses and children of transferees (L visa holders), treaty traders (E-1 visa holders), and investors and certain of their employees (E-2 visa holders) to work in the United States.

The INS has yet to implement the new provisions, although guidance is said to be "forthcoming."Although details are limited, the consensus is that eligible spouses will be required to separately apply for and receive an employment authorization document before employment is permitted.

In addition, the legislation on L-visas shortens the period of continuous employment required for certain transferred employees. Generally, employees must work for the foreign company or an affiliate for at least one year before being transferred to the United States. The new legislation shortens this period to six months for certain applicants, provided the transferring employer meets certain criteria.

In other immigration news, the INS has released total immigration figures for 1999 and 2000, which are available on the INS website. According to the report, a total of 849,807 persons legally immigrated to the United States in fiscal year 2000, of whom 442,405 were granted adjustment of status (permanent residence, often known as a "green card") by the INS. This is an increase from the figures for 1999, when there were 646,568 legal immigrants, of whom 244,793 were granted adjustment of status.

Also, fees for most filings have changed, including those for most employment-based nonimmigrant visa filings, up $20 to $130, and employment-based immigrant visa filings, up $20 to $135. The changes are effective February 19, 2002.

Enron... could it happen to you?

by Kelly Phillips Erb

There's been a lot of news lately about the demise of Enron and what it has meant to employees. Many have lost their entire life savings because their pensions and 401(k) plans were entirely comprised of Enron stock - which has since been terribly de-valued. Now, amid Congressional hearings and SEC investigations, more and more US workers are beginning to wonder "could it happen to me?"

The truth is, many employees have savings and retirement plans mostly comprised of company stock. This is largely because companies receive tax benefits for making contributions to employee retirement plans - and stock options are attractive to both employers and employees (for those curious about stock options, our next newsletter will feature an article on stock options by Lorenzo Bacciardi).

Is there a solution? Most financial and tax advisors agree that the strategy should not be to avoid investing in stocks for savings and retirement plans. Tax-deferred income for retirement is an important advantage. However, consult with your financial advisor to determine how you can successfully diversify without triggering a tax event. Additionally, with the changes under EGTRRA, consider increasing personal contributions to your IRA or 401(k) plan.

Be pro-active and take an interest in what's going on with your retirement and pension plans. Consult with your financial advisor to ensure that the allocations in your portfolio make sense for your personal financial situation. Don't let what happened to Enron employees happen to you.

Protecting immigrants, catching terrorists

by J. Christopher Erb

Obviously, the events of September 11th were sure to have an effect on the immigration laws of this country. The INS and other immigration-related organs of the US government were roundly criticized for the ease with which the terrorists were able to enter and, in some cases, develop their skills in the United States. Many news reports also noted that certain of the terrorists made their way into Canada and then into the United States, and critiqued both Canadian officials and US border officials to the north.

Mindful of that, in October, 2001 Congress passed and the President signed a new law, the Patriot Act , which contains provision to address those concerns. The first section deals primarily with provisions relating to the protection of the Northern Border of the United States, the longest unprotected border in the world. The Patriot Act authorizes an increase in personnel to man that border and relaxes restrictions on the accrual of overtime hours for those personnel. It also authorizes the INS and the Department of State, who together are responsible for border inspections, access to the major criminal databases run by the FBI and the National Crime Information Center. Finally, it also requires a review of the FBI's fingerprint identification system and other identification systems to determine how these systems might be adapted to assist immigration officials in identifying criminals before they are let into the country.

The immigration provisions of the Act contain a number of provisions designed to ensure that those who enter the country in order to assist terrorist organizations are not unduly protected by the US legal system. The Act imposes mandatory detention of suspected terrorists and, in a controversial provision, suspends their right of habeas corpus , which protects citizens against unlawful imprisonment. The Act also strengthens the monitoring program for students holding F-1 visas, which had been imposed in 1996, by allocating additional funds for the program and authorizing the expedited implementation of the program.

Much criticism has been leveled against the procedures for issuance of student visas, and in the past little has been done to ensure that foreign students are actually studying. The new provisions call for more scrutiny of foreign students, both upon entry and during their stay in the United States.

In keeping with other provisions encouraging the use of technology to better track and exclude potential terrorists, the Act also has provisions to improve tracking of entries into the United States and to link those systems with existing law enforcement databases and new visa tracking systems.

Additional provisions accelerate provisions relating to ensuring the processing of data obtained from machine readable passports and to initiate a study of visa applications abroad to ensure that terrorists can't avoid scrutiny by applying for a visa at lenient or overburdened consulates abroad. Another related provisions expressly denies entry to foreign citizens who have engaged in money laundering, in another attempt to prevent terrorists from gaining entry to the United States.

Fortunately, the Act also recognizes that there are visa holders or applicants in the United States who have been adversely affected by the acts of a few bad apples. Obviously, there are individuals holding visas in almost every American workplace, and the World Trade Towers were no exception. Unfortunately, some families of those workers lost in the disaster also lost their authorization to remain in the United States, because their visa was dependent on the continued employment of the primary visa holder. Other foreign citizens, the spouses and families of US citizens, also faced an uncertain future after the attacks.

The Patriot Act authorizes relief for those whose visa status or ability to apply for a visa or extension was adversely affected by the death of a spouse or immediate family member in the terrorist attacks. The Act also gives the INS some discretion to grant relief to visa holders who have been affected by the terrorist acts in some other way. There are strict filing deadlines to take advantage of some of these provisions, so those who are in that situation need to take appropriate action immediately. For obvious reasons, these provisions do not apply to the family members of the deceased terrorists.

If you are really curious about the Patriot Act, see the web version of this article for the pdf version of the Patriot Act and other related materials.

Cost of living increases for the Estate and Gift Tax

by Kelly Phillips Erb

Good news! For 2002, the IRS has increased the gift tax annual exclusion from $10,000 (since 1982) to $11,000 and increased the GST exemption from $1,060,000 to $1,100,000.

The IRS also increased the gift tax annual exclusion for gifts to a non-citizen spouse from $100,000 to $110,000, increased the aggregate amount that special use valuation of qualified real property can reduce a decedent's estate from $800,000 to $820,000, and increased the portion of an estate eligible for the 2% interest rate on deferred estate taxes under Code Sec. 6166 from $1,000,000 to $1,100,000.

Do you know enough about international franchising?

by Lorenzo Bacciardi

Franchising is a successful method of expanding and financing a business often focused on delivering goods and services. McDonald's, Kentucky Fried Chicken, Benetton and many others are businesses which have established presence all over in the world enabling individuals with little capital to achieve independent businessman status under the guidance of an experienced company with a well-known product or trade name.

The system works like this: A business owner perfects a product of service which sells well in a specific field. Then, for a fee or other concessions, the owner becomes the franchisor showing to others, called franchisees, how to succeed in the same way. Results? The franchisor expands its business far faster than otherwise possible, the new franchisee gets an opportunity not otherwise available, and both franchisors and franchisees, stay independent and separate. The franchisor licenses to the franchisee its know how, trade secret, trade name, and trademark. The franchisor also trains and imposes standardized methods of operation to the franchisee. On the other hand, the franchisee receives support from the franchisor, successful know how, training, business and management methodology in exchange for annual and periodical fixed fees as well as royalty payments as compensation of being able to use the franchisor's know how.

While it might appear fairly straight forward to establish a domestic business through franchising, it may be very tricky to expand it internationally. In fact, foreign countries tend to deal with legal issues differently. Therefore, if you run a business in franchising and think to expand it abroad, make sure to have your business transaction reviewed by legal counsel. To secure the success of your business abroad, your legal counsel should consider the following:

1. Trademarks and Trade Names. What are the laws of trademarks and trade names in the target foreign country? More specifically, what are the requirements for the registration of trademarks and trade names? What are the governments restrictions on trademarks and trade names? There are instances where franchisors licensed trademarks and trade names were already owned by others in the target country. Additionally, in contrast to the US, some foreign countries allow franchisees to retain and use, as their own property, trade secrets at the end of the relationship.

2. Fees. What is the characterization of fees, the amount and type of fees, and the tax on fees? Too often franchisors find out that withholding taxes on royalties eat away the franchisor's expected return or that the services being performed are subject to the target country's income tax. You'll need to know the currency and remittance restrictions, the procedure for remittance of fees and other commissions through letter of credit or wire transfer.

3. Ownership. Are there any limitation on foreign ownership, restrictions on competition, or restrictions dictated by antitrust law? Particular attention should be paid to the terms of the business as well as import restrictions.

4. Termination and Dispute Resolution. How can a franchising arrangement be terminated? What are the special requirements to meet to terminate a franchising arrangement? What kind of indemnification is available after termination? What about the availability of court systems, arbitration procedures and alternative dispute resolution?

Franchising can be a highly useful means of distributing ownership and responsibility, and strengthening private enterprises. However, franchisors that plan to go global should plan carefully to ensure the same success obtained in the domestic market.

My pet issues

by Kelly Phillips Erb

I'll admit it. We have a Christmas stocking for our dog, Lyle. And this year (like the last), Lyle spent Christmas Eve opening presents from his "grandparents" and his Aunt Kristin.... So, I'll confess to being indulgent for our dog but that's nothing compared to, say, Doris Duke, who left $100,000 to her dog, or the provision in singer Dusty Springfield's Will that specified that her cat should be fed only imported baby food. Estate planning for pets is becoming increasingly popular. The only hitch? Legally, you can't will anything to your pets... yet?

A new bill introduced in Congress by Representative Earl Blumenauer (D-Ore.) would recognize pets as legal beneficiaries and authorize charitable trusts for pets, meaning the trusts can be used for income and estate tax deductions.

Sound incredible? Perhaps. But then so did the idea of a doggie day care once, too, and Lyle loves it!