LAPP, LIBRA, THOMSON, STOEBNER & PUSCH, One Financial Plaza, Suite 2500 120 South Sixth Street Minneapolis, Minnesota 55402 Telephone (612) 338-5815 Facsimile (612) 338-6651 Website: www.lapplibra.com Newsletter: Spring-Summer 2010 Dear Friends: This Newsletter will update you about our Firm, the legal services we provide, our attorneys, and certain developments in the law that you may find interesting. Our Firm: Lapp, Libra, Thomson, Stoebner & Pusch, Chartered, provides thoughtful and careful solutions for our clients diverse legal needs. We are grateful for the opportunity to serve our clients, and we work hard to use our legal experience and knowledge on their behalf. Please call us if we can help with any of your legal issues. Meet Tyler Candee: Tyler Candee is a member of the Firm's litigation and bankruptcy practices. Tyler devotes the heft of his practice to litigation and advocacy, representing businesses and individuals in business and commercial disputes, as well as litigating on behalf of several Chapter 7 bankruptcy trustees in the District of Minnesota. He also serves as local counsel to some of the nation s larger law firms in their clients Minnesota-based litigation. Tyler was named a 2010 Rising Star by Minnesota Law & Politics Magazine. He is admitted to practice in the States of Minnesota, Wisconsin, and North Dakota. Prior to joining the Firm, Tyler practiced at a large law firm in Minneapolis, and during law school he clerked for the U.S. Attorney's Office in Madison, Wisconsin. Tyler graduated from the University of Wisconsin Law School, cum laude, Order of the Coif, in 2006. Before beginning his legal career, Tyler was the Marketing and Sales Director for Avenet, LLC, the nation's leading provider of websites to local governments and political campaigns. He also has served as a Legislative Assistant to Senator Byron Dorgan (D-ND). Tyler can be contacted at TCandee@lapplibra.com or (612) 343-4964. Rent Relief: Whether you are a landlord or a tenant, the difficult economic times may be causing cash flow difficulties. Often, tenants in financial distress contact their landlords seeking temporary or permanent rent relief. Dave Libra recently participated in a seminar for the Minneapolis Building Owners and Managers Association (BOMA) that reviewed the threshold tests for considering rent relief, the remedies available upon a tenant default, and the possible methods for structuring rent relief.
Page 2 Some considerations in structuring any rent reduction are: how long will the reduction last; should the tenant pay the landlord s costs relating to any lease amendment; is the tenant required to provide an initial and periodic financial statements; should the landlord have options to recapture the space or relocate the tenant; and is the rent relief confidential? Each situation is unique, and the appropriate relief depends on the tenant s financial condition, the location of the space, and market conditions. Any restructuring should be documented by a clear written lease amendment or forbearance letter. You always need to consider the effects of a potential tenant bankruptcy. If you have any questions, please feel free to call Dave. Estate Planning Update: Contrary to all expectations, Congress did not act in 2009 to prevent the repeal of the federal estate tax. Thus, there will be no federal estate tax in 2010 without new legislation. That seems like a good situation, but, as always, there are complicating factors. For background, the federal 2001 Tax Act gradually raised the federal estate tax exemption from $600,000 to $3,500,000 and lowered the maximum estate tax rate from 55% to 45%. This same law provided that, just for the year 2010, the estate and generation-skipping taxes would be repealed, the income tax cost basis step-up for inherited assets would be limited, and adjustments were made to the gift tax rates. The 2001 Tax Act also provided that all these changes would sunset in 2011, when the estate tax would be restored with a $1,000,000 exemption and a maximum tax rate of 55%. These repeal and then reinstatement provisions were adopted for budgetary reasons, with the expectation that permanent action would be taken before the 2010 changes would apply. It is not clear what the temporary repeal of the federal estate tax will mean and what Congress (and the Minnesota legislature) will do next. Congress may pass legislation reinstating the estate tax in one form or another, perhaps retroactively to January 1, 2010, to prevent both the 2010 repeal and the 2011 tax increase, or Congress may allow the current law to run its course. At this time, nobody knows, and it is simply impossible to predict. The 2010 rules are generally good for taxpayers and the 2011 rules are a significant step backward. Stay tuned for further exciting news. If you would like to discuss any estate planning issues, please call Bill Lapp or Dave Libra. FDIC Repudiation Rights: When the FDIC takes over a failed bank as a receiver, depositors are protected up to certain insured limits. Less well known is that the FDIC has the power to repudiate virtually any contract or lease to which the failed institution was a party. The FDIC has used this power to repudiate contracts for services, real estate, leases, bonds and letters of credit. In order to repudiate or disaffirm a contract or lease, the FDIC must only determine that the agreement is burdensome. The FDIC has wide discretion in making this decision and can act within a reasonable period of time. Further, the damages that can be claimed for repudiation of a contract or lease are limited. The powers and options for the FDIC are broader than in a business bankruptcy proceeding. If you become involved with the FDIC regarding a contract or a lease, we suggest that you promptly contact one of our attorneys to assure your rights are protected.
Page 3 Preserving the Family Cabin or Vacation Home: The family cabin or vacation home frequently is a treasured asset with strong emotional and sentimental attachments for parents and children. Whether it is a modest lake cabin, luxury vacation home, hunting shack, condominium, etc., we ll refer to it as a family cabin. The transfer of the family cabin to the next generation often raises many difficult issues. There are many personal, financial, and legal complications that interfere with the goal of making the cabin available to all children and their families on an equitable basis. For example, there can be ugly disputes regarding scheduling conflicts, maintenance disagreements, divorce, death, bankruptcy, liens, and transfers to non-family members. The challenge is to avoid as many potential problems as possible and to create a mechanism to resolve future disputes. Formation of a limited liability company (LLC), with family members owning interests in the LLC, may be an excellent solution. A limited liability company is a legal entity that can be formed to own and manage valuable real estate, including a family cabin. Like a corporation, an LLC can provide a personal liability shield for its owners. For income tax purposes, the LLC can be treated as a partnership, with income and deductions passing through to the owners. The owners of an LLC are called members. Each member has a percentage interest for ownership and voting purposes. An LLC may be managed by all of the members or by designated managers. An LLC is created by filing Articles of Organization with the Minnesota Secretary of State. The rules for governing the LLC are stated in the bylaws and a member control agreement. Creation of an LLC to own the family cabin requires careful thought. The following are some of the important issues that should be covered in the LLC documents: 1. Who are the owners; what are their percentage interests; and what property or money is being contributed? 2. Who are the managers of the LLC? 3. How will use of the cabin be scheduled? 4. What are the rules for using the cabin and resolving future disputes? 5. How are maintenance and repairs handled? 6. What are the annual contributions to pay expenses? 7. Will additional fees be charged for unequal use? 8. How will extraordinary expenses be approved and paid for? 9. Are there restrictions or a first refusal right on transfers to non-family members or upon a death, divorce, bankruptcy, etc.? Preserving the family cabin for future generations can be a daunting task with many financial, legal and tax issues. An LLC is one option that may assist transferring the property to the next generation, provide management controls, and achieve long term family goals. The LLC should be coordinated with the estate plans for each family member. If you wish to discuss these issues, please call Dave Libra.
Page 4 Bankruptcy Update: According to a Report Published by the Institute for Financial Literacy 1 in June, 2010, in 2009, there was an increase in Americans seeking credit counseling and financial education in the following demographic groups: Americans aged 55 and older; Americans of Caucasian and Asian descent; Americans with bachelor s or graduate degrees; Americans earning $60,000 or more per year; Americans whose status is now unemployed; and Americans who are married. The Report concludes that the Great Recession is shifting middle class Americans into bankruptcy. According to statistics maintained by the United States Bankruptcy Court for the District of Minnesota, the number of bankruptcy cases filed in the first five months of 2010 was 9,596, the highest for the same period in the last ten years. The Great Recession is affecting business, even well established businesses that have operated successfully for years. While it is our view that business Chapter 11 bankruptcy is, and should be, a last resort, it can be a valuable tool. We can quickly assemble a team of financial and legal advisors to assist you in your business financial problems. To speak with someone about business reorganization, please call Ralph Mitchell. Announcements and Congratulations: John R. Stoebner, in his capacity as Chapter 7 Trustee for the bankruptcy estate of the former Polaroid Corporation, recently arranged an auction of the former Polaroid art collection. The collection included hundreds of original Ansel Adams photos and other famous photographers. The auction, conducted by Sotheby s in New York, netted a total of more than $10 million and set new price records for several artists. We are pleased to announce that since the last newsletter, Rosanne H. Wirth has become associated with the firm. Rosie focuses her practice on consumer and business bankruptcy, representing trustees, debtors and creditors. Prior to joining Lapp Libra, Rosie worked at Merit Search, Inc., an Executive Search Firm, KPMG, a Big 4 Accounting firm as a Tax Manager, the Minnesota Attorney General's office, in the Tax Litigation Department, and Lindquist & Vennum. We are pleased to announce that Stephen J. Creasey has also become associated with the firm. Steve was most recently the Career Law Clerk to the Honorable Nancy C. Dreher, Chief Judge of the 1 The Institute for Financial Literacy is a non-profit financial literacy organization based in Portland, Maine. The Institute is one of many entities that provide the mandatory pre-filing credit counseling for those contemplating bankruptcy.
Page 5 United States Bankruptcy Court for the District of Minnesota, a position he held for nine years. Prior to that he was counsel to the Chapter 13 Standing Trustee, J.J. Mickelson. Steve brings a wealth of knowledge and experience with him, especially in bankruptcy matters. Congratulations to our 2010 Super Lawyers as named in Super Lawyers magazine: William S. Lapp, David A. Libra, Richard T. Thomson, John R. Stoebner, and Ralph V. Mitchell. Only five percent of Minnesota lawyers receive this annual designation, which is based on peer recognition and professional achievement. Ipso Facto What Does It Mean? Ipso Facto is a Latin phrase translated as by the fact itself. It conveys the concept that something done contrary to the law is automatically void. It is often used in bankruptcy law with respect to leases and executory contracts that may contain a provision that the filing of a bankruptcy automatically terminates or modifies the lease or contract. Such ipso facto clauses are generally unenforceable in bankruptcy. See 11 U.S.C. 365(e)(1). A family law example of the term might be where a married woman marries a second time without bothering to divorce her first husband. The second marriage would be void ipso facto. The marriage could also be said to be void ab initio from the beginning. The parties entering into such a marriage could perhaps also be said to be non compos mentis not of sound mind. Our Attorneys: William S. Lapp David A. Libra * Richard T. Thomson John R. Stoebner * Gregory D. Pusch Julia A. Christians Ralph V. Mitchell Amy L. Schwartz Tyler D. Candee + Rosanne H. Wirth Stephen J. Creasey * Minnesota State Bar Association Board Certified Real Property Specialist + Also licensed in Wisconsin and North Dakota If you have any comments on our Newsletter or want to change your address, to receive our Newsletter by e-mail, to add anyone to our Newsletter list, or to be deleted from our Newsletter list, please e-mail us at: receptionist@lapplibra.com. This Newsletter is published to inform our clients and other readers about our law firm and legal developments. The information in this Newsletter is only a general summary and is not intended, and should not be relied upon, as legal advice. If you have any questions, please contact one of our attorneys at 612-338-5815.
Lapp, Libra, Thomson, Stoebner & Pusch, Chtd. One Financial Plaza, Suite 2500 120 South Sixth Street Minneapolis, MN 55402 Address Service Requested LAPP, LIBRA, THOMSON, STOEBNER & PUSCH, ATTORNEYS AT LAW Newsletter: Spring-Summer 2010 ENGAGED IN THE GENERAL PRACTICE OF LAW, INCLUDING: BANKRUPTCY BUSINESS & CORPORATE COMMERCIAL LITIGATION EMPLOYMENT One Financial Plaza, Suite 2500 120 South Sixth Street Minneapolis, Minnesota 55402 Telephone (612) 338-5815 Facsimile (612) 338-6651 Website: www.lapplibra.com REAL ESTATE SECURITIES TAX LAW WILLS, TRUSTS & PROBATE