Wednesday, August 20, 2014

Someone Finally Did Things Right! Lessons from Robin Williams’s Estate Plan

Last week we tragically lost an entertainer who played a major role in my life, and, I am sure, in the lives of many others as well. Most of the time when I write about celebrities and their estate plans it is to point out something they may have done wrong, but today I am pleased to report that I am able to discuss one celebrity who may have done things right.  Early reports, citing TMZ (seriously, where do they dig this stuff up and how ridiculous is it that I am citing it?), indicate that Robin Williams may have used a revocable trust as his primary vehicle to transfer his assets at death. 

There are a number of reasons a revocable trust may be the perfect estate planning tool, but primary among them is privacy: a revocable trust is a private document that normally will be unavailable to the public, an important consideration for a public figure. In contrast, consider the cases of Phillip Seymour Hoffman and James Gandolfini, among others, whose wills and dispositions from their large estates were on public display.  A will is a public document, filed with the court in a probate proceeding, and as such is available to the public; a trust is not automatically subject to probate or court jurisdiction.  If a client-say a celebrity, an athlete, or even a resident of a small town full of nosy neighbors—ever has a need for privacy, the revocable trust is the preferred instrument.

A revocable trust can also reduce (but not eliminate) the possibility of intra-family drama surrounding the estate plan.  A revocable trust avoids a probate proceeding, without which no notice to family members and heirs is necessary.  Only the named beneficiaries need to get notice of the distribution from a trust, unlike in probate where all defined heirs, along with named beneficiaries, are required to receive notice.  This means that a child or someone else who intentionally may have been excluded as a beneficiary will receive notice and will be an interested party in a court-supervised probate proceeding.  It is still possible to bring action to determine the validity of a trust, or to contest distributions from a trust, but a party who might wish to press such claims may never even receive notice that the trust exists.

Just because Robin Williams appeared to use a revocable trust instead of a will as his primary estate planning vehicle doesn’t mean his estate plan was perfect, but it does mean he was able to ensure that the division of his assets will remain private.

One caveat: revocable trusts are only helpful if you have actually transferred your assets to the trust.  In many jurisdictions if you have more than $50,000 or $100,000 in assets titled in your own name, and not in the name a trust or a designated beneficiary or in common ownership with another person, a probate proceeding will be necessary even if a revocable trust exists.

Wednesday, August 13, 2014

What: T. J. Stiles, The First Tycoon: The Epic Life of Cornelius Vanderbilt (Alfred A. Knopf, 2009)

Why:  How one man, starting with little but his ambition, built a transportation empire and shaped the infrastructure of the American economy in the process.

It is not unheard of for entrepreneurs with whom members of our Entrepreneurial Services Group work bemoan how they are hampered by legal regulation at almost every turn. How much more they could achieve if only the government would keep its nose out!

So what was it like in the good old days? Enter T. J. Stiles, whose biography of Cornelius Vanderbilt quite justifiably won the National Book Award for nonfiction in 2009 and the Pulitzer Prize for Biography in 2010. In the interests of full disclosure, I note that I take a certain vicarious pleasure in these achievements, as both Mr. Stiles and I were history majors at the same small Midwestern liberal arts college, he being of somewhat newer vintage than me.

Stiles gives us a front row seat to the development of an economic empire that began with a ferry plying its trade between Staten Island and Manhattan and ended—many, many millions of dollars later—with a near-monopoly in the railroad industry. All mostly accomplished by Vanderbilt’s drive to run any business in which he was involved better than any of his competitors.

Along the way, we witness the growth of the stock market, the transformation of the corporation from a vehicle for public works to an engine of private business, and the boom in transportation that drove American economic growth in the 19th century. Vanderbilt was a part of it all, and himself played a crucial role in the transformation of the United States from an agrarian-based society to an industrial giant.

In all of this, the law lagged behind the growth, but the growth clearly drove the law. Vanderbilt himself resorted to the courts only rarely, preferring to use his economic power to punish rivals. Vanderbilt’s obituary quotes a letter he purportedly sent to partners who had double-crossed him. The letter actually never existed, but perfectly captures Vanderbilt’s attitude: "Gentlemen: You have undertaken to cheat me. I won't sue, for the law is too slow. I'll ruin you. Yours truly, Cornelius Vanderbilt."

Perhaps Vanderbilt’s life is best summarized by this dust-cover blurb: “He was a visionary who pioneered business models. He was an unschooled fist fighter who came to command the respect of New York’s social elite.” This is an excellent read, an inspiration for any entrepreneur, but at some 585 pages not for those adverse to commitment or faint of heart.

Thursday, August 7, 2014

Musings About the Minnesota Fringe Festival

This past weekend I was able to take in a couple of shows that are part of the Minnesota Fringe Festival. For those (like the couple who attended with me) who are Fringe “virgins,” the Minnesota Fringe Festival, one of many such festivals in the US, is the largest “nonjuried”  festival (meaning shows are selected by lottery) and reportedly the third largest fringe festival of any sort in the nation. This shouldn’t come as a surprise if you already knew that Minneapolis is second only to NYC in live theatre per capita.

The Fringe Festival is a collection of shows performed at a host of venues over 11 days (this year, 169 shows and 19 venues from July 31 through August 10). Each show is 60 minutes or less and they are conveniently scheduled to permit seeing more than one show on a given day or evening. While the content of shows is wide-ranging (comedy, drama, dance, youth, opera, etc.), frequent readers (and others who know me) won’t be shocked to learn that both shows I attended were musicals.

It was a typical Fringe experience. One of the shows, Top Gun: The Musical, was basically a one-joke parody—light on substance and a cast not up to the task. The other, Pretty People Suck (And Other Undisputable Facts About The Universe), was as good as anything I’ve ever seen at the Fringe. Clever songwriting, excellent acting—something that, with a little work, could have a future life.

One of the things that struck me about the shows was just how many creative and (sometimes) talented people work tirelessly to bring these works to the stage. Given the economics, they aren’t doing it for the money (although a few shows, including one of my favorites of the last decade, sometimes graduate from festivals like this to commercial productions). 

Just like someone else I know really well, they probably do this because of the challenge of the creative process and the reward of seeing something you create come to life. I suppose it isn’t all that different from the rush that entrepreneurs get from creating a successful business out of nothing more than an idea—but without all the equity return.

The Fringe runs through Sunday, so you still have a chance to take in a performance!

Tuesday, August 5, 2014

What: Peter Cohen, The Gospel According to the Harvard Business School: The Education of America’s Managerial Elite (Penguin Books, 1973)

Why: For those of you who want a dose of pure 1970 angst, here you go.  If you are genuinely interested in what it’s like to study for an MBA, there have got to be better choices than this. 

Every once in a while, if for no other reason than to placate my co-editor, I actually pick up and read a book that is directly on topic—something, say, with the word “business” in the title. A few days ago, while rooting around in boxes long ago consigned to the attic and until recently forgotten, I came across this book, which I had apparently read as a law student.  Perfect!

Except that it wasn’t. Oh sure, there is some engaging discussion here about decision-trees and other stuff B-school types learn in the ordinary course. But perhaps the most profound insight Cohen has to offer is to conclude, with respect to one case study, that the problem presented was “a bag of worms that’s intertwined.” Did he really have to earn an MBA to produce such piercing insights?

I have to admit, though, that the historian in me did find the cultural subtext of the book somewhat interesting. Cohen attended B-school during the dark days of 1970, and student protests, the first Earth Day and the Kent State incident feature prominently.

As a memoir of those times, the book does have some redeeming value. Taken out of its historical context? Not so much. This is not a book that has aged gracefully. I came of age during this period, but I was genuinely shocked by certain assumptions and stereotypes of that period, particularly regarding women in the business world. Here’s one guy, describing a coworker: “She was a young girl in her early forties.” Girl? Forties?  Really?  

I guess this only goes to show that, as a society, we have come some distance since those late Mad Men days.

Thursday, July 31, 2014

The Way We Were

For a couple of summers when I was very young, my family stayed at a cabin near Brainerd.  The cabin was owned by one of the families for whom my dad worked, and I learned later in life that my dad painted the cabin and did other handyman jobs in exchange for our use.  It was basically a one-room building with a kitchen on one end and a living area with beds, chairs and tables all mingled together.  It was clean and bright, with lots of screened windows that let the breezes pass through.  It had indoor plumbing and sat on a lovely private beach.

During the day we would swim, fish, go to the neighborhood store for a Popsicle® or hunt for agates along the beach and gravel roads.  At night, we would do jigsaw puzzles, play cards, have campfires or go to the city dump to watch the bears.  At least once during the week, we would go to a drive-in movie.  We ate hot dogs cooked on a charcoal grill, watermelon on paper plates, buttery popcorn made in a cast-iron skillet and marshmallows toasted on sticks over a fire.  We drank strawberry and grape soda pop in glass bottles and water from a garden hose.  There was only the sound of slamming screen doors, splashing swimmers and laughter during the day, and the lapping of water on the beach and droning of mosquitoes at night.  There was no TV and the phone that hung on the wall in the kitchen never rang.  The night skies were filled with stars.  It was heaven.

A couple of weeks ago we were invited to spend a weekend with my brother and his family at their cabin in Wisconsin.  We hadn’t been there for a while and they were eager to show off their recent improvements.  We had a busy winter and early spring, and welcomed the opportunity to go someplace where our dogs were welcome and we could read, relax and generally unplug.  Maybe recapture a bit of those heavenly moments at the “Pat’s Cabin” of my youth.  I even purchased a jigsaw puzzle.    

On Friday, we checked traffic on the Internet, piled in our car with the dogs, set the GPS, plugged in our phones to recharge on the drive, and set the iPod to road music.  We packed light – an overnight bag with a change of clothes, a gym bag with toiletries, books and leashes, a crate with dog food, a few groceries and the jigsaw puzzle.  And, of course, the computer bag with laptops, iPad, cords, etc.   Nevertheless, it felt more crowded in our car with two humans and two four-legged companions than I ever recall in our family station wagon filled with parents, four kids, a dog and assorted sleeping bags, pillows, blankets, groceries, tools, etc.  

We arrived at my brother’s “cabin” which had now been doubled in size.  They had added a “room” that was bigger than all of Pat’s Cabin, finished the lower level to add a guest room and game room, and extended the deck – part of it now screened.  The entire place was wired for wi-fi, they had a satellite dish for their two large flat screened TVs and a kitchen with a granite-topped island and every possible appliance and convenience you could imagine.  

Over the weekend, we drank cappuccinos, red wine and lemon-flavored water from a specially designed infusion pitcher.  We cooked gourmet meals on a gas grill using recipes and instructions we popped up on the laptop. We took long walks along trails and gravel roads, but found no agates, instead concentrating on a new bird-watching app, even though we saw no birds that we didn’t already know.  When the dogs ranged too far, my nephew called them back (along with an assortment of neighborhood dogs) using his dog whistler app.  We used our cell phone lights (or flashlight app) to walk around at night, and joined the neighbors for a campfire where we listened to guitar music provided courtesy of iTunes®.  It was a clear night with lots of stars, so we used an iPad® to identify constellations using the GoSkyWatch Planetarium app .  

We all regularly checked emails and voice messages, paid bills on line, scheduled appointments and chatted with family members that were not with us that weekend.  Electronic games were played on every sort of electronic device.  NETFLIX® was our source for movies.  Everyone found some time to work on the jigsaw puzzle - during the day in the cool air conditioning with the drone of a golf match on the TV in the background, and at night in the warmth of the gas fireplace while eating microwave popcorn.  Entrepreneurs working diligently on technology to make our lives easier and more connected have made all of this possible and are hard at work on the "Internet of Things," although I'm not how I feel about that.

The weekend was relaxing--but it wasn’t magic.  And it definitely wasn’t unplugged. 

Tuesday, July 22, 2014

Will you still be an “accredited investor”?

The Securities and Exchange Commission (SEC) is considering changing the accreditation standards used to determine eligibility of investors to participate in private offerings. The current definition of accredited investor was created in 1982 and states that an individual must meet one of the three following criteria:

1. Have had an individual annual income of $200,000 for the past two years with an expectation that it will continue;

2. Have had a household annual income of $300,000 for the past two years with an expectation that it will continue; or

3. Have a net worth of at least $1 million, excluding a primary residence.

Since 1982, the SEC has made two changes to the requirements listed above. In 1988, the SEC added the $300,000 household annual income qualification, and in 2011, the SEC added the exclusion of one’s primary residence to the $1 million net worth threshold. If the current levels of income are adjusted for inflation, then an accredited investor would need (i) an annual income of approximately $500,000, (ii) a household with an annual income of approximately $700,000, or (iii) a net worth of approximately $2.5 to $3 million in assets.

Under the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC must review the definition of “accredited investor” every four years.  The SEC uses the income and net worth thresholds as a measurement for whether an individual has the ability to understand the inherent risks of investing in a private company. There seems to be an ongoing debate on the SEC’s role in regulating who can and cannot invest in private offerings. Should the SEC’s role not go beyond fraud? Is the SEC going too far and actually trying to protect investors from themselves?

Many in the capital raising community are against any changes to the current accreditation standards, and even some argue that there should be an additional qualification solely based upon one’s education or work experience. There are others who argue that there shouldn’t be any qualifications based upon income and net worth; rather we should allow individuals to make their own financial decisions regardless of whether they currently meet the standards or not. Their argument is based on the premise that one’s net worth isn’t directly connected to one’s financial sophistication. 

A change in the qualifications of an accredited investor could significantly decrease the number of eligible investors, and thus render capital raising for businesses much more onerous. According to the CEO of Mission Markets, Ken Marienau, approximately 7% of the United States population currently qualifies as an accredited investor. The General Accounting Office and the SEC estimate that an inflation-based adjustment to net worth would eliminate approximately 60% of the current accredited investors. Consequently, only approximately 3% (a 57% reduction) of the US population would qualify under the new accreditation standards. Increasing the income and net worth qualifications of an accredited investor could have a detrimental impact on startups, jobs, and the economy.

If you are interested in commenting on how or whether the SEC should revise the definition of “accredited investor”, click here

Tuesday, July 15, 2014

Peeping Drones and Google Glass—What’s Next? Get Your Free Guide to Privacy and Data Security

A Legal Guide to Privacy and Data Security, a new book offering guidance on a wide variety of privacy and data security laws and how those laws may impact your business, is now available from the Minnesota Department of Economic Development (DEED) and Gray Plant Mooty. The Guide, the product of a collaborative effort between DEED and Gray Plant Mooty, may help you to navigate more easily the complex and unpredictable legal landscape of privacy laws and regulations.

Google Glass, drones the size of a butterfly, secure microchips replacing magnetic stripes on credit cards, sensors the size of a grain of sand, automobiles that drive themselves, “Big Data,”  the so-called “Internet of Things”—all of these are already pushing the limits of privacy advocates, regulators, consumers, lawyers, and the businesses adopting these new technologies.

In 1890 Louis Brandeis wrote, in his seminal Harvard Law Review article entitled “The Right to Privacy,” that privacy is the “right to be left alone.”  Brandeis wrote this in response to the then-new and intrusive technology known as photography and the sensational and scandalous articles being written by journalists. 

Fast-forward to 2014.  Recently, the United States Supreme Court determined that police must obtain a warrant to search the vast amount of information on a suspect’s cellphone. In his opinion in Riley v. California, Chief Justice John Robert writes that cellphones “are now such a pervasive and insistent part of daily life that the proverbial visitor from Mars might conclude they were an important feature of human anatomy.”  

So how far have we come from a time when cameras alone were seen as intrusive to the current concerns of privacy advocates over drones and Google Glass?   

Minnesota businesses of all sizes collect, store, and share personal information about individuals. While new technology and access to information allows for greater innovation and delivery of products and services, it also creates a challenge. How does a business optimize the information available and remain in compliance with the evolving and ever-changing legal landscape? How does a business not compromise consumer privacy as more and more information is shared and collected? What about privacy rights of employees and prospective employees?

High profile data breach incidents such as those experienced by Target and other national retailers exemplify the need for businesses to take a serious look at data privacy and security issues and how they fit within their business operations. 

While it is impossible to become expert in all of the laws related to data privacy and security, it is important to understand what specific privacy laws apply to your business and to implement best practices appropriate for your business.

A Legal Guide to Privacy and Data Security is available without charge from DEED or Gray Plant Mooty. Or download an electronic version here