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RICHARDSON AND TYLER, LLP NEWSLETTER

Spring 2007

• Estate Planning and Incapacity
• "Earn Outs" and Business Law
• Real Estate, Zoning, and Buildable Lots
• Family Law, Taxation and Planning
• Estate Planning For Your Pet

Welcome!

Richardson and Tyler, LLP is pleased to bring you the spring edition of our 2007 newsletter.

This newsletter is to share new matters of general interest with our clients. It is not intended to provide legal advice. Please speak to an attorney before applying this information to your specific situation.

Estate Planning and Incapacity

Wills and Trusts are excellent estate tools to plan for the inevitable end of life. But don't overlook physical or mental incapacity, which is likely to affect the largest growing demographic group in the US: those aged 85 years and older.

With proper planning, you and your loved ones can control the process, rather than ceding control to the state or the courts. Important facts to keep in mind:

• The Patient Self Determination Act requires health care providers to ascertain your intent if you are a patient.

• A 1992 study determined that having a health care proxy or living will saved almost $65,000 per patient in the final stay in the hospital.

• A living will is a written directive, intended to govern when you can no longer speak for yourself. While not legally binding in Massachusetts, it is honored in some states.

• A health care proxy (also called a medical power of attorney) may be used to appoint a loved one to speak for you, when you can no longer speak for yourself.

• A change in marital status, such as a subsequent marriage or a divorce, may annul a health care proxy in some states – as would a death, of course. It is often prudent to name an alternate.

• The Uniform Anatomical Gift Act permits you to express your wishes simply with a declaration on your driver's license.

Concerned about how a proxy may use their legal power? We can provide a detailed directive, designed by the American Medical Association, that outlines numerous medical situations and possible treatment options. If you complete the directive and provide it to your proxy, your proxy will more likely be guided by your actual wishes, instead of having to guess what you intended.

"Earn Outs" and Business Law

Selling or buying a business? There are many factors to consider:

• Asset sale or stock sale?
• Cash or seller financing?
• How secure is seller financing if it is "behind" the buyer's bank?
• Where do non-competition and trade secret agreements fit in?

An "Earn Out" provision may be suitable in the right circumstances … is the Buyer concerned whether:

• Revenues will hold up or increase as expected?
• Key customers will stay with the business?
• Key managers or part owners will remain to boost profits?

A carefully crafted "Earn Out" provision can use key measurements to determine post-closing purchase price. A Buyer can be more comfortable "buying in" to a Seller's business plan and projections, and a Seller can receive a potentially larger sale price. Typical provisions would make payment amounts contingent upon variables such as:

• Net profits
• Gross profits
• Growth rates of revenues or profits
• Revenue levels
• Other measures

Sellers will want to assure transparency and control by:

• Insisting on GAAP accounting measures
• A degree of management participation
• Financial covenants
• Prohibition of transactions such as inter-company transfers that could adversely affect measurements

As with all such transactions, carefully consider tax treatment as well, to ensure that – whether capital gain, installment sales, tax free reorganization, or ordinary income – payments receive expected treatment by the IRS.

Real Estate, Zoning, and Buildable Lots

Do you have an oversized lot, or more than one lot? Many homeowners do.

Many people view that "extra lot" as a nest egg, which could be sold for retirement or used as a safety net in hard times.

But to landowners' dismay, if zoning laws change to increase the minimum lot size in your town or city, two lots could be combined into one lot.

How to protect your nest egg?

If lots are held by one owner, they may be "combined" for zoning purposes into one lot when minimum lot sizes are increased. Consider planning ahead by splitting them into separate ownership. Separately owned lots are afforded "grandfather rights" if zoning should change.

The Massachusetts zoning laws are exceedingly complex. The statutes are confusing – they have been interpreted differently by judges in different circumstances, and local bylaws vary. If you are in doubt, consult experienced real estate counsel.

Family Law, Taxation and Planning

We are often called upon to review a "simple" set of divorce documents. Careful review may result in good news and bad news.

The bad news may be that the divorce is not so "simple" after all.

The good news may be that a little re-structuring of the separation agreement can save money and avoid later headaches.

• Small business owners. The value of many businesses lies not in hard assets, but in their ability to generate income. Is your business counted as both an "asset" for division of assets purposes, and an "income source" for child support or alimony sources? If so, you may be penalized twice by "double dipping".

• Estate Planning. It is prudent to review your will, trust, and estate plan at such a time. Don't overlook other arrangements, such as life insurance pension plans, annuities, and IRA's. Your beneficiary designations should reflect your new circumstances.

• Debt and Credit Rating. Most separation agreements provide who will bear debt incurred during the marriage. However, the non-paying spouse may still be liable under a mortgage or guarantee or credit card agreement. If the paying spouse defaults, you may be liable. Even if there is no default, it is better to seek a release from the creditor. Otherwise, your credit rating and ability to borrow (for a new home, business, etc.) may be impacted for years to come.

• Income Tax. Have you checked the relative advantages of filing separately or jointly? Have you structured division of pensions and IRA's so they will be tax free?

The lesson? Even "simple" transactions can have effects on you, your business, and your life for years to come. Review by thoughtful counsel can pay dividends.

Estate Planning For Your Pets

Many of us know that a sweet meow, a wagging tail, or a lick on the face can boost spirits at the end of a long day.

Did you know that in the USA:

• There are 60 million dogs
• There are 70 million cats
• We spend $40 billion per year caring for them?

What are the benefits of pet ownership? Studies have shown that pets:

• Reduce patient anxiety before medical procedures
• Reduce cortisol (stress hormone) in blood levels
• Increase esteem and reduce fear levels in children

In return, pet owners provide food, water, shelter, medical care and love. Who will care for your pet upon your illness, death or incapacity?

What does the law say? The law views animals as "property", so special arrangements are necessary:

• A power of attorney may authorize use of funds to care for a pet.

• A trust may contain a clause authorizing funds for pet care or placement with a caregiver.

• A will or trust may provide clear instructions to your legal representative on your wishes regarding your pet.

Further information is available from your lawyer, or at the website of the Humane Society of the United States: www.hsus.org.

These materials are offered for information purposes only. Do not act or rely upon any of the resources and information available in or from this site without seeking professional legal advice. This material may be considered advertising under the rules of the Supreme Judicial Court of Massachusetts.