Helpful Legal Resources

Under ERISA, ”employers” must make all necessary contributions to multi-employer pension plans pursuant to the plans’ terms or the terms of a collective bargaining agreement. Every employee benefit plan must have a funding procedure and fully explain how and under what circumstances payments are to be made to the plan. If these responsibilities are not carried out or carried out in an untimely manner, a civil enforcement action can be brought against the plan or the employer. An “employer” is defined as “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.

Generally, a corporate director or officer will not be held personally liable for the company’s failure to make the required contributions because they are not usually considered as falling within the statutory definition of “employer.” There are notable exceptions. Personal liability has attached to an officer or director in the following circumstances: (1) the evidence showed that the officer or director defrauded the plan or conspired to defraud the plan of the required contributions and (2) the corporate veil was pierced because the officer or director acted as the company’s “alter ego.” Piercing of the corporate veil may be warranted when corporate formalities are not observed. Sloppy or inadequate record keeping may also justify piercing of the corporate veil. Use of corporate funds and assets for a director’s or officer’s personal benefit or to further a fraud or other wrongful activity may also expose the officer or director to personal liability.

ERISA did not totally preempt the field in the area of employee benefit plans. Thus, state laws may be another basis for imposing personal liability upon an officer or director for failing to make the required plan contributions.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

To carry out fully their duties and responsibilities to shareholders and the corporation, directors must be reasonably familiar with the workings of the corporation and have a general knowledge of how the corporation conducts its business. Directors are not expected to have superior knowledge about all business and financial aspects of the corporation, but they are assumed to have competent knowledge of the duties they have taken on when named to the board. A director is generally authorized under most state corporation codes and corporate bylaws to rely on information and reports of certain outside experts and qualified officers and employees when called upon to decide corporate matters of which the director has limited or no knowledge. Part of the duty of care requires the director to be diligent about protecting the corporation’s interest through the best means available.

A director may be held personally liable if he is ignorant of corporate matters due to neglect or if he fails to stay informed about corporate affairs. Gross inattention to corporate matters can make a director vulnerable to personal claims even if he or she abstains from a corporate transaction. If a director could have discovered that the transaction or activity was inimical to the corporation’s welfare in the exercise of reasonable care, the director may find himself defending against a claim of negligence or gross negligence. The Delaware Court of Chancery has indicated in a line of cases that directors may not be protected by the business judgment rule if they failed to act because they were ignorant of the operative facts. The standard by which the directors’ conduct has been measured is ordinary negligence.

In the wake of so many corporate scandals, directors who historically have been placed on boards to lend only their names or personal cachet must also beware. A “figurehead” director is not relieved of the duties and responsibilities of corporate directorship. Absenteeism, like ignorance, is not a viable defense to a claim of fiduciary breach.

Inexperience may also expose a director to personal liability. As stated above, directors do not have to be experts in every corporate matter. However, they are expected to obtain the information and knowledge necessary to act in the best interests of the corporation. The failure to act reasonably under the circumstances by obtaining the necessary information before making a business decision can be as much of a dereliction of duty as having the actual knowledge about a corporate matter and failing to act upon it.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

The Securities Act of 1933, enacted in response to the stock market crash of 1929, has been referred to as the “truth in securities” law. The Securities Act generally requires that companies selling their stock to the public must provide investors with full disclosure of material facts. Before offering their stock to the public, companies must file a registration statement with the Securities and Exchange Commission. The registration statement must include:

• A description of the property and business of the company;

• A description of the security being offered by the company;

• Disclosure concerning the company’s management; and

• Company financial statements certified by independent auditors.

The registration statements are examined by Commission staff for compliance with Commission regulations and are made public. While the Commission does not provide an evaluation of the stock being offered by the company, it does declare the registration statement effective if there has been compliance with Commission disclosure rules.

Exemptions

Various categories of stock offerings by companies are exempt from requirements of the Securities Act. Such exemptions include:

• Private offerings to a limited number of buyers;

• Offerings of limited size;

• Intrastate offerings; and

• Securities of federal, state, or local governments.

However, if the transaction involves a security that is being offered or sold and no exemption from registration is available, then that security cannot be offered or sold before a registration statement becomes effective. A broad view is given to the definition of “security” and even such items as time shares in a condominium have been considered securities. Any transaction which includes investment of money in a common enterprise designed to achieve profits through the efforts of others may be considered a security.

Willful violation of the Securities Act or of Securities and Exchange Commission regulations issued pursuant to the Securities Act can result in a prison term of up to five years and a fine. Such penalties have been imposed for the unlawful sale of unregistered securities and for the sale of securities through fraud. The Securities Act also provides purchasers with civil remedies for materially false or misleading registration statements or sales of securities without meeting registration or prospectus delivery requirements.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

Whether a company should “go public” by issuing and selling its shares to the public is a question that may merit periodic evaluation by new or private companies. Going public has positive and negative consequences that should be evaluated regardless of current trends.

Benefits

The most apparent benefit of going public is to obtain greater capital for the company. The company’s stock is presented to more potential investors, and the purchase and sale of the stock becomes more efficient. There are additional benefits from going public:

Public sale of the company’s stock increases awareness of the company and its products and may thereby increase the company’s sales and profits;

Future financing for the company may become more available as investor interest in the company increases;

A market for shares of controlling shareholders, including company officers and directors, is established, and those controlling shareholders are able to sell their shares more easily at retirement or when cash is needed;

The ability to offer stock options or other incentives tied to the company’s stock with a defined market value may allow the company to hire and retain better company employees;

The image of the company may be improved among investors and the public; and

Valuation of the company and its assets and the company’s market presence are more easily established in the event that the company seeks to use its stock in the acquisition of stock or assets of other companies.

New Obligations

On the other hand, going public creates new obligations for the company:

The public company has greater disclosure obligations and greater obligations under federal and state securities laws and regulations;

The public company and its officers and directors also may have greater potential liabilities arising from any failure to meet legal obligations;

Flexibility in managing company affairs may be lessened, and obtaining shareholder approval for company actions will require compliance with regulatory requirements such as providing proxy statements with independently audited financial statements;

Financial reporting requirements may become more stringent;

A public offering is a significant company expense, and a public offering normally will take at least a year to accomplish;

The additional obligations required of officers and directors of a public company may distract the company from its focus on its business; and

Going public may raise more concern over short-term results and make achievement of long-range plans more difficult.

While the pros and cons of going public should be considered periodically by private companies, public companies similarly may wish to consider the pros and cons of going private.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

 Shareholder Proxy Solicitation Rules

As the number of shareholders in a corporation has grown and as the shareholders have become geographically dispersed, the practice of soliciting their proxies for shareholder votes has developed. Such proxies make it easier to obtain a quorum at annual meetings of corporations required by state law and at meetings called to take special action. Section 14(a) of the Securities Exchange Act of 1934 was adopted in order to provide the Securities and Exchange Commission with authority to regulate the timing and content of solicitations of shareholder proxies.

Securities that are listed on stock exchanges such as the New York and American Stock Exchanges,

Over-the-counter securities that are held by 500 or more persons and are part of the equity of a company that has assets of more than $10 million,

Securities of registered public utility holding companies and their subsidiaries, and Registered investment company securities.

Proxy solicitations relating to unlisted securities of companies with listed securities are not covered by Commission proxy regulation unless the unlisted securities also are registered with the Commission. Commission proxy regulations also do not cover unlisted and unregistered securities.

The Commission through its regulation of a proxy solicitation does not intend to provide Commission approval of any recommendation for shareholder action in the proxy materials. Rather, the objective of Commission proxy solicitation regulations is to insure that shareholders are provided with sufficient information necessary to make an informed decision.

Holders of any type of corporate security that is registered are entitled to a required proxy information when their consent to some action affecting their security is solicited. Thus, holders of corporate bonds in addition to holders of corporate stock may be entitled to receipt of a proxy that meets Commission requirements.

Shareholders of a company may solicit proxies of other shareholders of the company. Due to the substantial cost that may be involved in such solicitations, the Commission has adopted Rule 14a-8. That rule provides that the company must include in its proxy statement solicitations by shareholders of the company to fellow shareholders if those solicitations meet various requirements regarding that timeliness of the solicitation, the subject of the solicitation, and the amount of securities held by the shareholder making the solicitation.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

Federal Rules of Evidence

In a lawsuit, both the plaintiff (the party suing) and the defendant (the party being sued) introduce evidence during the trial. Evidence refers to something submitted to the court to prove or disprove the truth of a factual matter being considered by the court. A case is decided using the evidence made available to the court.

Purpose and Construction of Federal Rules of Evidence

The goals of the Federal Rules of Evidence are to ascertain the truth and provide just determinations of legal disputes. The Federal Rules are to be construed to assure fairness in the administration of justice, reduce expenses, and eliminate delay.

Admissibility of Evidence

The Federal Rules of Evidence are the rules by which courts determine what evidence is admissible at federal court proceedings. There are four types of evidence: real (for example, a written contract in a civil trial or a murder weapon in a criminal trial), demonstrative (such as exhibits, photographs, maps), documentary (public records or other writings), and testimonial (a witness’s testimony at trial). The Federal Rules control what evidence can be admitted at trial. Generally, all evidence that is relevant (tends to prove or disprove the factual matter at issue) is admissible at trial.

Witness Testimony

The Federal Rules specify the proper form of examining and cross-examining a witness. The rules also provide for the testimony of expert witnesses.

Evidentiary Privileges

The Federal Rules of Evidence cover matters such as evidentiary privileges. An evidentiary privilege provides that a confidential communication made by a person in a protected relationship (such as a client to an attorney or a husband to a wife) does not have to be revealed in a lawsuit.

Hearsay

As a general rule, a statement made by a person out of court, which is being repeated by another person in court to prove the truth of the statement, is hearsay and will not be admitted by the judge. Such statements are considered unreliable because they are secondhand. There are various exceptions to the general rule that hearsay evidence is not admissible. The following are some exceptions to the rule against hearsay: dying declarations, declarations against interest, business records, spontaneous statements, certain public records, and prior testimony from a trial or deposition.

Burden of Proof and Burden of Persuasion

Other key provisions of the Federal Rules cover which party has the burden of proof or burden of producing evidence on a particular matter. The rules also specify which party has the burden of persuading the court or jury.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

Following incarceration, most convicted sex offenders are released to community supervision. Many states have enacted laws authorizing the maintenance of a central registry of sex offenders. Convicted sex offenders are required by law to register their residence in those states, and most states maintain a database of the registrations. The states make information about the offender available to the public. Some laws require the state to notify a community that a sex offender is residing in the community. Many states post their sex offender registry on the Internet.

Recidivism Rate of Sex Offenders

Recidivism — or repetition of the crime — by convicted sex offenders is an issue of particular concern. It becomes important to try to predict which specific offenders will commit subsequent sex crimes. There are three basic categories of sex offenders–males who sexually assault adult women, incest perpetrators, and child molesters. The level of violence involved in the sexual assault is an important variable within these groups.

The rate of recidivism varies among the groups. Studies show that male child molesters who assault young boys have a higher recidivism rate than those who assault girls. Similarly, child molesters have a higher recidivism rate than incest perpetrators. The overall recidivism rate is estimated at about 13 percent for convicted sex offenders. According to research, more than half of all sex offenders will not be rearrested for a subsequent sexual offense.

Treatment Programs and Community Supervision

Sex offender treatment programs have shown some reduction in the recidivism rate for sex offenders who complete the program. Studies have shown that those who do not complete treatment are more likely to become repeat offenders. Experts find that sex offenders who are under community supervision, coupled with treatment, are less likely to offend again. Special conditions that may be set for sex offenders’ community supervision include participation in a treatment program, no contact with the victim, no contact with anyone under 18 years of age, no work or activities where the offender will have contact with anyone under 18 years of age, and the avoidance of drugs and alcohol.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

Both state and federal judges are subject to standards of conduct known as codes of judicial conduct. Codes of conduct set out ethical standards of behavior to which judges must conform. Prior to 2002, several states had codes of judicial conduct that prohibited a candidate for judicial election from announcing his or her views on controversial legal and political issues.

Judicial Candidates Cannot Be Barred from Stating Political Views

In 2002, the United States Supreme Court ruled that Minnesota’s so-called “announce clause” violated the First Amendment’s right to free speech. The court held that the provision improperly restricted core political speech. Judicial candidates, including sitting judges who were running for office, could not be barred from making the public aware of their views on controversial political issues. The case was sent back to the court of appeals to decide the constitutionality of other standards of judicial conduct that also had been challenged in the case.

Four States Amend Codes of Judicial Conduct Regarding Judicial Campaign Speech

Arizona, Minnesota, Nevada, and New Mexico amended their codes of judicial conduct in 2003 to reflect the Supreme Court’s ruling. The new provisions say that judicial candidates cannot make pledges or promises with respect to controversies or issues that might come before them as judges. A provision was also added requiring disqualification if the judge has made a prior public commitment on issues that come before the court.

District Court Enjoins Enforcement of Kentucky’s No Pledge or Promise Provision

A citizens’ group filed suit after judicial candidates in Kentucky refused to answer a questionnaire prepared by the group. The questionnaire related to the judicial candidates’ views on the dignity and worth of human life and the family. The judicial candidates cited the code of judicial conduct’s no pledge or promise provision in refusing to answer the questionnaire. In October 2004, a district court in Kentucky issued a preliminary injunction prohibiting the enforcement of Kentucky’s no pledge or promise provision. The court stated that Kentucky appeared to be using the no pledge or promise provision as a substitute for an announce clause, which the Supreme Court had barred as unconstitutional.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

A lawsuit begins when a plaintiff (the party suing) files a complaint with the clerk of the court. The defendant (the person or company being sued) is given notice that a lawsuit has been filed and is “summoned” to appear before the court. Service of process means that the defendant is given notice of the lawsuit and served with or provided with a copy of the complaint that was filed. The plaintiff is responsible for service of a summons and the complaint on the defendant within the time allowed under the court’s rules. Constitutional due process requires that the defendant be given adequate notice of any lawsuit.

Ways Process Can Be Served On A Defendant

• Personal Service A copy of the summons (notice) and the complaint can be personally given to the defendant. If the defendant is a company, personal service can be made by serving the agent authorized by appointment or by law (usually the state’s secretary of state) to receive service of process.

• Residence ServiceResidence service is made by leaving a copy of the summons and the complaint at the defendant’s usual place of residence with a person of suitable age and discretion (not a young child) who resides there.

• Service by Certified MailIn certain situations, service of process can be made by sending a certified letter, with a return receipt request, to the defendant. The person delivering the certified letter signs the receipt and indicates the person to whom the certified letter was delivered, the date of delivery, and the address where the certified letter was delivered.

• Service by Publication For certain types of cases and if the residence of a defendant is unknown and cannot be located with reasonable effort, service can be made by publishing a notice of the lawsuit in a newspaper of general circulation in the county in which the complaint was filed.

Service by Regular MailIn certain situations, if the defendant cannot be located with reasonable effort, service can be made by mailing a first class letter to the defendant’s last known address.

Out of State Service and Service in a Foreign CountryCourt rules specify ways to serve process on a defendant who lives out of state or in a foreign country.

Waiver of Service of Process

A defendant can waive service of process or agree that formal service of process is not necessary. For example, an Ohio court rule provides that service of process can be waived in writing by a defendant who is at least 18 years of age and not under a disability.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

Statutes of limitations are laws that limit the time a person has to file a lawsuit after an event occurs that gives that person a legal claim. For example, in most states, a person who is injured in an automobile collision has two years after the accident in which to file a lawsuit. Ohio law allows a person 6 years to sue for breach of an oral contract and 15 years to sue for breach of a written contract. The Ohio wrongful death law requires a lawsuit to be filed within two years after the death occurs.

The underlying reasons for statutes of limitations are: to ensure fairness to the defendant (the person being sued); to encourage the prompt prosecution of claims; to suppress stale and fraudulent claims; and to avoid the inconvenience caused by delay , including difficulties in older cases of obtaining accurate evidence. Once the statute of limitations “runs” or expires, a person being sued can raise the defense of the statute of limitations. Any lawsuit filed against the defendant after expiration of the statute of limitations that applies to the lawsuit will then be dismissed.

Delayed Discovery Rule

The time period in a statute of limitations usually starts on the date of the injury or event that raises a claim. Under the delayed discovery rule, the statute of limitations does not start to run until the person filing the suit knows of or should have discovered the injury. For example, the delayed discovery rule has been applied to sexual abuse cases in Ohio. The one-year statute of limitations for sexual abuse does not begin to run until the victim recalls or discovers that he or she has been sexually abused. In one case, a victim of childhood sexual abuse had repressed the memories of that abuse until adulthood, and the statute of limitations did not begin to run until that time.

Tolling of Statute of Limitations

There are several instances in which the running of a statute of limitations can be “tolled” or legally suspended. For example, if a minor has a legal claim, the limitations period would not begin to run until the minor becomes an adult. The statute of limitations also may be tolled or suspended while the person having the legal claim is of unsound mind. If the defendant conceals himself or herself or is absent from the area in which the court has jurisdiction, the statute of limitations may be tolled until the defendant is located. Finally, if a defendant files for bankruptcy, the statute of limitations may be tolled until the bankruptcy is resolved.

Statutes of Repose

Statutes of repose set a time period after which a lawsuit cannot be filed for defects or hazards in products or buildings that have been constructed or for will contests in some states. A statute of repose extinguishes a claim after a fixed period of time, which is usually measured from the delivery of the product or the completion of the work. Statutes of repose can prevent lawsuits against the manufacturer of a product or the engineers, architects, and construction contractors who designed and constructed a building. A federal statute of repose provides generally that no civil action for death or injury arising from an aviation accident may be brought against the airplane manufacturer or the manufacturer of any new part of the airplane, if the airplane or part was more than 18 years old at the time of the accident.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

One confusing aspect of estate planning is the numerous myths about the co-ownership of bank accounts. The different types of bank accounts are often confused with the standard forms of property co-ownership. This article discusses some of the myths about the co-ownership of bank accounts.

A Bank Account Is a Contract With the Bank

There is a myth that a joint bank account is a particular form of co-ownership. The myth is not true because a bank account is a contract between the bank and its customer. A “joint” account does not necessarily represent co-ownership. When a joint account does represent co-ownership, it may mimic either a tenancy in common or a joint tenancy with right of survivorship.

Joint Accounts That Are Not Co-Ownership

There is a myth that all joint banks accounts involve co-ownership The myth is not true because businesses, especially corporations, commonly have bank accounts in which the signatures or two or more persons are required to complete a transaction. A signature card is prepared when a bank account is opened and maintained as long as the account is opened. The signature card specifies who has access to the account and under what conditions. Like a corporation, and individual can, in theory at least, agree with a bank that other persons may have access to, but not own, the account.

“And” Versus “Or” Accounts

Generally, a bank account may be either an “and” account or an “or” account. For an “and” account, the signatures or each person connected by “and” are required to complete a transaction. For an “or” account, the signature of any one person connected by “or” is sufficient to complete a transaction. The persons who are required to sign do not have to be the owners of the account.

Whether a bank account is an “and” or an “or” account, it may not represent co-ownership, and when it does represent co-ownership, it may mimic either a tenancy in common or a joint tenancy with right of survivorship. If the bank agrees that two or more persons are to be co-owners of the account, the signature card should explicitly identify them as such. If a bank agrees that the balance of the account is to be payable to the survivor, the signature card should explicitly designate “with right of survivorship.”

Payable On Death Accounts

One kind of bank account that is often effectively used in estate planning ins the payable on death account. It is a contract by which the bank agrees to pay the balance of the account at the owner’s death to the designated beneficiary. Though the account is not probate property, it is subject to estate taxes, but the designated beneficiary and creditors of the designated beneficiary have no control over the account until the owner’s death.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

A beneficiary should ask himself whether he wants to (or can) tend to the estate himself or whether he would rather delegate the responsibility to someone else. The larger the inheritance, the more likely a beneficiary will need professional advice. A six-figure inheritance or greater will probably change many things in a beneficiary’s life and he will need good advice for these changes. Even with a modest inheritance, a beneficiary is well advised to consult the most competent attorney and accountant that he can find. Even if a beneficiary only meets once or twice with professional advisers when he first receives his inheritance, their advice is critical to avoid future costs that may far outweigh what he pays now.

Choosing advisers is largely a matter of common sense. First, a beneficiary should look for honesty and integrity. Also important are intelligence and professional competence. A beneficiary may want to look into an adviser’s background and experience. A beneficiary should also question whether he feels comfortable with the adviser — is it someone who listens when he talks and who responds sensitively. An adviser should be willing to put a beneficiary’s interests first.

In order to find an adviser that possesses these traits, a beneficiary should ask other professionals for suggestions. At least two professionals in each category needed should be interviewed in order to provide a basis for comparison. Upon request, an adviser should provide references both from clients and from other professionals in his field. A beneficiary should also ask to see an adviser’s resume and should inquire about the information provided as to education, years of practice, memberships in professional organizations, and specialties.

Although not conclusive of poor professional behavior, a beneficiary may want to ask an adviser if she has ever been cited by a professional or regulatory governing body for disciplinary reasons. A beneficiary should straightforwardly ask an adviser if his inheritance is too large or small for the adviser to deal with. Compensation should also be discussed. In most situations, a straight fee arrangement (by the hour or project) assures a beneficiary of the independent judgment of the adviser. Exceptions to such arrangements include money managers and plaintiffs’ lawyers.

As the client who is paying the bills, a beneficiary should not be intimidated when interviewing potential advisers. Relatives and friends should be avoided as advisers because personal relationships may effect their ability to give detached professional advice. A beneficiary should also be careful about having relatives recommend their advisers because relatives may not want to relinquish information to each other. Cost should not be the sole focus of choosing an advisor. Instead, a beneficiary should focus on the quality and value of the advice he needs. It is important to note that a beneficiary should avoid working with an advisor that declines to hold full and open discussions on any professional matters that the beneficiary wants to discuss.

If an inheritance comes with advisers attached, a beneficiary should remember that the adviser’s loyalties may lie elsewhere. Each adviser should be met separately and asked about matters that concern the beneficiary. Other things being equal, a beneficiary may prefer advisors that are roughly his age. Proximity of advisors is also a concern that should be addressed when making a selection.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

As a general rule, a devise, a bequest, a legacy, or a trust in a will may benefit any person or legal entity. One major limitation is that is that a devise, a bequest, a legacy, or a trust in a will may not benefit a person or legal entity if it does not meet a condition imposed by the testator. Most conditions are routine, such as rewarding a child with more money if he or she attends college. Some conditions are more unusual, and so, special.

In Terrorem Clauses

A will provision may specifically disinherit any person or persons, including those persons who would technically be the natural objects of the testator’s bounty. The only limitation on such disinheritance is that a surviving spouse usually has a right to elect a statutory share of the estate against what, if anything, is left for the surviving spouse in the will. In other words, a surviving spouse can only be disinherited to the extent he or she can elect against the will.

The concepts of condition and disinheritance can be combined. In what is known as an in terrorem clause, a will may make a gift on the condition that the beneficiary of the gift not contest the validity of the will. A Latin phrase, in terrorem means “In fright or terror; by way of threat.” The threat is disinheritance. The idea is that although the beneficiary may feel that he or she is entitled to more of the testator’s estate, he or she will not risk losing what he or she has received by contesting the validity of the will.

An in terrorem clauses is always as effective as it may first appear, because if a court rules that the beneficiary had good cause for contesting the will, the court may also rule that the in terrorem clause is invalid due to public policy.

Powers of Appointment

Instead of putting conditions on a gift in an effort to control who inherits, a testator may give a trusted person the power to transfer particular property of the testator as the trusted person deems appropriate, after the testator’s death. Giving such a power is known as giving a power of appointment. In essence, a power of appointment allows the trust person to put conditions on a gift.

A general power of appointment gives the trusted person the power to transfer to anyone. A special power of appointment gives the trusted person the power to transfer to particular persons or within other limits. Again, a power of appointment given in will is not effective until after the testator’s death.

Nominating an Executor or Executrix

The next step beyond giving a trusted person the power to transfer particular property of the testator is the testator giving a trusted person the power to transfer property to a group (e.g., “my children”) divided as the trusted person deems appropriate. In essence, that is what happens when a testator leaves property in his or her estate to a group and nominates the person he or she wants to take charge of and administer his or her estate. Traditionally, if that trusted person is a man, he is known as an executor, and if that trusted person is a woman, she is known as an executrix. Under his or her power to administer the estate, the executor or executrix decides who gets what within the group.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

TOD or transfer on death registration of securities allows an investor to arrange for transfer of securities upon the investor’s death without the necessity of having the securities go through probate. The executor or administrator of an estate does not have to take any action regarding specific securities that have TOD registration or even entire accounts that have been set up with TOD instructions.

Beneficiaries of TOD-registered securities have to re-register the securities in their own names in order to trade the securities. Re-registration normally requires sending a copy of the original securities holder’s death certificate to the transfer agent for the securities together with an application for re-registration. The company that issued the securities may act as its own transfer agent. If not, the company should be able to identify the transfer agent for the company’s securities. Liquidation of a TOD-registered account also requires sending a death certificate for the account holder and an application by the beneficiary to the institution holding the account.

Almost all states have adopted (with some modifications in some instances) the Uniform TOD Security Registration Act to govern how securities may be registered so that the securities pass upon the death of their owner to a designated beneficiary. The uniform act was first proposed for adoption by states in 1989. Objectives of the uniform act include encouraging and protecting intermediaries such as mutual funds, banks, and brokers who adopt procedures for TOD registration of securities owned by customers.

The process of TOD registration can be as simple as registering a security or an account in the name of the investor “TOD” the name of the beneficiary. The letters TOD indicate that the security or the account passes to the beneficiary upon the death of the investor. TOD securities or accounts remain under the control of the investor, and the investor retains the right to re-designate the beneficiary or to remove the TOD designation entirely.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.

A trust has five main elements. First, a settlor transfers some or all of his or her property. Second, the property transferred by the settlor is designated trust property. Third, the trust property designated by the settlor is transferred with the settlor’s intent that it be managed by another. Fourth, the trust property designated by the settlor is transferred for management by a trustee. Fifth, the trust property designated by the settlor is managed by a trustee for the benefit of a beneficiary. This article discusses some aspects of the element of a trustee.

Competent Trustee

A trust is managed by a competent trustee. A competent trustee may be an adult capable of managing his or her own property. A competent trustee may also be a legal entity with the power to serve as a trustee (typically, a bank or trust company). In many states, the trustee must be a resident of the state in which the trust will be administered.

More than one person may be trustee. Such persons are known as co-trustees. One trustee may be followed by another person serving as trustee. A trustee serving after the named or original trustee is known as a successor-trustee.

No Named Trustee or Notification Required

A settlor is not required to name a particular person or legal entity as trustee. If the settlor has manifested the intention to create a trust, a trustee may be appointed by a court. If the named trustee cannot serve as trustee, a trustee may be appointed by a court.

In order to create a trust, the named trustee need not be notified. If the named trustee refuses to serve, a trustee may be appointed by a court.

Legal Relationship

The trustee holds the legal title to property transferred to the trust. The trustee is entitled to the ownership documents for the trust property and has the power to transfer trust property.

A trustee can engage in those acts permitted by the wording of the trust, and in those acts implied by those words and the existence of the trust. Indeed, a trustee is a trusted personal legal representative, a fiduciary, of the trust. As a fiduciary, the trustee has special duties and responsibilities. A trustee may be required to post a bond to reimburse any interested person damaged by any failure of the trustee to perform his or her duties faithfully.

After accepting the duties of a trustee, a trustee generally cannot resign without court permission, unless the trust provides otherwise. A trustee is entitled to reasonable compensation for his or her services to the trust.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.