Probate & Property - November/December 2024, Vol. 38, No. 6

WHAT LANDOWNERS NEED TO KNOW ABOUT SOLAR LEASES

Join us for the inaugural ABA Real Property, Trust and Estate Law Virtual Conference. This two-day program provides practitioners with the latest developments you’ll need to best serve your clients while earning up to 12 hours of MCLE credit.

This premier American Bar Association’s real property, trust and estate law conference will take place in Washington, D.C. May 8–11, 2024. The American Bar Association’s 36th Annual RPTE National CLE Conference is renowned for its exceptional business connection opportunities, innovative programming, and trending legal topics. We cannot forget about the late-

Upgrade your conference experience. As a premier registrant, you will gain exclusive access to the VIP Only Lounge, discounts on conference events, first access to reception, red carpet check-in area and gold

Interactive sessions led by industry experts. Business Connection Opportunities: Connect with fellow legal professionals. Innovative Trending Legal Content: Stay at the forefront of the real property

For trusts and estates attorneys, nationally recognized panelists will cover:

• practical planning strategies for a diverse range of clients

• the latest tax-related issues

• asset protection and business planning

• best practices for drafting engagement letters

Real property practitioners will learn negotiation skills and strategies in:

• purchase and sales transactions

• leases

• real estate financing

• title insurance

Our members have shared their feedback, and we’ve responded. This conference is tailored to deliver the same high-quality learning experience that was once exclusive to our in-person National CLE Conference. Now, busy lawyers can take advantage of this opportunity and gain insights from nationally recognized experts without the time and cost of travel.

Whether your focus is trusts and estates, real property, or a combination of both, this virtual conference will provide the essential information you need to stay up-to-date with the latest trends and developments in these areas.

AI IS MY PARALEGAL

A monthly webinar featuring a panel of professors addressing recent cases or issues of relevance to practitioners and scholars of real estate or trusts and estates. FREE for RPTE Section members!

Tuesday, November 12, 2024 12:30-1:30 pm ET

Tuesday, November 14, 2023

Register for each webinar at http://ambar.org/ProfessorsCorner

Register for each webinar at http://ambar.org/ProfessorsCorner

Register for each webinar at http://ambar.org/ProfessorsCorner

Tuesday, December 12, 2023

Tuesday, January 9, 2024 12:30-1:30 pm ET

DEATH AND TAXES: DYNASTY TRUSTS AND WEALTH IN AMERICA

ACCELERATING AND DE-ACCELERATING THE MORTGAGE NOTE

Technology has been assisting the practice of law for more than two decades, so why do recent advancements in artificial intelligence feel like a new frontier? Our panelist will discuss the features, benefits and pitfalls of a host of new AI products and how they may be of use in your trusts and estates and real property practices.

Tuesday, March 14, 2024 12:30-1:30 pm ET

Tuesday, May 14, 2024 12:30-1:30 pm ET

Moderator: SHELBY D. GREEN, Elisabeth Haub School of Law, Pace University

Panelists: JAMES C. SMITH, University of Georgia

DAVID ZIVE, Ballard Spahr

DANIEL DURRELL, Locke Lord TBA

REGULATION AND A FUNDAMENTAL RIGHT TO PRIVATE PROPERTY

Tuesday, June 11, 2024 12:30-1:30 pm ET

Tuesday, February 13, 2024 12:30-1:30 pm ET

Tuesday, April 11, 2024 12:30-1:30 pm ET

A monthly webinar featuring a panel of professors addressing recent cases or issues of relevance to practitioners and scholars of real estate or trusts and estates. FREE for RPTE Section members!

Register for each webinar at http://ambar.org/ProfessorsCorner

A Publication of the Real Property, Trust and Estate Law Section | American Bar Association

EDITORIAL BOARD

Editor

Edward T. Brading 208 Sunset Drive, Suite 409 Johnson City, TN 37604

Articles Editor, Real Property

Kathleen K. Law

Nyemaster Goode PC 700 Walnut Street, Suite 1600 Des Moines, IA 50309-3800 kklaw@nyemaster.com

Articles Editor, Trust and Estate

Michael A. Sneeringer

Brennan Manna Diamond 200 Public Square, Suite 1850 Cleveland, OH 44114 masneeringer@bmdllc.com

Senior Associate

Articles Editors

Thomas M. Featherston Jr. Michael J. Glazerman

Brent C. Shaffer

Associate Articles Editors

Robert C. Barton

Travis A. Beaton

Kevin G. Bender

Maria Z. Cortes

Jennifer E. Okcular

Heidi G. Robertson

Melvin O. Shaw

Bruce A. Tannahill

Departments Editor

James C. Smith

Associate Departments Editor

Soo Yeon Lee

Editorial Policy: Probate & Property is designed to assist lawyers practicing in the areas of real estate, wills, trusts, and estates by providing articles and editorial matter written in a readable and informative style. The articles, other editorial content, and advertisements are intended to give up-to-date, practical information that will aid lawyers in giving their clients accurate, prompt, and efficient service.

The materials contained herein represent the opinions of the authors and editors and should not be construed to be those of either the American Bar Association or the Section of Real Property, Trust and Estate Law unless adopted pursuant to the bylaws of the Association. Nothing contained herein is to be considered the rendering of legal or ethical advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. These materials and any forms and agreements herein are intended for educational and informational purposes only.

© 2024 American Bar Association. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Contact ABA Copyrights & Contracts, at https://www.americanbar.org/about_the_aba/reprint or via fax at (312) 988-6030, for permission. Printed in the U.S.A.

ABA

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All correspondence and manuscripts should be sent to the editors of Probate & Property

Probate & Property (ISSN: 0164-0372) is published six times a year (in January/February, March/ April, May/June, July/August, September/October, and November/December) as a service to its members by the American Bar Association Section of Real Property, Trust and Estate Law. Editorial, advertising, subscription, and circulation offices: 321 N. Clark Street, Chicago, IL 60654-7598.

The price of an annual subscription for members of the Section of Real Property, Trust and Estate Law is included in their dues and is not deductible therefrom. Any member of the ABA may become a member of the Section of Real Property, Trust and Estate Law by sending annual dues of $95 and an application addressed to the Section; ABA membership is a prerequisite to Section membership. Individuals and institutions not eligible for ABA membership may subscribe to Probate & Property for $150 per year. Requests for subscriptions or back issues should be addressed to: ABA Service Center, American Bar Association, 321 N. Clark Street, Chicago, IL 60654-7598, (800) 285-2221, fax (312) 988-5528, or email orders@americanbar.org.

Periodicals rate postage paid at Chicago, Illinois, and additional mailing offices. Changes of address must reach the magazine office 10 weeks before the next issue date. POSTMASTER: Send change of address notices to Probate & Property, c/o Member Services, American Bar Association, ABA Service Center, 321 N. Clark Street, Chicago, IL 60654-7598.

Check out our library of new real property, and trust and estate law books!

Buy-Sell Agreements: Valuation Handbook for Attorneys

Z. CHRISTOPHER MERCER

PC: 5431139

270 pages

Price: $149.95 / $135.95 (ABA member) / $119.95 (RPTE Section member)

Buy-Sell Agreements: Valuation Handbook for Attorneys contains new and important information that will help attorneys draft or revise buy-sell agreements for closely-held and family business clients. This book contains the most comprehensive treatment of valuation and valuation processes in buy-sell agreements available today.

americanbar.org/products/inv/book/444367035

Insurance Law for Common Interest Communities: Condominiums, Cooperatives, and Homeowners Associations

Second Edition

FRANCINE L. SEMAYA, DOUGLAS SCOTT MACGREGOR, AND KELLY A. PRICHETT

PC: 5431137

974 pages

Price: $179.95 / $161.95 (ABA member) / $143.95 (RPTE Section member)

This book offers comprehensive coverage of insurance-related topics involving common interest communities. It discusses and analyzes statutes, court decisions and policies on those topics and more. It is not only a useful reference tool for attorneys who represent common interest communities, but is also a valuable resource for community association managers, insurance producers, and common interest community boards.

americanbar.org/products/inv/book/ 434320656

Title Insurance, A Comprehensive Overview of the Law and Coverage

Fifth Edition

JAMES L. GOSDIN

PC: 5431129

1130 pages (and hundreds of pages of exhibits online)

Price: $229.95 / $206.95 (ABA member) / $183.95 (RPTE Section member)

Title insurance is an increasingly complex and critical factor in real estate transactions, and lawyers must be prepared to play equally critical roles as advisors to their clients. This updated and expanded edition provides practical tools and essential information for real estate attorneys who need to understand title insurance coverage.

ambar.org/titleinsrpte

Third-Party and Self-Created Trusts: A Modern Look

REBECCA C. MORGAN, ROBERT B. FLEMING, AND BRYN POLAND

PC: 5431135

370 pages

Price: $139.95 / $125.95 (ABA member) / $111.95 (RPTE Section member)

This significantly updated edition of Third-Party and SelfCreated Trusts explains the effect that governmental legislation has had on trust law and guides you through the maze of federal laws that affect planning for the elderly and disabled. Focusing on the effect of the Omnibus Budget Reconciliation Act of 1993 on trusts for older and disabled Americans, this guide includes the full text of this act and outlines how it affects the drafting of trusts, illustrated by a comprehensive chart showing OBRA 1993’s effect on nine commonly used trusts.

americanbar.org/products/inv/book/430506927

UNIFORM LAWS UPDATE

Practical Uses of Uniform Acts on Easements

The Uniform Law Commission (ULC) has promulgated two valuable acts governing the use and administration of easements: the Uniform Conservation Easement Act (UCEA), finalized in 1981 and revised in 2007, and the Uniform Easement Relocation Act (UERA), finalized in 2020. Twenty-five states and jurisdictions have enacted the UCEA, most recently the US Virgin Islands in 2006. The UERA has been enacted in four states, including Arkansas and Washington in 2023, and was introduced in Missouri in the 2024 legislative session.

First, the UCEA aims to provide states with a framework to step beyond the impediments imposed by the common law on the creation and administration of conservation easements. Under the common law, conservation easements are classified as negative (they limit the development of the restricted land) and in gross (the easement holder does not own an adjacent benefitted parcel). The common law fails to provide significant recognition of negative easements. Accordingly, the UCEA was drafted to allow parties to create conservation easements free of the restrictions of the common law and to prevent those burdened by a conservation easement from arguing that a novel negative burden improperly binds them.

In states that have enacted the UCEA, landowners can take advantage of the act’s clear parameters to create a conservation easement. Conservation easements create an opportunity for landowners to ensure that our precious natural resources are preserved and protected for future generations. In exchange,

Uniform Laws Update Co-Editor: Jane Sternecky, Legislative Counsel, Uniform Law Commission, 111 N. Wabash Avenue, Suite 1010, Chicago, IL 60602.

Uniform Laws Update provides information on uniform and model state laws in development as they apply to property, trust, and estate matters. The editors of Probate & Property welcome information and suggestions from readers.

landowners who create conservation easements are provided significant tax benefits: a conservation easement created in a UCEA state qualifies for the IRS’s conservation easement safe harbor.

To create a conservation easement, a landowner needs to contract with a conservation organization that will benefit from the easement. For example, a landowner who wishes to preserve a tract of their land near a waterway could sell or donate the rights to develop the land to a public or private conservation organization. Once the easement is created, the conservation organization ensures the land is not developed. Alternatively, conservation easements can have a narrower scope, such as setting water quality requirements or prohibiting timber harvesting. Under the UCEA, conservation easements can be created easily and tailored to individual landowners’ needs and goals.

Second, the UERA provides flexibility for landowners whose properties are already burdened by an easement. Under the common law, easements can be relocated only with the mutual consent of both the dominant and servient estate owners. Unfortunately, in states that have yet to enact UERA, the common law can lead to gridlock and land waste.

For example, a farmer may own an

easement that passes through the middle of a small undeveloped parcel, allowing the farmer access to a county road. Under the common law, if the landowner wants to build a home on the undeveloped parcel, construction may only be feasible if the farmer agrees to the relocation of the easement. Although the neighbors often cooperate and reach an agreement that both consider satisfactory, sometimes this does not happen—the farmer could withhold her consent for relocation indefinitely. In some cases, this power imbalance leads to extortion, with the farmer demanding a large sum to authorize the relocation, even if the newly relocated easement would not harm the farmer and could even result in a new, paved driveway to access the county road.

If this parcel is located in a state that has enacted UERA, the landowner could file suit and request the court to authorize the relocation of the easement. Several conditions must be met, however, for the relocation to move forward: the easement must be as useful after relocation as it is in the current location; there can be no increased burden upon the farmer; the easement must serve the same purpose as it did previously; and it cannot reduce the value or condition of the farmer’s property. If the court approves the relocation, then the landowner can begin constructing the new easement, but he must pay for all of the costs associated with the relocation and allow the farmer to continue to access her existing easement until the new easement is ready for use.

In states that have enacted UERA, attorneys can negotiate easements for their clients, understanding that these easements can be flexible to changing circumstances and new developments. For attorneys whose clients have land burdened by an easement and wish to relocate, UERA creates a new tool to foster cooperation between the parties. n

What Landowners Need to Know about Solar Leases

By Paxson C. Guest and Randy P. Roussel

More and more landowners are being approached by developers seeking to lease their properties for the development of solar energy facilities—a trend that will continue as state and local government policies become friendlier to renewable energy sources. If approached regarding a solar lease, there are many things landowners should consider before signing on the dotted line. Some of the most important lease issues are discussed here.

The Term

A solar lease creates a long-term legal relationship between the landowner and the solar company. There are typically two separate periods of time set out in the lease: an option period and a lease period. During the option period, which is usually three to five years from the date the lease is signed, the solar company will conduct its due diligence regarding the feasibility of its solar project on the landowner’s property. A solar company’s diligence activities will involve, among other things, evaluation of the physical characteristics of the site, legal and regulatory hurdles to the project, evaluation of the title to the real property, and the project’s eligibility for local, state, and federal tax incentives. The solar company also will use this time to secure an interconnection agreement governing the project’s ultimate connection to the utility grid and a power purchase agreement.

If, after conducting its due diligence and feasibility analysis, the solar company is convinced that its project will be successful, it will exercise its option to lease the landowner’s

property for the construction and operation of its solar facilities, at which point the lease period will begin. The lease period is typically 25–30 years from the exercise of the option. Most leases also give the solar company the option to extend the lease period for up to 15 additional years. Thus, signing a solar lease creates a relationship with the solar company that could last 50 years or longer.

Because of the long-term nature of the relationship, it is important for landowners to perform their own due diligence before signing the document. For starters, the landowner should (i) have a thorough understanding of the terms of the lease and how they will affect the landowner’s own use and enjoyment of the property; (ii) conduct background research on the reputation, track record, and financial strength of the solar company; and (iii) discuss the potential lease with anyone else who has an interest in its effect on the property, including those who stand to inherit the property. Further, if the lease has been negotiated through an intermediary, such as a landman, it is important to understand and potentially limit the lessee’s rights to assign and sublease.

Use and Enjoyment of Landowner’s Property

The Option Period

During the option period discussed above, the solar company will have access to the landowner’s property to carry out its due diligence activities. The landowner should confirm whether the terms of the lease allow for the landowner’s continued full use and enjoyment of the property during this time, subject only to the solar company’s access for due diligence activities. Further, the landowner should confirm whether the solar company’s permitted access and activities are limited such that they will not unreasonably interfere

Paxson C. Guest is an associate at Phelps Dunbar in Baton Rouge, Louisiana. Randy P. Roussel is a partner at Phelps Dunbar in Baton Rouge, Louisiana.

Landowners should think carefully about what might happen if the solar company chooses to lease only a portion of the property and leaves the landowner with a tract of unleased property with no value.

with the landowner’s use and enjoyment of the property.

The Lease Period

During the lease period, the landowner’s rights to use the leased property will be severely limited. The solar company will require near complete control of the leased property to protect its solar project and prevent interference with its operations. In effect, when it comes to the landowner’s ability to use the leased property, a solar lease is akin to a sale of the property. It may be possible, however, to negotiate some retained rights to use the property, including limited agricultural uses. For example, in some parts of the country, landowners have successfully negotiated the right to plant certain crops that will not grow to heights capable of blocking sunlight from reaching the solar panels, a practice known as agrivoltaic farming. Other landowners have negotiated the right to graze certain animals, like sheep, that pose no threat to the company’s equipment. This practice is known as solar grazing and has the added benefit to the solar company of maintaining the vegetation surrounding the company’s solar panels.

Although agrivoltaic farming and solar grazing are likely the future of the industry, they have not been widely adopted as of the date of this article.

The solar lease should contemplate the future use of the property for such purposes, including a determination as to who will have the right to use the property for these purposes and to whom the revenue derived therefrom will be owed.

Landowners should be aware that the solar company could exercise its option at any time during said period, at which point the lease period will begin and the landowner’s use of the property will become severely limited. Because of this possibility, the lease should address what will happen to any unharvested crops or standing timber on the property at the time the option is exercised, as well as how any existing leases, including agricultural or hunting leases, or other occupancies on the property will be handled.

Landowner’s Adjacent Property

In addition to the restrictions placed on the landowner’s ability to use the leased property during the lease period, the solar company will seek to place certain restrictions on adjacent property owned by the landowner. For example, solar companies will seek to prohibit the construction of buildings and planting of timber that will interfere with the panels’ access to the sun. They also will seek to prevent any activities that generate dust, which can coat the panels and

interfere with the facility’s operations. They also may seek to restrict hunting activities in the vicinity of the facilities. The landowner should be aware of these restrictions and how they will affect the use and enjoyment of any adjacent property during the lease period. It also should be noted that the leased portion of the property will likely be surrounded with high fencing to protect the solar infrastructure. Such fencing could interfere with the free movement of wildlife and thus affect hunting on adjacent land, even if hunting rights are reserved.

The Leased Property

Because of the fluctuating nature of a solar company’s project plans and designs, the typical solar lease is drafted to give the solar company the right to lease all or a portion of the property subject to the lease option. Rent will be paid based only on the number of acres actually leased. (See discussion below under Payment Terms.) Thus, landowners are left to guess what their annual rental income will be until the solar company exercises its option and decides on the location and dimensions of the leased property.

Landowners should think carefully about what might happen if the solar company chooses to lease only a portion of the property and leaves the landowner with a tract of unleased property with no value, whether economic or otherwise. For example, what if the solar company’s chosen portion results in access to the balance of the property being cut off? What if the unleased portion is irregularly shaped and thus rendered useless? It should be noted that the solar companies often exclude wetlands, setbacks, ravines, existing pipelines, and other unusable portions of the property. Landowners should keep in mind that any part of the property the solar company chooses not to lease will automatically become subject to any restrictions affecting the landowner’s adjacent property, as discussed above.

Payment Terms

During the option period, the solar

company will pay “rent” to the landowner on a per-acre basis for the entirety of the subject property. Likewise, during the lease period, rent will be paid on a per-acre basis, but only for the actual number of acres leased. The landowner might want to consider negotiating for rent during the lease period to be based on a minimum number of acres, regardless of the number of acres actually leased by the solar company. The amount of rent will vary based on several factors, including the underlying value of the land. Lands that bear significant potential for future development will command higher rents. It should be noted that rent during the option period will be significantly lower than rent paid during the lease period.

As a hedge against inflation, the lease should include a rent escalator, which will operate to increase the amount of rent paid each year by a percentage stated in the lease. The typical inflation escalator is two percent, which is based on the Federal Reserve’s target goal for inflation. It should be kept in mind, however, that if the consumer price index increases more than two percent per year, the actual value of the

rent payments will decrease over time. Landowners might consider additional protection from such an occurrence, especially given the current inflationary environment. Land values will fluctuate over the lease period as well, so the landowner should carefully consider whether the rent escalator will adequately protect them over the years.

Unlike mineral leases, solar leases typically do not contain royalty clauses. Landowners may wish to begin pushing for royalties as a way to participate in the solar companies’ revenues from the sale of electricity. A royalty clause would likely be structured similarly to those found in mineral leases, i.e., with a guaranteed minimum payment. It should be noted, however, that calculation and verification of the amount of gross revenues from solar operations on a given property may prove difficult, which may be why royalties have not been offered at this time.

Crop Damages

In many instances, the property under negotiation is being used for agricultural purposes and, in many cases, is subject to an agricultural lease. Upon exercise of its option, the solar company

will want to begin construction of the solar facilities in short order, which may result in the loss of unharvested crops or timber. It is important that the landowner and any tenant farmer receive fair compensation for such losses. The primary way to ensure protection is by establishing a workable formula for the calculation of damages owed to the landowner and any tenant farmer in the event of an exercise of the option. It also should be noted that there may be interim crop damages during the option period resulting from the solar company’s diligence activities. The landowner should be clear about the terms related to the developer’s responsibility for damage during that period in addition to the above payments for crop losses on the commencement of construction.

Mineral Rights

Solar companies likely will request that landowners waive their rights to explore for and extract minerals from the subject property. This is known as a waiver of “surface rights.” Solar companies will seek such a waiver to protect the solar project from disruption by a mineral operator with superior rights. Although it is necessary for the solar company to

A solar panel has a useful life of approximately 30 years and could release hazardous materials once it no longer produces energy.

protect its project, solar companies frequently agree to set aside designated pad sites for the exploitation of minerals. Landowners requesting that pad sites be set aside should also be sure to retain rights for pipelines or collection facilities for transportation and marketing of the minerals. Where a landowner has conveyed its mineral rights to another party (or where mineral rights have been reserved by a previous owner), the landowner should take care not to waive rights it does not have or make false representations in the lease regarding such ownership. A waiver will need to be obtained from the actual “owner” of the mineral rights.

Property Taxes

The landowner may desire to include a clause placing responsibility on the solar company for any increases in property taxes resulting from the solar company’s development of the property. Additionally, the landowner should consider the effect of leasing the property on any existing agricultural or other special-use tax exemptions. Considering the severe limitations on the landowner’s use of the leased property, the landowner may lose some or all tax exemptions previously held. The landowner also should consider whether the presence of the solar facility will increase the ad valorem property taxes for the unleased portions

of the property. As stated above, a solar lease is functionally akin to selling the land. The landowner retains little to no right to use or control the property. Thus, it may be reasonable for the solar company to bear the tax burden and assume payment of ad valorem taxes or an increase thereto.

Removal and Clean Up

A solar panel has a useful life of approximately 30 years and could release hazardous materials once it no longer produces energy. If the operator is no longer solvent at the end of the lease period or other termination of the lease, the costs to remove the solar facilities and restore the property will fall on the landowner. Many jurisdictions have imposed statutory and regulatory obligations upon developers related to decommissioning obligations and security related thereto. The lease should clearly identify the party responsible for restoration of the property and provide for adequate financial assurances of performance. A lack of certainty in the regulatory environment intensifies the need for clear lease terms.

A removal bond provides the landowner security for the removal of improvements on the property and addresses the landowner’s concerns for restoration of the property upon expiration or early termination of the lease. Typically, the lease sets forth an

agreed-upon date for the solar company to post the bond. Solar companies will seek a bond postage date in the distant future to avoid tying up funds for an extended period of time. A landowner, however, might seek a bond postage date earlier in the lease term to reduce risk. In the interim (i.e., between the commencement of the lease and the posting of the bond), the landowner might seek a letter of credit or a guarantee from a creditworthy entity based on a reasonable estimate of the cost of removal and restoration of the property pursuant to the lease’s restoration clause. The lease often will include a dispute resolution provision for determining the value of the bond.

Assignment and Subletting

A landowner should be aware of the developer’s rights to assign the lease or sublease the leased property. A potential assignee or subtenant should be capable, financially and otherwise, of performing the developer’s lease obligations. A landowner might seek to allow assignments only to parties designated as qualified assignees.

Letter of Intent

Solar developers approach lessors with a complex lease prepared by the developer. Although some industry groups have suggested standard lease forms that strike a middle ground, the markets have not yet adopted this approach. Before engaging in costly negotiations over detailed, complex lease provisions, landowners may want to begin by negotiating a nonbinding letter of intent covering the most contested issues— rent, whether a minimum number of acres must be subject to the exercise of the lease, and the financial assurance for decommissioning costs, among other high-level terms.

This article provides insight into some of the key considerations for landowners regarding solar leasing. It should be remembered, however, that when it comes to complex legal documents, the devil is always in the details. There is no substitute for having an experienced professional review and negotiate the terms of a proposed lease. n

NEW RPTE PUBLICATIONS

LITIGATING ADVERSE POSSESSION CASES: PIRATES V. ZOMBIES

By Paul Golden

2024, 279 pages, 6x9 Paperback/ebook

PC: 5431138

Price: $119.95 (list) / $95.95 (RPTE Members)

Can a neighborhood Napoleon simply take over, and become the owner of, another neighbor’s property? Any attorney even considering approaching an adverse possession case, regardless of which side, must start here. This is the first known book that focuses on just this issue—and from the litigator’s point of view. It is a one-stop shop for practitioners, with not only full descriptions of the ins and outs of the elements and potential defenses, and sample pleadings, but also various practical tips, tricks, clues, and ideas for successfully litigating these unusual cases.

“Who would believe that a thirty-eight-chapter deep dive into every aspect of litigating adverse possession —that hoary doctrine that somehow transforms trespass into ownership—could also be an engaging and accessible read? Paul Golden has somehow pulled it off. This erudite and comprehensive volume will prove truly invaluable for practitioners as well as academics and students engaging with one of the most enigmatic, yet practically important, areas of property law.”

Nestor M. Davidson

Albert A. Walsh Professor of Real Estate, Land Use and Property Law, Fordham Law School

“Paul Golden’s book is a gold mine for any lawyer litigating an adverse possession case. The book collects cases on every aspect of adverse possession doctrine, and does far more than survey standard problems that complicate adverse possession law. Golden examines the peculiarities of local law in many states and outlines a variety of defenses available to adverse possession litigators. To top it off, Golden’s refreshingly breezy style makes it easy to digest the valuable information he doles out.”

Stewart Sterk

Mack Professor of Law at the Benjamin N. Cardozo School of Law of Yeshiva University

KEEPING CURRENT PROPERTY

CASES

CONSTRUCTION CONTRACTS:

Subcontractors are not third-party beneficiaries of subrogation waiver in development agreement between general contractor and tenant. Duke Baltimore LLC and Amazon entered into a development agreement, under which Duke would build a warehouse on its land and lease the building to Amazon. The development agreement allocated responsibility to Duke for “Landlord Improvements” and to Amazon for “Tenant Improvements,” for which Amazon would hire its own contractors. Section 12.4 of the Development Agreement contained mutual waivers of subrogation; neither party would be liable to the other or their insurers by way of subrogation or otherwise for any loss of, or damage to, the property. Duke’s contracts with its subcontractors also contained subrogation waivers. After Amazon took possession of the building, a storm blew the roof off, which caused the walls to collapse, resulting in substantial losses. Amazon’s insurer paid $50 million to Amazon and then filed a claim by subrogation against four of Duke’s subcontractors based on negligence in the construction. The subcontractors answered, asserting the subrogation waivers as a bar to the action. The trial court ruled the subcontractors could enforce the waivers against the insurer, but the appellate court reversed. On further appeal, the supreme court affirmed in part and remanded. It began by stating that contract meaning is that which a reasonable person would understand the terms to suggest, but in context and

Keeping Current—Property Editor: Prof. Shelby D. Green, Elisabeth Haub School of Law at Pace University, White Plains, NY 10603, sgreen@law.pace.edu. Contributor: Prof. Darryl C. Wilson.

Keeping Current—Property

offers a look at selected recent cases, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

construed as a whole. In addition, the court explained that at common law, only the bargaining parties had the right to enforce contract provisions. Although the third-party beneficiary theory has emerged recently to allow a non-party to enforce contract rights, that status must be shown by clear words or intent. Here, the court found that the Development Agreement, and specifically Section 12.4, was between two parties—Amazon and Duke—and nothing suggested an intent to benefit any third party. Nonetheless, the court found language in the subcontract waivers, specifically that “no party shall be liable to another party or to any insurance company,” to be ambiguous because the words suggested that the waiver might apply to more than two parties, even as it did not identify who, beyond the two parties to each of the subcontracts, those parties might be. Resolution of the ambiguity required remand. The court went on to reject the subcontractors’ plea to find “projectwide” waivers on public policy grounds; Amazon and Duke were free to not require a project-wide waiver of subrogation. Lithko Contr., LLC v. XL Ins. Am., Inc., 318 A.3d 1221 (Md. 2024).

DEEDS: Undue influence to set aside deed is not established merely by personal relationship. Marlin Geerdes died in 1999, leaving his 60-year-old wife, Janice, who lived on her own, supported by the rental income from two farm

properties of 150 and 80 acres respectively. Albert Cruz, who was initially a seasonal worker, became a family friend who rented a house from the Geerdeses early in the 1990s and later lived with his family in a house near the farm. Albert and Janice worked together in various endeavors, and in 2004 they agreed to a partnership to raise hogs. In furtherance of their agreement, Janice deeded 9.64 acres to herself and Albert as tenants in common. In 2017, Janice underwent cognitive testing, and again in 2018 at age 78 with the results indicating the onset of dementia. In 2019, Janice executed a quitclaim deed transferring her interest in the 9.64-acre hog site to Albert for no consideration. In 2020, Janice’s daughter, Laura Jenkins, brought suit to set aside the deed, alleging undue influence and lack of capacity. The trial court ruled for Laura on both grounds. A divided appellate court affirmed based on lack of capacity, and Albert appealed. The supreme court reversed. The court identified four elements necessary for a finding of undue influence, namely (1) a grantor’s weakened mental condition, (2) a confidential relationship, (3) an unequal disposition of property, and (4) a result that clearly appears to be the effect of undue influence. The court found the facts did not establish a confidential relationship between the parties or reflect undue influence. The record reflected that Janice took advice, not solely from Albert, but also from her daughters, one of her farm tenants, and others. Additionally, Albert was almost illiterate, was not a family member, lived apart from Janice, and did not handle any of the business for the partnership. The court stated that family and personal ties are not enough to create a confidential relationship and raise the prospect of undue influence when one has not trusted another to handle their personal affairs. At the same time,

a party alleging lack of mental capacity carries the burden of proving the grantor failed to possess sufficient consciousness to understand the import of her actions when signing the deed. Mere mental weakness will not invalidate a deed. Thus, while Janice’s mental assessments raised questions about her mental capacity, they did not foreclose the possibility that she knew what she was doing when she executed the deed. Similarly, the improvidence of a transaction, while noteworthy, is not dispositive for purposes of mental capacity at the time of a deed’s execution. Jenkins v. Cruz, 7 N.W.3d 22 (Iowa 2024).

EQUITABLE SUBROGATION:

Mortgage lender paying off prior debt assumes priority of earlier lender absent culpable negligence in not finding intervening judgment lien. In 2004, Brown received a mortgage loan from First Horizon Home Loan Corporation. In 2010, a judgment was entered against Brown, reflected by a judgment lien later recorded by United General Title Insurance Company in 2014. In 2016, Brown refinanced her loan with Nationstar Mortgage, which paid off the First Horizon balance of $219,873. Brown also signed an owner’s affidavit stating there were no outstanding liens on the property. The new loan was recorded in 2016. In 2019, United began enforcement to collect Brown’s

debt. Brown’s property was seized, an execution sale was held, and Brown’s daughter successfully bid $102,900 to satisfy the judgment. In 2020, Nationstar’s successor, MidFirst, sued to quiet title, arguing that under the doctrine of equitable subrogation, the Nationstar mortgage still encumbered the property even after the execution sale. The trial court granted summary judgment to MidFirst, but the appellate court reversed, finding Nationstar’s mortgage became effective in 2016 after the 2014 recording of the judgment lien, meaning it was extinguished by the execution sale. That court found equitable subrogation inapplicable. Nationstar was not excusably ignorant because the United judgment lien was publicly recorded. The supreme court reversed and remanded, holding that the appellate court used an improper standard regarding equitable subrogation. The general rule is that when money is expressly advanced to extinguish a prior encumbrance, the new lender is subrogated to the prior lender’s rights, The new lender is treated as the assignee of the prior loan whenever necessary to prevent junior encumbrancers from accidentally being raised to the dignity of a first lien. The court recognized exceptions to the rule, specifically its unavailability to volunteers and claimants who are guilty of culpable negligence or when relief would prejudice a junior lienholder. Nationstar was not a volunteer, and United was junior to First Horizon, and thus to Nationstar and its successor, MidFirst, under the equitable subrogation rule. Otherwise, United would attain the status of the first lienholder as opposed to remaining in its original position. But,

if Nationstar was culpably negligent relative to United’s recorded judgment, it would not gain priority. As such, reversal and remand were in order so the parties could present specific evidence regarding this issue, including facts concerning the title search and the monetary differences in the transactions. MidFirst Bank v. Brown, 900 S.E.2d 876 (N.C. 2024).

ESCROW ACCOUNTS: State law requiring banks to pay interest on escrow accounts for mortgage loans may not be preempted by federal banking law. Two borrowers with mortgage loans from Bank of America sued the bank for its failure to pay interest on funds held in escrow for purposes of paying taxes and property insurance. A New York statute requires the payment of interest at the rate of two percent per annum, but the National Bank Act, under which the bank is chartered, does not. The bank argued that the federal law preempts the state law. The district court rejected the preemption claim, but the Court of Appeals for the Second Circuit reversed, ruling that federal law preempts any state law that “purports to exercise control over a federally granted banking power,” regardless of “the magnitude of its effects,” and that because the state interest-on-escrow law “would exert control over” national banks’ power “to create and fund escrow accounts,” the law was preempted. The Supreme Court vacated the Second Circuit ruling and remanded for consideration of the preemption test prescribed by the Dodd-Frank Act. The Court explained that Dodd-Frank, 12 U. S. C. §25b(b) (1)(B), enacted after the financial crisis of 2008, expressly incorporated the standard that the Court earlier articulated in Barnett Bank of Marion County, N. A. v. Nelson, 517 U. S. 25 (1996). In Barnett, the Court ruled that whether a non-discriminatory state law was preempted depended on whether the state law “prevents or significantly interferes with the exercise by the national bank of its powers.” The Court discussed the foundational cases for the Barnett test in which preemption was found,

04/01/2021

The hog farm in Jenkins v. Cruz, courtesy of Shaun A. Thompson, Newman Thompson & Gray P.C., Forest City, Iowa.

such as when a Florida law by its terms prevented a bank from selling insurance even as the National Banking Act expressly conferred that power; and in which preemption was not found, such as when a state law required a national bank to turn over abandoned funds to the state. The Court identified cases on both sides of the dynamic as guideposts for lower courts in making the determination. Here, the Second Circuit did not apply the Barnett analysis; instead, it relied on a line of cases going back centuries to distill a categorical test that would preempt virtually all state laws that regulate national banks, at least other than generally applicable state laws such as contract or property laws. That was an error. Cantero v. Bank of Am., N.A., 144 S. Ct. 1290 (2024).

FORECLOSURE: Res judicata does not bar trial court on remand from revisiting order of strict of foreclosure in favor of foreclosure by sale. In 2003, Wahba obtained a loan secured by a mortgage on her shorefront property. After Wahba defaulted and failed in her attempt to obtain a loan modification, she sued the lender, alleging deceptive and unfair trade practices, and the lender counterclaimed for foreclosure. Wahba lost on both claims, and the court ordered strict foreclosure, which resulted in the lender retaining the property with no foreclosure sale. In 2018, the court determined that the fair market value of the property was $6.7 million with an outstanding mortgage balance of $6,179,200, plus fees and expenses of $121,306. Before law day, Wahba appealed to the appellate court, which affirmed the lower court’s judgment and remanded “solely for the purpose of setting new law days.” On remand, the lender moved the court for new law days, but Wahba objected, arguing that foreclosure by sale was appropriate due to the steep rise in property values since the original judgment of strict foreclosure. The trial court rejected the argument, ruling that it was bound by the appellate court’s order. Wahba appealed again to the appellate court, which ruled against her, stating that when an

appellate court has affirmed a judgment of strict foreclosure and remanded for the setting of new law days, the trial court cannot deviate from that direction. Wahba appealed to the supreme court, and the lender argued that the claim was barred by res judicata. The court reversed, explaining that when a reviewing court remands the case to the trial court for the setting of new law days, mechanically applying the doctrine of res judicata to bar the trial court from modifying the judgment of strict foreclosure in any other respect would “frustrate other social policies based on values equally or more important than the convenience afforded by finality in legal controversies.” Instead, when an appellate court affirms and remands to the trial court with direction to set new law days—perhaps years after the original judgment—unless expressly prohibited by the remand order, the trial court should make a new finding as to the amount of the debt and to determine whether foreclosure by sale is appropriate. Wahba v. JPMorgan Chase Bank, N.A., 316 A.3d 338 (Conn. 2024).

HOMEOWNERS’ ASSOCIATIONS:

Payments of dues to homeowners’ association are allocated to superpriority lien to preserve first deed of trust. Swaggerty failed to pay several months of dues to his homeowners’ association (HOA). With collection costs, late fees, interest, and other charges, they quickly added up to $523, at which time the HOA’s foreclosure agent and trustee, Nevada Association Services (NAS), filed a notice of lien. Swaggerty filed for bankruptcy and set up a payment plan, sending $91 (one month’s dues) directly to the HOA. After the bankruptcy plan failed, in 2009 Swaggerty entered into a payment plan with NAS, pursuant to which he sent $500 to NAS. Of the $500, NAS kept $125 as a set-up fee, sent $125 to a title company, sent $125 to a posting company, and forwarded $125 to the HOA. Swaggerty characterized the $500 as a “down payment” on his arrears. The next month he sent another $500 to NAS, which allocated it in the same fashion. Over the next

two years, Swaggerty made further payments, with $220 being applied to the delinquent superpriority portion of the HOA dues. In Nevada, up to nine months of unpaid HOA dues constitute a superpriority lien on a property, taking priority over other interests, including deeds of trust. Nev. Rev. Stat. §116.3116(3((b). Even though Swaggerty complied with their agreement, the HOA nevertheless moved to foreclose on the lien. At a public sale in 2014, SFR Investments Pool 1, LLC purchased the property for $56,000; at the time the home was valued at approximately $441,000. Swaggerty’s lender, the holder of the first deed of trust, brought a quiet title action asserting that Swaggerty’s payments had satisfied the superpriority portion of the lien, such that the first deed of trust survived the HOA foreclosure. The trial court ruled that $235 of the superpriority lien remained unsatisfied, which meant that the HOA foreclosure extinguished the first deed of trust. The supreme court reversed, finding the trial court erred in applying the test articulated in 9352 Cranesbill Trust v. Wells Fargo, N.A., 459 P.3d 227 (Nev. 2020). There, the supreme court stated that in making the proper allocation of HOA fees, an HOA may not, without express direction from the homeowner, allocate the payment to forfeit the first deed of the trust holder’s interest and deprive the homeowner of ownership of the home. The court must consider principles of justice and equity, which presume that the superpriority lien is paid first unless the court has a compelling reason to conclude otherwise. Here, the first payment of $91 was sent directly to the HOA and covered current dues; of the second $500 payment, although a portion was properly allocated to setting up the plan, the remaining amount was required to be applied to the superpriority lien and this sum added to the later $220 agreed to arrears payment, meant the lien was satisfied. The foreclosure did not extinguish the first deed of trust, and SFR took possession of the property subject to it. Deutsche Bank Trust Co. v. SFR Invs. Pool 1, LLC, 551 P.3d 837 (Nev. 2024).

LANDLORD-TENANT: Failure to pay rent extinguishes option to purchase in the lease. The parties had a five-year lease agreement that included an option for the tenant to purchase the property for $3.8 million. The tenant defaulted in paying, and the parties amended the agreement, but the tenant defaulted again. After the tenant failed to cure the arrearages, the landlord informed the tenant that it could not purchase the property and must vacate. Nonetheless, the tenant notified the landlord of its election to purchase. The next day, the landlord notified the tenant that it was terminating the lease for default and retaking the premises. The tenant sued to enforce the option and for breach of lease. The landlord counterclaimed for breach of contract and damages. The trial court ruled for the landlord, and the supreme court affirmed, relying on the contract-law doctrine of consideration. When an option to purchase is incorporated into a lease, the consideration for the lease is consideration for the purchase option. Because the lease and option-to-purchase provisions are dependent, the failure to pay rent is a failure of consideration that nullifies the option. This is so because the option is inseparable from and an integral part of the whole contract. An option to purchase is not a separate contract if there is no separate consideration for the option. Here, there was no separate consideration for the option. Because the landlord repeatedly notified the tenant of this failure and warned that it would have to vacate if it did not pay rent, there was no implied waiver of prior breaches. Green Leaf Farms Holdings LLC v. Belmont NLV, LLC, 549 P.3d 1199 (Nev. 2024).

RECREATIONAL LAND USE

STATUTE: Recreational use act limits liability of landowner when person permissively operates landowner’s vehicle in negligent manner. Twelve-year-old Riley Robinson and her 14-year-old sister Payton were operating an off-road vehicle on their grandfather’s land when an accident occurred, resulting in Riley’s death. Riley’s estate sued, asserting the

grandfather was negligent. The trial court granted summary judgment to the defendant, finding that absent a showing of gross negligence, the Recreational Use Act (RUA) precluded the claim as a matter of law. Mich. Comp. Laws § 324.73301(1). The court also denied the plaintiff’s request to amend based on liability provisions of the Michigan Vehicle Code (MVC), which imposes statutory liability when a vehicle owner allows a person to use the vehicle and its negligent operation causes an injury. Mich. Comp. Laws § 257.401(1). The appellate court affirmed, holding the RUA governed all claims because it was more specific. The supreme court affirmed, however, for reasons different from the appellate court’s reasons. The supreme court held that the RUA applies and precludes liability for injuries that arise when one is on the land of another, without pay, for outdoor recreational activities, with or without the owner’s permission, unless the injuries were caused by gross negligence or willful and wanton misconduct of the owner. The court further ruled that the RUA applies to a statutory owner-liability claim under the MVC when the owner allows another to use a motor vehicle for recreational purposes on his land. The court noted that there is some conflict in the requirement of proof of negligence between the statutes when a defendant is the owner of both the land and the vehicle used for recreational activity. The resolution of the conflict, however, should be based on legislative intent instead of on which statute uses the most specific language. The purpose of the RUA is to encourage owners of private land to make their land available to the public for recreational purposes by limiting their potential liability. The purpose of the MVC owner-liability provisions is to place the risk of damage or injury upon the person with ultimate control of the vehicle. The scope and aims of the statutes are distinct and unconnected and their incidental overlap does not mean they should be read together. The court also looked at the differences between the dates the acts were passed and the many amendments to RUA to clarify its

scope and concluded that its reading of the RUA would not entirely eliminate potential landowner liability whenever an owner’s vehicle was used for recreational purposes on the owner’s land. Milne v. Robinson, 6 N.W.3d 40 (Mich. 2024).

RESTRICTIVE COVENANTS:

Subdivision covenants may not be amended to impose restrictions on lots expressly excepted from covenants. The Berkeley Chase Subdivision, created in 1981, contained 30 lots, with most of the lots consisting of approximately 10 acres, although Lot 5 contained 40 acres. Paragraph 1 of the subdivision covenants restricted 26 of the lots “for estate and owneroccupational purposes only” with no building other than “one single-family detached dwelling and one guest house.” Lot 5, on which historic houses and agricultural buildings were erected, and three other lots were expressly excepted from this restriction. Dorcon Group, LLC purchased Lot 5 on March 4, 2020, intending to operate a commercial bed and breakfast facility as well as a venue for weddings and other events. Under Paragraph 19 of the Deed of Subdivision, the restrictions could be “excepted, modified, or vacated in whole or in part at any time upon the vote of the owners of at least 23 of the lots.” On May 5, 2020, pursuant to Paragraph 19, the owners of 25 lots voted to amend the restrictions to prohibit property owners from conducting most commercial activities on all the lots, including venues for weddings and other events. Dorcon sued, seeking a declaratory judgment that Paragraph 19 did not authorize new restrictions on Lot 5. The trial court ruled in favor of the property owners, but the appellate court reversed, reading the term “modify” narrowly such that it did not permit the addition of new restrictions. The supreme court affirmed. The court explained that restrictive covenants on land are not favored and must be strictly construed against the grantor and persons seeking to enforce them. Substantial doubt or ambiguity should be resolved in favor of the free use of

property. Although Paragraph 19 authorized modifications of restrictions, it said nothing about modifying the express exceptions in the subdivision covenants. To make its point, the court looked to Black’s Law Dictionary to find that “modify” means “[t]o make something different” or “[t]o alter,” but not to add entirely new restrictions or to terminate the exceptions found in Paragraph 1. Westrick v. Dorcon Grp., LLC, 901 S.E. 2d 468 (Va. 2024).

TAXATION: Sovereign immunity does not shield a county from its obligation to pay ad valorem taxes for property it owns in another county. Pinellas County (Pinellas) owns approximately 12,400 acres of real estate in neighboring Pasco County (Pasco). Pinellas historically paid ad valorem taxes to Pasco for the property but decided that sovereign immunity relieved it of that obligation and filed suit against the Pasco County Property Appraiser seeking a declaratory judgment prohibiting future assessment and collection of such taxes. The trial court entered summary judgment in favor of Pinellas, and Pasco appealed. The appellate court reversed, noting that each county has constitutional and statutory authority to assess ad valorem taxes on “all property in the county.” Fla. Stat. § 125.016. The supreme court addressed the question of whether property owned by a county located outside its jurisdictional boundaries is immune from ad valorem taxation imposed by the neighboring county. With two justices dissenting, the court answered negatively, affirming the appellate court. The supreme court disagreed with Pinellas’ assertion that Florida counties enjoy the same sovereign immunity from taxation as the State. Neither Pinellas County nor the dissent identified any authority in support of this claim, even as counties enjoyed some immunity from taxes within the county. The court found it sufficient to note that Pinellas and Pasco counties’ respective sovereignties were equal. Even so, ownership of extraterritorial land is not an attribute of sovereignty; instead, the foreign

sovereign owns such land subject to the laws of the sovereign where the property is located. Pinellas Cnty. v. Joiner, 389 So.3d 1267 (Fla. 2024).

LITERATURE

PROPERTY THEORY: In her article about soil, Soil Governance and Private Property, 2024 Utah L. Rev. 1 (2024), Prof. Sarah J. Fox maintains that despite the multiple roles soil plays in our economy and ecosystem—growing plants, filtering pollutants out of water, providing habitat to countless organisms, and sequestering carbon—it lacks its own legal regime for governance and protection. Instead, unlike other essential natural resources such as air and water, soil is managed on a parcel-based approach, with some federal limits such as those on solid waste disposal and surface mining, but is generally devoid of benchmarks or action-forcing provisions. The focus is more on property rights and values than on environmental health. Prof. Fox fears that unless something changes, this resource, like all resources that are limited in quantity and capacity to serve historical functions, will collapse under the nearconstant externalities from the use of the soil. In her view, it will become necessary to make changes to ownership obligations and norms, moving to a mix of incentives and governmental controls to promote sustainability. She suggests reliance upon environmental laws. Congress could impose certain standards for national soil governance, including metrics for soil health that must be met. Major federal statutes could incorporate strong components of environmental federalism that rely heavily on state and local participation. She sees land use regulation at the local level as playing a key role, as local officials may be well-versed in soil health and soil science. If nothing more, the article helps highlight soil health as an integral part of the natural and human-made life systems and the roles already played by various measures for most developments and construction (federal, state, and local environmental quality reviews for polluting and

erosion effects, among others) to preserve this finite resource. Whether the article will lead to the hoped-for culture and policy changes is not so assured.

RECORDING ACTS: In Property and Sovereignty in America: A History of Title Registries & Jurisdictional Power, 133 Yale L.J. 1487 (2024), Prof. K-Sue Park offers a detailed account of how land title registries were established and evolved and their integral role in the creation of counties as they marked legal jurisdictions. Her main thrust is that land registries had a more sinister aim: as they provided a repository of written evidence of land claims, they served to deprive Native and Black Americans of their lands. She states that the main function of title registries at their origin and now has been to facilitate property markets and back then to legitimize the taking of Native American and Black American lands. In the early years of the country, it was not enough simply to possess land; instead one needed written and publicly-stored evidence of claims. She asserts that recording acts were an “expression of colonial authority to affirm settlers’ private claims to land, which they thereby claimed as part of their jurisdiction” and that “the registry, as an official legal mechanism for validating claims, assisted the colonies in making private and jurisdictional claims against the claims of Natives and other European Nations.” The article relies on original historical accounts and records of land transactions and provides extensive appendices on when and how land registries were established around the nation. Though rooted in colonial manipulations and coercion, they served to anchor claims to a façade of legitimacy. Although many of the article’s claims are quite broad, it nevertheless is an interesting exploration of the early role that land registries played in our current concept of what it means to own something.

LEGISLATION

ALABAMA enacts Uniform Commercial Real Estate Receivership Act.

The act provides for the appointment of a receiver before or after judgment. It contains standards for certain matters; provides for the disqualification of a receiver in case of conflict; gives the receiver the status of a purchaser for value without notice; confers the power to collect, control, conserve and protect receivership property, as well as to operate a business, incur unsecured debt, and with court approval make improvements to receivership property. 2024 Ala. Acts 380.

COLORADO revises rules for tax foreclosure proceedings. The new rules prescribe forms for notice and for requesting and for conducting a public auction. They also describe the treasurer’s deed and contain redemption provisions. 2024 Colo. Ch. 165.

COLORADO enacts laws to support accessory dwelling units. The law aims to increase housing access and requires local governments to allow accessory dwelling units (ADUs), subject to specified limits in the legislation. 2024 Colo. Ch. 167.

COLORADO amends recording act to allow owners to remove unlawful restrictions in deeds. An owner of real property subject to an unlawful restriction may record an amendment to remove a restriction, covenant, or condition in a document on the transfer, use, or occupancy of real property based on race, color, religion, national origin, sex, familial status, disability, or other personal characteristics. The governing body of an association of owners may, without a vote of the members of the association, amend the governing instrument to remove an unlawful restriction, and a member of an association of owners may request that the governing body do so. The amendments contain a prescribed form for such removal. 2024 Colo. ch. 149.

FLORIDA amends property law to allow creation of easements in one’s land. The amendments aim to validate transactions occurring before the effective date. 2024 Fla. Laws ch. 268.

HAWAII amends landlord-tenant law to provide for handling of personal belongings of a deceased tenant. A landlord must give notice of termination of the tenancy to the tenant’s named representative or send notice to the estate of the deceased tenant at the address of the dwelling unit. The recipient is allowed to collect the tenant’s belongings. 2024 Hi. Act 33.

MINNESOTA amends landlordtenant law to protect tenants’ right to organize. The amendments also require landlords to mitigate losses when a tenant abandons the premises and limits tenants’ liability for rent in such cases to the period of notice required to terminate. The amendments limit landlords’ use of tenant litigation data and impose fines for various violations of the statute. 2024 Minn. Laws 118.

RHODE ISLAND amends landlord-tenant law on fees assessed by landlords. The amendments prohibit “convenience fees” and require disclosure of other fees assessed in addition to rent. 2024 R.I. Pub. Laws 308.

RHODE ISLAND amends zoning ordinances to support accessory dwelling units. Accessory dwelling units

(ADUs) that meet the statutory requirements are to be permitted through an administrative building permit process. Local governments may not require ADUs to be used for low-income or moderate-income households unless located in an inclusionary zone. Local governments may not revoke a permit upon transfer of title. 2024 R.I. Pub. Laws 284.

SOUTH CAROLINA enacts the Prohibition of Unfair Real Estate Service Agreements Act. Under the act, a real estate service agreement is unfair, void, and in violation of the Act if its term exceeds one year and either expressly or implicitly aims to run with the land or bind future owners of residential real estate identified in the real estate service agreement. The agreement may not allow for the assignment of the right to provide services without notice or consent of the owner or buyer or create a lien, encumbrance, or other real property security interest. It is also unlawful to record an unfair real estate service agreement. If it or a notice or memorandum thereof is recorded, it is void and does not give constructive notice of any rights. Civil penalties are provided. 2024 S.C. Acts 165. n

BEQUEATHING BITCOIN Storing and Transferring Cryptocurrency upon Death

By Debbie Hoffman and Anna Mouland

Zev Merchant was an early adopter of bitcoin and, much to his wife’s delight, was excited to share with her that they had a secure retirement future because of his early interest in digital currency. Sadly, in 2022, Zev was in an accident and suddenly passed away. Zev’s wife found herself facing a daunting predicament following his death: Zev had relied heavily on digital tools for his personal matters—paying bills online; keeping his notes, contacts, and calendars digitally; and storing his cryptocurrency in centralized wallets. Zev’s wife embarked on a difficult journey to overcome the hurdles associated with obtaining his records as well as access to his cryptocurrency assets.

Inheriting cryptocurrency assets presents unique challenges for heirs, including lack of access, complex probate procedures, and security risks. Custodianship services offer a viable solution by providing secure storage, streamlining the probate process, and offering expert guidance to beneficiaries. As the adoption of cryptocurrency assets continues to grow, incorporating custodianship services into estate planning becomes essential for ensuring the seamless

Debbie Hoffman is a visiting assistant professor of law at Cleveland State University College of Law. Anna Mouland is the CEO and co-founder of Bequest Finance.

The downside of cryptocurrency is that it can be difficult to custody.

transfer of digital wealth to future generations.

The Growth of Cryptocurrency Ownership

Cryptocurrency’s increasing presence is undeniable. As of January 2024, a whopping 40 percent of Americans own cryptocurrency, according to a study conducted by Security.org analysts. This includes almost a third of the Gen X population (people aged approximately 44–59). Most legal and financial professionals are not well-educated about cryptocurrency assets, however, and, therefore, are not able to ask their clients probing questions about ownership or even consider how to best approach such assets in estate planning.

Cryptocurrency is new and complicated, but there are options available for responsible planning without a steep learning curve. The first step in understanding how cryptocurrencies can fit into a client’s plan is understanding how they are custodied and what special considerations are needed. Then one must address the planning options available to clients, depending on how they custody their assets, as well as how to ensure fiduciaries can eventually access and distribute the cryptocurrency assets.

Cryptocurrency as

a Bearer Asset

Cryptocurrencies offer unique value propositions to their holders. To begin with, they are bearer assets, as opposed to credit assets, which entitle

a respective holder of such assets to all rights of ownership. This means there is no superior record title owner. Bearer assets allow their owners to remain anonymous and do not require a trusted third party to custody the assets or maintain a ledger of title. Examples of bearer assets include cash as well as gold. Should a person drop a $20 bill on the ground, as a bearer asset, whoever finds this cash can use it without requiring the need for recording a document (such as a deed) or registering it with a custodian.

Given it is a bearer asset, the benefit of ownership of cryptocurrency is that owners of it do not have to be concerned about losing cryptocurrency should it be stored by a bank that is operated by or collaborating with a custodian. That being said, the downside is that cryptocurrency can be difficult to custody. The bearer nature of cryptocurrencies is the genesis of much confusion for planners who do not want to incur the burden of custodying client assets and need to find ways to ensure fiduciaries will be able to recover the assets only once the grantor has passed away.

Storing Cryptocurrency Assets

Centralized Storage

Cryptocurrency owners are faced with two decisions when it comes to how they will store their assets: centralized v. decentralized wallet providers. Centralized storage of cryptocurrency is akin

to having a bank account: They are centralized companies that users entrust with their assets. These companies custody the assets behind the scenes for the consumer and, in order for the individual to obtain an account with them, they require users to reveal their identities and go through anti-money laundering processes. Popular centralized custodians include Coinbase, Binance, Kucoin, and Kraken.

The primary advantage of centralized wallet providers is ease of use. Users do not have to be tech-savvy to hold their crypto in these wallets; the user interface is similar to a bank or e-trade account. Login occurs via email and password and can be reset at any time. Centralized platforms require users to heavily trust them, however, as misuse of customer funds or platform noncompliance is entirely dependent upon the centralized entity’s behavior. Consider the ramifications of a centralized custodian like FTX.

Because reserves have to be held in various different coins, centralized platforms have to be extremely careful about how they leverage user funds. It is also common for centralized platforms to lack strong customer service; users routinely get locked out of accounts or find themselves unable to make contributions or withdrawals. Centralized platforms also have fewer options by way of coins available for exchange and financial engineering because they are heavily regulated.

Decentralized Storage

On the other end of the spectrum is decentralized custody: If centralized custody is like a bank account, decentralized custody is similar to cash under one’s mattress. The following example of a fictional centralized wallet provider, CoinControl, illustrates the difference between decentralized and centralized crypto wallets. Should the company want to, a centralized wallet provider like CoinControl has a variety of methods by which it can steal or tamper with user funds. CoinControl can change the database recording how much of an asset a user has or it can misappropriate funds. A more

common example is CoinControl’s ability to indiscriminately lock accounts for no obvious reason and require users to enter month-long verification loops in an attempt to unlock them. All ownership and account data and the actual assets are ultimately controlled by CoinControl.

Decentralized platforms mitigate these risks because there is not a single, centralized custodian. Decentralized platforms are based upon the technology of blockchain. Blockchains are databases to which data can be only appended, not deleted or modified, and whose entries are maintained by complex algorithms that do not rely on any single party. This is what makes them decentralized: The network has no external dependencies, unlike CoinControl, which holds the cryptocurrencies at the mercy of CoinControl’s employees. Decentralized wallet providers thus create a peer-to-peer financial environment that is entirely trustless, open source, and algorithmically resistant to malicious parties trying to spoof the ledger database. Decentralized cryptocurrency custody avoids all the risks inherent to centralized wallet providers. It also allows users to interact with a much wider variety of coins and technologies.

It is more difficult for a user to make a decentralized wallet than to simply use a centralized wallet. Most important to note, however, is that when a user makes a decentralized wallet, a public and private key pair is created, neither of which is stored on the blockchain network.

The public key can be used to send

or receive cryptocurrencies and can be given out freely. The private key (sometimes called a seed phrase), on the other hand, needs to be kept private because it is a bearer instrument: It provides access to the underlying bearer assets and cannot be changed. If a user loses the private key, the user will lose access to the cryptocurrency forever. There is no centralized entity available to recover a lost private key. Therefore, decentralized cryptocurrency wallets come with some severe constraints: (1) The private key or seed phrase is a bearer instrument and should never be shared and (2) the private key or seed phrase cannot be recovered. Decentralized wallet providers offer users the ability to anonymously interact in a less expensive, faster, peer-to-peer environment without needing to rely on large custodians. But they must shoulder the burden of managing their private key custody.

It is helpful to consider the custodial options of centralized and decentralized as existing on a continuum. In order from left to right, Coinbase, Binance, and Kucoin are all centralized cryptocurrency platforms. To the right on the decentralized portion of the axis are Electrum, a popular decentralized wallet on the Bitcoin blockchain, and MetaMask, a decentralized wallet on the Ethereum blockchain.

Hot Versus Cold Custodial Storage

The second axis of cryptocurrency storage is the hot versus cold storage axis, or whether the wallet is connected to the internet. In the case of hot storage, the private key is stored on the

user’s computer or with a centralized wallet provider’s servers and can therefore be hacked remotely if there is an internet connection to the computer. Anyone with an internet connection can theoretically hack a hot wallet. By contrast, cold storage is not connected to the internet and cannot be accessed remotely. Examples of cold storage solutions include writing a private key down on a piece of paper, using a cold storage hardware wallet (a small USBtype device), or memorizing a private key. These solutions can be hacked only by people in proximity to the user: They can steal the user’s piece of paper, hack the user’s hardware wallet, or find a way to have a user reveal a memorized private key. Cold storage is safer than hot storage, but many users still opt for hot storage because it makes trading and interaction with their coins much faster.

Adding the continuum of cold versus hot storage in a diagram, the top-left centralized and cold quadrant is Nydig. Nydig is a custodian that holds all client assets in cold storage. Nydig mainly serves very high net worth individuals who are afraid of being physically targeted for having large amounts of cryptocurrency and also want to ensure their private keys are not online and prone to hacking.

In the top-right centralized and hot storage quadrant are Coinbase, Binance, and Kucoin, which have been discussed above. It is possible for hackers to remotely access accounts on these platforms. In the bottom-left decentralized and cold quadrant are Ledger and Trezor. These are small hardware devices users can purchase to hold their

cryptocurrency offline. Finally, in the bottom-right decentralized and hot quadrant are Electrum and Metamask. These wallets are decentralized but keep the private key stored in the user’s computer, which allows access by hackers when the device is connected to the internet.

Users can store assets with a centralized entity, which essentially requires users to give up their identities, trust that entity, and be bound by the policies of that entity. Alternatively, users can store their assets in a decentralized fashion and incur the burden of keeping the assets safe. Furthermore, a user can either store assets in hot storage, which allows them to use their assets more easily but also exposes the assets to hackers, or place their assets in cold storage, which limits hackers to people who can physically access the assets, but also does not allow users to use their assets as easily.

Options and Solutions: Custodial Planning

Estate planners need to help advise

their clients on whether to use custodians or encourage decentralized storage. If using a custodian is an optimal consideration, the following steps should be taken: (1) contact the custodian to learn about legacy contact options, (2) use third-party software to enable planning and administration, (3) store individual user credentials with the understanding that the custodian may require verification of identification, and (4) determine if the cryptocurrency holder might be willing to switch wallet providers to use one that has more options for estate planning.

Centralized Wallet Providers—Legacy Contacts

Some wallet providers have an option to add a legacy contact. Unlike bank accounts, this contact will not receive the assets outside of probate and there cannot be multiple contacts; however, the assets will be recoverable. Currently, only Kraken and Coinbase have a legacy contact option, and although there is no clear information on how to set it up, they have telephone support lines to

help with the process.

In situations where a client is using a custodial account that does not offer legacy contacts, one can plan for a transfer upon death by having users document their credentials. The concern with this, however, is that custodial crypto wallet providers are well-known for requiring random identity verification. This verification could easily lead to a fiduciary being locked out of the account.

Even with a custodial, centralized wallet provider, the crypto assets are still bearer. This means if a fiduciary obtains a grantor’s centralized wallet, the fiduciary can send the assets to an anonymous decentralized wallet. It would then be incredibly difficult to prove to whom the second wallet belongs.

High Volumes of Crypto Assets

If an individual has a significant amount of cryptocurrency and is using a custodial wallet provider, consideration should be given to moving assets into a decentralized wallet, which could

make planning simpler while safekeeping the assets. It should be noted that there are currently few custodial wallet providers that allow wallets to be titled to a trust. Coinbase Institutional has such a feature, but it requires an account minimum of $500,000. This is an option for wealthier clients; however, it is not scalable if the person has multiple beneficiaries.

License Requirements

In the United States, cryptocurrency custodians must hold specific licenses, which vary by state, and most states require custodians to have a money transmitter license. This means that an attorney, advisor, or professional fiduciary cannot take custody of a client’s assets unless licensed. Ironically, it is also causing banks to ban clients from storing their cryptocurrency wallet private key in bank boxes because this would require the bank to hold cryptocurrency licenses.

Fidelity Digital and Nydig are institutions that hold these licenses and may be able to meet some clients’ needs. Using a custodian, however, means that users cannot have direct custody of their assets. Cryptocurrency licenses also significantly constrain the tokens, NFTs, and activities that licensed parties can hold or undertake. Therefore, if an individual is holding a wide range of crypto assets and is using various staking and trading protocols throughout the decentralized finance (DeFi) ecosystem, this may not be the right solution. These specialized custodians also tend to be expensive, are fairly new, and may be limited in their service offerings.

Decentralized Wallet Options

If a user has a decentralized (noncustodial) wallet, there are two primary goals: (1) keep the private key or seed phrase safe and (2) respect the user’s custody wishes upon death. Individuals who chose to self-custody via decentralized wallets typically prefer the full range of benefits afforded by the use of blockchain technology. They likely value anonymity and alternative financial options and trust themselves to incur additional burden in order to avoid

trusting centralized custodians. These users will likely be unhappy with solutions that require them to compromise their assets, even to a licensed third party.

The challenge with decentralized wallet options is that users need to ensure that upon their deaths, the fiduciary can recover the private key without compromising on security. The most common way of achieving this is by using a multi-signature scheme.

Multi-signature Scheme

A multi-signature scheme is a cryptographic solution that cuts a private key into many pieces, none of which is meaningful on its own but when put together can reconstruct the original private key. Using a multi-signature solution allows individuals to leave their private keys behind without giving indiscriminate access to their wallets to one person. Individuals can do this on their own by putting pieces of their private keys in various spots for fiduciaries or beneficiaries to eventually recover and reconstruct.

The downside to multi-signature wallets is that they do not solve the problem of giving trustees custody over a bearer asset. If a user sets up a fiduciary to receive a piece of the multisignature key upon the user’s death, the fiduciary will effectively become the asset’s custodian. If the fiduciary is a professional without a cryptocurrency license, this poses a problem.

Furthermore, the transfer of assets into the hands of a fiduciary can still be tricky. The assets will likely remain locked if, for example, the fiduciary becomes incapacitated or dies, or the user has multiple signatories and they do not cooperate.

Companies like Gnosis or Casa provide solutions that employ a multisignature signing scheme that allows recovery of a wallet with only one signer. This decreases the odds of assets remaining locked and decreases the trust required between fiduciaries and beneficiaries to make asset distributions.

Finally, there is no way to constrain the fiduciary’s behavior and ensure the

estate plan is followed. This may be an issue if a user is using a family member or friend as a fiduciary who may deviate from the planning document.

Third-Party Options

Amid the challenges of traditional digital asset management, innovative solutions like Bequest Finance offer a streamlined alternative. Bequest Finance eliminates the need for court intervention or custodian involvement, empowering individuals to proactively manage their digital estates. By employing novel noncustodial solutions, Bequest Finance ensures seamless access to digital data after death. Through comprehensive estate planning tools and encryption technologies, Bequest Finance prioritizes privacy and security, safeguarding sensitive information while facilitating efficient asset transfer and administration without placing custodial risk on professionals. Bequest Finance also has a software option that allows beneficiary designations on any custodial wallet to create a transfer-on-death (TOD). It is also able to hold the wallet in trust, which is aligned to the applicable TOD state law. Thus, if a user is unsatisfied with available estate planning options, Bequest Finance may be worth exploring.

Conclusion

Zev Merchant’s wife had a tremendous struggle on her hands to gain access to the nest egg left by her husband. As cryptocurrency becomes a broader asset class, and individuals increasingly rely on digital storage, the need to safeguard and manage cryptocurrency assets becomes paramount. By incorporating digital estate planning into broader estate planning strategies, individuals can ensure their digital assets are managed and transferred seamlessly to their loved ones. From creating inventories of digital accounts to designating beneficiaries and leveraging secure custodial services, proactive digital estate planning offers peace of mind and alleviates the burden on grieving families. n

KEEPING CURRENT PROBATE

CASES

ADOPTION: Adoption after parent’s death does not change status as heir. The decedent’s child was adopted after the decedent’s death by the other parent’s spouse. Forty years later, the child sought a declaration of heirship in the decedent’s estate proceeding to make a claim to the decedent’s share of real property held as tenants in common with the parent’s siblings. In Estate of Duncan, 688 S.W.3d 293 (Mo. Ct. App. 2024), the Missouri intermediate appellate court affirmed the probate court’s determination that the child was the parent’s heir because the adoption occurred after the determination of the decedent’s heirs at the decedent’s death.

ADOPTION: Use of “issue” or “descendants” does not exclude adopted persons. The intermediate Connecticut appellate court in Buzzard v. Fass, 315 A.3d 1119 (Conn. App. Ct. 2024), held that under the statute governing the effect of adoption (Conn. Gen. Stat. § 45a-731), the use of words “issue” or “descendants” in a testamentary trust created in 1947, when the common law stranger to the adoption rule was treated as a presumption, is not clear and convincing evidence that the testator intended to exclude adopted persons as beneficiaries of the trust.

BENEFICIARY DESIGNATIONS: Change of beneficiary fails because of breach of material term. The owner of an IRA completed a beneficiary designation in 2008 using the owner’s form, which was accepted by the custodian. In 2013, the owner created another beneficiary designation form

Keeping Current—Probate Editor: Prof. Gerry W. Beyer, Texas Tech University School of Law, Lubbock, TX 79409; gwb@ ProfessorBeyer.com. Contributors: Julia Koert, Paula Moore, Prof. William P. LaPiana, and Jake W. Villanueva.

Keeping Current—Probate offers a look at selected recent cases, tax rulings and regulations, literature, and legislation. The editors of Probate & Property welcome suggestions and contributions from readers.

and signed it in the office of the beneficiary’s attorney, who sent it to the custodian by first-class mail without any provision for a return receipt. After the owner’s death, the custodian could find no record of the 2013 designation. In the resulting contest between the two sets of beneficiaries, the circuit court ruled for the beneficiaries under the 2008 designation. The Florida intermediate appellate court in Sobel v. Sobel as Trustee of Testamentary Trust, 384 So. 3d 791 (Fla. Dist. Ct. App. 2024), affirmed, finding that acceptance by the custodian was a material term of the contract which could not satisfied by substantial compliance.

CONTRACTUAL WILLS: Premarital agreement is a valid contract to make a will. The Nebraska Supreme Court in White v. White, 6 N.W.3d 204 (Neb. 2024), held that the provision in a premarital agreement stating that if Spouse 1 survives Spouse 2, Spouse 1 “shall receive” $100,000 from Spouse 2 is a valid contract to make a will and that Spouse 1’s claim for payment is not governed by statutes governing claims against the estate (Neb. Rev. Stat. §§ 30-2209(4) & 30-2485).

DEVISE: Devise of “primary residence” includes dwelling and separate adjacent lot. The testator’s will devised “my primary residence” to one of the testator’s two children. The testator resided in a brownstone appurtenant to which was a lot containing a backyard, private garden, parking pad, and

driveway. The brownstone and lot have two separate numbers on the county tax map and bear two different street addresses. After finding that the facts create a latent ambiguity, the New York Surrogate court in Matter of Pearce, 207 N.Y.S.3d 427 (Sur. Ct. Kings Co. 2024), held that the extrinsic evidence showed that the testator treated both the brownstone and the appurtenant lot as her “residence.”

SURVIVAL: Express requirement of survival prevents application of anti-lapse statute. The decedent’s will made a gift of designated investment accounts to the decedent’s mother “if she survives me.” A gift of other accounts to a sibling was similarly conditioned and the terms of the will defined survival as surviving the testator by at least 90 days. The gift of tangible personal property as well as the residuary devise was made to named individuals “per stirpes.” The mother predeceased the testator, and the executor filed a complaint seeking a declaration that the anti-lapse statute did not apply to the gift to the mother. The trial court granted summary judgment to the executor, and the decedent’s sibling appealed. The Massachusetts Supreme Judicial Court affirmed in Gibney v. Hossack, 230 N.E.3d 1009 (Mass. 2024). The court held there is no need to substitute the anti-lapse statute for the testator’s express requirement that a beneficiary survive and found support in the legislature’s failure to enact Uniform Probate Code § 2-603(b)(3), which expressly makes a requirement of survival without more insufficient to prevent application of the anti-lapse statute.

TORTIOUS INTERFERENCE WITH INHERITANCE:

Failure to object in probate proceeding bars tortious interference claim. In its decision

in Salmon v. Tafelski, 235 N.E.3d 867 (Ind. Ct. App. 2024), the Indiana intermediate appellate court dismissed an action for tortious interference with inheritance brought by the intestate decedent’s child against another child of the decedent, an action that alleged that the second child fraudulently induced lifetime transfers by the decedent to the second child. The court held the tort action could not proceed because there were adequate remedies under the probate code.

TRUST TERMINATION: Charitable trust cannot be terminated because of costs related to being a private foundation. The settlor created a trust which after the death of the settlor’s spouse continued in perpetuity to benefit the foundation supporting the Virginia Military Institute, from which the settlor graduated in 1924. Shortly after the settlor died in 1968, the trust became subject to the private foundation rules which subjected the trust to the 1.3 percent excise tax and the 5 percent annual distribution requirement. In 2019, the foundation petitioned to terminate the trust and have the property distributed to the foundation because the excise tax and the alleged limitations on investments caused by the 5 percent rule were “unreasonably out of proportion to the charitable benefits” and therefore justified termination under 20 Pa. Cons. Stat. § 7740.3(e). The trial court granted the trustee’s motion for summary judgment, and the Superior Court affirmed, as did the Pennsylvania Supreme Court in In re Trust B Under Agreement of Richard H Wells, 311 A.3d 1057 (Pa. 2024). The court held that the costs associated with being a private foundation did not justify termination, the 5 percent rule did not limit investment authority, and all parties stipulated that the trustee’s fees were reasonable.

TAX CASES, RULINGS, AND REGULATIONS

GIFT TAX: Estate not liable for gift tax once marital trust terminated. A husband and his wife established a family trust. At the time of the husband’s

death, the property held in the family trust, including the husband and wife’s shares in a company, passed to marital trusts. The wife held an income interest for life in the trust, and the husband’s children held contingent remainder interests. A QTIP election was made on the estate tax return for the property passing to the marital trusts, and the estate claimed a corresponding marital deduction for the QTIP. Several years later, a state court terminated the marital trusts with the consent of the wife and children, and the property was distributed to the wife. The wife made a gift of some of the shares of the company to the children and then sold the remaining shares to the children and grandchildren for interest-bearing promissory notes. The wife filed a gift tax return and reported only the gift of the shares to the children. The wife later died. The IRS issued a deficiency to the wife’s estate determining that the termination of the marital trusts and sale of the company shares for promissory notes was a disposition of the wife’s qualifying income interest for life and that the estate was liable for gift tax on the value of the QTIP minus the value of her qualifying income interest for life.

In Estate of Anenberg v. Comm’r, 162 T.C. No. 9 (2024), the Tax Court held that if there was a transfer of property when the marital trusts were terminated, the estate is not liable for gift tax because the wife received back the interests in property that she was treated as holding and transferring and made no gratuitous transfer. The estate was also not liable for gift tax on the sale of company shares for promissory notes because, after the termination of the marital trusts, her qualifying income interest for life in the QTIP had terminated.

TRUSTS: Trustee’s tax refund suit rejected because the court previously held that the trust did not own the seized property. Before being convicted of several crimes, an individual purported to transfer property to a trust. The district court concluded that despite the property being held in the name of the trust, the individual had an interest in the property and entered

a preliminary forfeiture order. The Tax Court then held that the IRS failed to meet its burden of proof that the trust was a sham trust under federal tax law but did not determine who owned the property under Idaho law. Shortly after the forfeiture order was entered, the trust initiated an ancillary proceeding in district court, claiming that it had an

interest in the property. Eleven years later, the court held that the trust did not establish ownership and that under Idaho law, the transfer of the property to the trust was fraudulent because the transferor had the intent to hinder, delay, or defraud creditors. The property was then sold with a portion of the proceeds used to pay off the owner’s tax obligations. The trustee filed suit, seeking a refund of the taxes collected from the IRS and stating that the individual did not own the property. The district court held that the previous suit determined the issue of ownership and that the suit was precluded. The Ninth Circuit affirmed in Loomis as Trustee of Lost Creek Trust v. United States Internal Revenue Service, 133 A.F.T.R.2d 2024-1670 (9th Cir. 2024).

LITERATURE

ARTISTS AND ESTATE PLANNING:

In Do Artists Deserve to Retire? Methods to Remedy Disadvantages Artists Face in Saving for Retirement, 32 Elder L. J. 273 (2024), Rebecca Singerman explores how American artists struggle to save for retirement due to unpredictable income streams. Singerman proposes avenues for improving artists’ ability to save for retirement through existing frameworks and reforms to the Internal Revenue Code and ERISA.

CRYONICS: In Rest in Freeze: The Need to Regulate the U.S. Cryonics Industry, 32 Elder L.J. 231 (2024), Mehroz Mohammed examines the unregulated cryonics market, highlighting the risks to vulnerable consumers, many of whom are elderly or terminally ill. He proposes a flexible regulatory approach to adapt to future scientific developments.

FLORIDA—JUDICIAL DISCRETION: In Judicial Discretion Within the Florida Probate Field: Guiding Judges to Find the Proper Balance Between Upholding Attorneys’ Fees and Maintaining the Interests of the Client, 48 Nova L. Rev. 98 (2023), Natalie Owchariw examines the broad discretion probate judges have in determining the reasonableness of attorney’s fees. To address the

potential for abuse, Owchariw proposes a two-step balancing test to guide probate judges on ensuring attorneys’ fees are upheld fairly while protecting client interests from the potential abuses of judicial discretion.

GEORGIA—LEGISLATIVE AND JUDICIAL UPDATE: Mary Radford in Wills, Trusts, Guardianship, and Fiduciary Administration, 75 Mercer L. Rev. 359 (2023), discusses notable Georgia appellate court cases and significant legislation related to probate, trust law, and guardianship from June 1, 2022, through May 31, 2023. She emphasizes the importance of practitioners staying informed about ongoing developments.

INCARCERATION: In Estate to State: Pay-to-Stay Statutes and the Problematic Seizure of Inherited Property, 95 U. Colo. L. Rev. 839 (2024), Brittany Deitch explains how pay-to-stay statutes allow states to recover incarceration costs from currently or formerly incarcerated individuals, often by seizing their assets, including inherited property. These laws have faced criticism for perpetuating poverty, disproportionately affecting marginalized communities, and discouraging efforts to reduce mass incarceration. Deitch argues for the end or significant limitation of pay-to-stay statutes, particularly the practice of seizing inherited property, as it undermines the decedent’s testamentary freedom.

INDIA—INTERMARRIED WOMEN: In Mergers and Legal Fictions: Coverture and Intermarried Women in India, 41 Law & Hist. Rev. 387 (2023), Leilah Vevaina explores the unstable rights of intermarried women in India. She illustrates this issue through cases like Goolrukh Gupta, where her legal appeals highlight the complexities and challenges many Indian intermarried women face in securing their property rights after marriage.

LOUISIANA—DIGITAL ASSETS: In Let’s Get Digital: How Louisiana’s Laws Governing Inter Vivos Donations Are Unequipped to Handle the Growing

Popularity of Digital Assets, 84 La. L. Rev. 273 (2023), Zack Crawford explains how the original Louisiana Civil Code used adaptable language, such as “manifest to the sense,” to address unforeseen issues like digital assets. When revisers redefined corporeality to mean only things with a “touchable body,” it caused confusion in the law regarding digital asset donations. Crawford suggests that the Louisiana legislature amend Article 461 to help Louisiana courts consistently assess digital asset donations.

LOUISIANA—DIVORCE: In ‘Til Death Do Us Part? Louisiana’s Inconsistent Approach to Divorce Litigation after a Decedent-Spouse’s Death, 84 La. L. Rev. 351 (2023), Elise Diebold explores the uncertainty in handling estates during pending divorces and highlights the need for legislative clarification to honor the decedent’s likely wishes.

PROBATE EXCEPTION: In Federal Questions and the Probate Exception, 137 Harv. L. Rev. 1226 (2024), the Harvard Law Review explores the probate exception, which limits federal courts’ jurisdiction over probate matters, and its implications for federal question cases involving the Racketeer Influenced and Corrupt Organizations Act.

SOUTH DAKOTA—RULE AGAINST

PERPETUITIES: In R.I.P. RAP, 69 S.D. L. Rev. 196 (2024), Thomas Simmons examines how the 1983 legislative repeal of the common law Rule Against Perpetuities (RAP) was the seed from which the state’s trust industry grew. This article is the second installment in a two-part series on South Dakota’s history with RAP, where Simmons’s review of decisional law essentially confirms that the state never fully imposed RAP on its citizens.

TAXATION OF UNREALIZED

GAINS: In Moore v. United States: The Constitutionality of the Taxation of Unrealized Gains, 28 Lewis & Clark L. Rev. 333 (2024), Loren Naldoza explores the constitutional limits of Congress’s taxing power as the Supreme Court

considers this fundamental question: what income is and whether realization is a constitutional requirement required by the Sixteenth Amendment. Naldoza examines the implications of this case in the context of the Mandatory Repatriation Tax and what this could mean for future federal income and wealth taxes.

TRUST ABUSE: In Anti Trusts: Reforming an Excessively Flexible Legal Tool, 47 Vt. L. Rev. 332 (2023), Eric Kades explores the versatile nature of trusts, noting their beneficial uses but also their potential for exploitation, like tax evasion and cheating creditors. He argues that these abuses often outweigh the benefits of private trusts. To address this, Kades proposes a fundamental reform to replace the fully flexible private trusts with a more restricted version designed to prevent abuses called the Restricted Donative Trust.

LEGISLATION

CALIFORNIA permits a trustee to terminate a trust if the fair market value of the principal of the trust does not exceed $100,000, an increase from the $50,000 threshold under prior law. 2024 Cal. Legis. Serv. Ch. 76.

COLORADO enacts the Uniform Special Deposits Act. 2024 Colo. Legis. Serv. Ch. 200.

COLORADO passes the Uniform Non-Testamentary Electronic Estate Planning Documents Act. 2024 Colo. Legis. Serv. Ch. 154.

CONNECTICUT adopts the Uniform Trust Decanting Act. 2024 Conn. Legis. Serv. P.A. 24-104.

DELAWARE enables individuals to elect “natural organic reduction” as a method for disposing of one’s body at death. 2024 Del. Laws Ch. 261.

FLORIDA modernizes its version of the Uniform Fiduciary Income and Principal Act. 2024 Fla. Sess. Law Serv. Ch. 2024-216.

FLORIDA permits financial institutions to delay distributions to vulnerable adults reasonably believed to be victims of financial exploitation. 2024 Fla. Sess. Law Serv. 2024-200.

HAWAII enables tenants, either through their rental agreement or through another document, to designate an individual to collect or dispose of the tenant’s personal property if the tenant dies during the tenancy. 2024 Haw. Laws Act 33.

HAWAII regulates charitable fundraising platforms. 2024 Haw. Laws Act 205.

OKLAHOMA adopts the Uniform Electronic Estate Planning Documents Act. 2024 Okla. Sess. Law Serv. Ch. 344.

PENNSYLVANIA provides that individuals convicted of “elder abuse” of a decedent are prevented from inheriting or otherwise acquiring the assets of the decedent to the same extent as a slayer. 2024 Pa. Legis. Serv. Act 2024-40.

VERMONT enacts the Uniform Directed Trust Act. 2024 Vt. Laws No. 104.

VERMONT passes the Uniform Trust Decanting Act. 2024 Vt. Laws No. 177. n

STATEMENT OF OWNERSHIP, MANAGEMENT AND CIRCULATION

(PS Form 3526, July 2014) (Act of August 12, 1970: Section 3685, Title 39, United States Code) 1. Title of publication: Probate & Property (ISSN: 0164-0372). 2. P.N. 010781. 3. Date of filing: 10-01-24. 4. Issue Frequency: Bi-Monthly. 5. No. of issues published annually: Six. 6. Annual subscription price: $150. 7. Complete mailing address of known office of publication: 321 N. Clark Street, Chicago, IL 60654-7598. 8. Complete mailing address of the headquarters or general business offices of the publisher: American Bar Association, 321 N. Clark Street, Chicago, IL 60654-7598. 9. Full names and complete mailing address of publisher, editor, and managing editor: Publisher: American Bar Association, 321 N. Clark Street, Chicago, IL 60654-7598; Editor: Edward T. Brading, Attorney at Law, 208 Sunset Drive, Suite 409, Johnson City, TN 37604; Managing Editor: Erin Remotigue, American Bar Association; 321 N. Clark Street; Chicago, IL 60654-7598. 10. Owner (if owned by a corporation, its name and address must be stated and also immediately thereunder the names and addresses of stockholders owning or holding 1% or more of total amount of stock. If not owned by a corporation, the names and addresses of the individual owners must be given. If owned by a partnership or other unincorporated firm, its name and address must be stated): American Bar Association, 321 N. Clark Street, Chicago, IL 60654-7598. 11. Known bondholders, mortgagees, and other security holders owning or holding 1% or more of the total amount of bonds, mortgages or other securities (if there are none, so state): None. 12. Tax Status: Has not changed in preceding 12 months. 13. Publication title: Probate & Property. 14. Issue date for circulation data below: 7/01/2024 (38:4) . 15. Extent and nature of circulation. a. Total no. copies printed (net press run). Average no. copies each issue during preceding 12 months: 16,862 . Actual number of copies of single issue published nearest to filing date: 17,355. b. Paid and/or requested circulation: (1) Paid requested outside-county mail subscriptions. Average no. copies each issue during preceding 12 months: 9954. Actual number of copies of single issue published nearest to filing date: 9872. (2) Paid in-county subscriptions. Average no. copies each issue during preceding 12 months: 0. Actual number of copies of single issue published nearest to filing date: 0. (3) Sales through dealers and carriers, street vendors, and counter sales. Average no. of cop-ies each issue during preceding 12 months: 0. Actual number of copies of single issue published nearest to filing date: 0. (4) Paid Distribution by Other Classes of Mail Through the USPS. Average no. of copies each issue during preceding 12 months: 0. Actual number of copies of single issue published nearest to filing date: 0. c. Total paid circulation. Average no. of copies each issue during preceding 12 months: 9954. Actual number of copies of single issue published nearest to filing date: 9872. d. Free or Nominal Rate Distribution (by mail and outside the mail): (1) Free or nominal rate outside-county copies. Average no. copies each issue during preceding 12 months: 5592. Actual number of copies of single issue published nearest to filing date: 6016. (2) Free or nominal in-county copies. Average no. copies each issue during preceding 12 months: 0. Actual number of copies of single issue published nearest to filing date: 0. (3) Free or nominal rate copies mailed at other classes. Average no. copies each issue during preceding 12 months: 0. Actual number of copies of single issue published nearest to filing date: 0. (4) Free or nominal rate distribution outside the mail. Average no. copies each issue during preceding 12 months: 0. Actual number of copies of single issue published nearest to filing date: 0. e. Total free distribution (sum of 15d(1), (2), (3), (4)). Average no. copies of each issue during preceding 12 months: 5592. Actual no. of copies of single issue published nearest to filing date: 6016. f. Total distribution (sum of 15c and 15e). Average no. of copies of each issue during preceding 12 months: 15,546. Actual no. of copies of single issue published nearest to filing date: 15,888. g. Copies not distributed. Average no. of copies each issue during preceding 12 months:1316. Actual number of copies of single issue published nearest to filing date: 1467. h. Total (sum of 15f and g). Average no. copies each issue during preceding 12 months: 16,862. Actual number of copies of single issue published near-est to filing date: 17,355. i. Percent paid. Average no. of copies each issue during preceding 12 months: 64.0%. Actual number of copies of single issue published nearest to filing date: 62.1%. 16. There are no electronic copies of this publication. I certify that 50% of all distributed copies (electronic and print) are paid above a nominal price.

I certify that the statement made by me above is correct and complete.

(signed) Kyle Kolbe, Director Digital Publishing, ABA Communications

Commercial Office Lease Drafting and Negotiation—Tenant

Pitfalls to Avoid

By Patrice D. Stavile and Jennifer J. Bruton

This article sets out certain key provisions in a commercial office lease that are and should be negotiable, explains both the ramifications of the typical provisions and workable alternatives to those provisions, and identifies key tenant rights that should be added or addressed.

In a commercial lease negotiation, the landlord’s counsel will supply the initial draft of the lease, which will usually be very landlord friendly. For instance, counsel will find that there will be no concept of landlord default and few provisions, if any, imposing obligations upon the landlord. The lease document will obligate the tenant to pay rent, come hell or high water,

Patrice D. Stavile is counsel in the Real Estate Group at Venable LLP in New York, NY. Jennifer J. Bruton is a partner at Venable LLP in Washington, DC. She is partner-in-charge of Venable’s Washington office.

often specifically without exception for any failure of the landlord to perform. Any relief for events of force majeure will be entirely one-sided and will never excuse the tenant’s payment of rent, but will excuse any performance by the landlord. Even the failure of the landlord to deliver the premises on time or in the agreed-upon condition (which the lease often states as being “as-is”) or the failure of the landlord to provide essential services, utilities, or access often will not trigger any rights for the tenant. Commonly, the lease document will be lengthy and will contain numerous provisions for the benefit of the landlord. In representing a commercial tenant, the attorney’s task as tenant’s counsel is often to figure out what is missing from that document, including landlord obligations and tenant remedies, and to confirm that all of the terms of the letter of intent have been included.

Counsel should not consider the

commercial lease document to be a contract of adhesion. A commercial lease is negotiable. All provisions should be considered mere starting points, and counsel will want to negotiate more even-handed provisions for the benefit of its tenant client. In the current economic environment, a landlord’s counsel can no longer insist on inequitable provisions merely because the landlord “has never agreed to” anything else or because this is the landlord’s “form of lease.”

Letter of Intent

The negotiation of a commercial lease generally begins with a letter of intent (LOI) between the landlord and tenant, which is often drafted by the brokers for the parties. Although the LOI will provide that it is nonbinding, the parties will find themselves bound by any business terms set forth in the letter of intent, and any matters that the attorney’s client feels are essential to the

transaction should be addressed in the letter of intent. Counsel should review the letter of intent for its client and discuss the terms with the client before it is executed. This is the time to address the client’s specific needs, such as timing of delivery, any specific requirements (such as electrical capacity, supplemental air conditioning, spacesharing arrangements with affiliates or “friends of the company,” and required amenities), and establishing all of the financial terms of the transaction.

Delivery of the Premises

The date of delivery of the premises is often a critical concern for both the landlord and the tenant. The landlord typically seeks the delivery of the premises to occur as early as possible so that rent will commence. The tenant may not want the delivery to occur earlier than the date on which the tenant needs the space (including to begin its build-out, if applicable). Certainly, the

tenant will not want any longer overlap in the lease terms than is necessary and will not want to be paying rent in two leased spaces at the same time. On the other hand, the tenant may require the delivery by a specific date to avoid a holdover situation at its current location.

The landlord’s lease document may provide that the term of the lease will commence on a date certain, or on the date on which the landlord delivers the premises to the tenant, and often in its then “as-is” condition, thereby affording the landlord the option to deliver the space to the tenant when it suits the landlord. The lease should contain clear deadlines for the delivery of the space and should specify in detail the “delivery condition” in which the landlord must deliver the space. Although the lease may state the delivery condition is “as-is,” there are usually certain criteria that must be met for the delivery to take place.

For example, not only does the landlord’s work need to be substantially completed, but also the premises and building should be in compliance with all laws as of the commencement date (including the Americans with Disabilities Act and environmental laws), all permits and certificates of occupancy should be issued so the tenant can take immediate occupancy and start its business operations, and all systems should be in good working order. The delivery of the premises (i.e., the commencement date) should occur only after all the conditions are met. Furthermore, the lease must provide remedies or penalties for the landlord’s failure to perform in this regard.

Feasible meaningful remedies include affording the tenant an additional abatement under the terms of the lease (that is, an abatement that runs consecutively with the market abatement that tenants typically receive at the beginning of any lease

term), usually on a day-for-day basis, for the duration of any delay. Any trigger of the commencement of the lease term, which often ties in to triggering the commencement of the obligation to pay rent, also should be tied to the date upon which the landlord actually delivers to the tenant possession of the premises free and clear of any other occupancies, and in the required condition, rather than being tied to any anticipated delivery date or other fixed date; note that the effect of this edit will effectively push both the commencement date and the expiration date of the lease, effectively shifting the term of the lease. Depending upon the timing constraints of the client, the tenant also may need the right to terminate the lease if the foregoing delivery conditions are sufficiently late in being met.

Tenant Improvement Allowance

In commercial office leases where the tenant is constructing its own space, the tenant will be afforded an allowance, a “tenant improvement allowance,” which will be funded by the landlord or its lender, to pay for the hard and soft costs of this construction, as well as for certain expenses for furniture, fixtures, equipment, and even moving expenses. The tenant will be required to allocate a large portion of the allowance to the costs of construction to ensure the funds are spent primarily to improve the space.

The allowance should be funded monthly, as the construction work progresses, subject to the tenant’s compliance with requirements typical in the funding of any construction process, including the submission of itemized draw requests and lien waivers. The tenant should be permitted, at its election, to direct the payment of these amounts directly to its general contractor, rather than either having to receive the funds and then advance them to its contractor or, worse, having to pay the contractor and then seek reimbursement from the landlord.

The tenant should have the right to use a portion of the allowance—perhaps up to 20 percent or 30 percent—for items such as furniture, fixtures, equipment,

Recognize that the right to offset the allowance against rent is a meaningful remedy for the client only if the client has sufficient liquidity to fund its construction costs out of pocket.

windfall to the landlord.

In contrast, the landlord has a valid objection to funding an allowance to a tenant while that tenant is in default. A workable compromise is to have the landlord’s obligation to fund the allowance toll during any tenant default, resuming when the default has been remedied. Separately, the tenant should have a stated remedy for the landlord’s failure to fund the allowance.

Typical lease language will obligate the tenant to pay rent in full, without offset or deduction for any reason. Accordingly, counsel will need to add an express right in the lease for the tenant to offset any due and unpaid allowance against rent payable, with interest accruing on the unpaid amount until paid in full. Given that a typical lease structure will provide for the abatement of rent at the beginning of the lease term—often for a year or more—it should be noted that it will take a considerable amount of time for a tenant to recoup the tenant improvement allowance through the offset of its rent.

and moving expenses. The lease often will provide that the tenant is not entitled to the allowance if the tenant is in default. Understand that the cost of this allowance is one of the metrics used in calculating the rent, and an amount for the amortization of the tenant improvement allowance has been used to calculate and increase the base rent payable, such that the tenant effectively pays the landlord back for the allowance through the payment of its base rent over the term of the lease, in much the same way one pays a mortgage.

If the lease is terminated because of a tenant default, the allowance paid would constitute a measure of the landlord’s damages. Otherwise, if the tenant defaults, and the default is cured or waived and the lease continues, the tenant, through its base rent, will continue making payments that include an amount to reimburse the landlord for the allowance. Therefore, forfeiture of the allowance because of a minor default is inequitable and results in a

Recognize that the right to offset the allowance against rent is a meaningful remedy for the client only if the client has sufficient liquidity to fund its construction costs out of pocket, which may not be the case. If the landlord’s failure to fund the tenant improvement allowance in a timely manner would be a material hardship for the client, counsel should consider having the landlord’s parent company provide a guaranty for the funding obligation or having the funds escrowed. We also advise making sure the client’s landlord’s lender recognizes these rights under a subordination, nondisturbance, and attornment agreement, as discussed further below.

As mentioned above, the tenant improvement allowance is typically expressed as a fixed amount payable by the landlord per square foot of the premises. It is the maximum amount of money the landlord will pay for the tenant to improve the space. For example, if the commercial space is 15,000 square feet and the allowance is $25 per square foot, the landlord has agreed

to reimburse the tenant up to $375,000 for the construction work.

The landlord may require the improvements to be completed by a certain date, usually a number of months from the commencement date, and the tenant’s request for reimbursement along with all documentation to be submitted within a certain time period, usually between nine and 12 months from the construction completion date. Keep in mind that certain events can delay the completion of the construction or the request for reimbursement, thereby risking the tenant’s ability to receive the full tenant improvement allowance. The period within which the client should be allowed to submit requests for reimbursement should be subject to extension for force majeure.

Rent Commencement and Rent Abatement

A typical office lease will initially provide for the commencement of rent either upon a date certain, which is often presumed by the parties to be the

date on which the landlord will have delivered the premises to the tenant, or a date that is some specified period after that delivery date. The problem with this construct is that it is often the case that the landlord will not deliver on the specified date, and the typical landlord’s form lease will not provide any relief for the tenant in this regard.

The authors recommend that the rent commencement date be tied to the date upon which the premises are delivered to the tenant in the required condition. Market terms will dictate that a commercial tenant will be afforded a lengthy rent abatement period, often structured as a period commencing after the commencement date, which, as discussed, should be either the date on which the landlord delivers the premises to the tenant in the required condition or a later date, after the period afforded to the tenant to complete its build-out of its space.

In the current economic market, office tenants are often afforded an abatement of one to two years of fixed

rent and of the obligation to pay passthroughs for operating expenses and real estate taxes, depending upon the lease term and local market conditions. This period during which no rent is payable, notwithstanding that the obligation to pay rent under the lease has otherwise commenced, is called the “abatement period.” The landlord will often condition the tenant’s right to this abatement on the tenant’s not being in default during the abatement period or, worse and more rarely, will try to give itself the ability to recapture the abated rent if the tenant defaults at any point during the lease term.

As with the tenant improvement allowance, discussed above, the fixed or “base” rent payable by the tenant is calculated assuming the abatement to which the tenant is entitled is pursuant to the terms of the lease; that is, the landlord has calculated the economic benefit of the lease assuming only the rent (and pass-throughs) that is payable by the tenant, assuming that no rent will be paid during the abatement

period (and, similarly, your client will have built this abatement period into its fiscal calculations).

Assume first that the tenant defaults. Assume further that the default is ultimately cured and the term of the lease continued. Finally, assume that the landlord was in that instance to avail itself of some right to withhold the abatement. Under that set of facts, the landlord would receive a windfall by receiving more rent over the term of the lease than the rent bargained for. Of course, if the tenant were to default and the landlord instead were to terminate the lease because of the default, the landlord would have a claim for recoupment of any unrecovered inducements, such as rental abatements and tenant improvement allowances. As with the tenant improvement allowance, discussed above, a more equitable remedy for the tenant’s default is for the tenant’s right to the abatement to toll if the tenant defaults during the abatement period. If the tenant defaults later in the term, and as a result the landlord terminates the lease, then the landlord should only be entitled to recoup (as to the abatement) the then-unamortized portion of the abatement as of such termination.

Force Majeure

Given that the landlord will have certain delivery and construction obligations, it may wish to protect itself by giving itself the right to claim the excuse of force majeure. To the extent that the client will be relying upon the delivery of the premises by a certain date, the landlord’s ability to claim relief from performance due to force majeure should be limited, and counsel should consider whether, given the timing the landlord has agreed to with regard to the delivery of the premises (which often includes a great deal of temporal cushion), the landlord should be able to avail itself of the excuse of force majeure at all. Certainly, the excuse of force majeure should not apply to the financial obligations of either party. A sample provision follows:

If either party is delayed or

prevented from performing any obligation hereunder due to any cause beyond such party’s reasonable control, including, without limit, fire, weather, act of God, governmental act or failure to act, strike, labor dispute, inability to procure materials, supply chain interruptions, or pandemic or other health emergency (such delay, a “Force Majeure Delay”), then the time for performance of such obligation shall be excused for the period of such delay or prevention and extended for a period equal to the period of such delay or prevention, provided that the party claiming such permitted delay promptly notifies the other of such delay and provided, further, that any delay deemed a Force Majeure Delay hereunder shall be subject to a cap of sixty (60) days, except for any delay due to permitting, so long as the party claiming such permitting delay shall have timely submitted, and thereafter diligently pursued, all applications with respect thereto. No Force Majeure Delay shall (i) extend the deadlines for Landlord’s delivery of the Premises in the delivery condition or the deadlines for restoration of the Building in connection with any casualty, (ii) extend the date by which the tenant is required to surrender the Premises upon the expiration of the term of this Lease, or (iii) excuse the timely payment of any amounts payable by Landlord or Tenant hereunder.

Pass-Throughs

A full-service office lease typically will provide that in addition to paying base (or fixed) rent, the tenant will pay the landlord pass-throughs for operating expenses and real estate taxes, often above the amounts incurred by the landlord for such amounts in a “base year,” which is a specified calendar year, often the first full calendar year during the term. As with the tenant improvement allowance, as a part of the

economics of the deal, the landlord will have estimated the operating expenses and real estate taxes for the base year and included that amount in its calculation of base rent. To help protect against fluctuations in operating expenses and real estate taxes based upon fluctuations in occupancy, the lease should provide that these amounts will be “grossed up” both for the base year and for each comparison year, which methodology provides a mechanism for fairly modifying the included amounts to account for vacancies.

Simply put, if the property is not fully occupied in the base year, expenses that fluctuate with occupancy (such as janitorial expenses and utilities but not, for instance, insurance) will be increased to the amount that they would have been had the building been fully occupied. This mechanism should burden the landlord, rather than the tenant, with the portion of any expenses that do not fluctuate with occupancy that are allocable to unleased portions of the building, yet allow the landlord to divide the costs that rightfully fluctuate with occupancy among only those tenants leasing space in the building. Although the lease should be grossed up based on 100 percent occupancy, the parties typically agree to a 95 percent gross-up, recognizing that there is usually some vacancy in the building.

The attorney also will want to negotiate limits on the types of expenses that can be passed through to the tenant. For instance, the landlord’s ability to pass through items such as capital expenditures should be limited to new laws enacted after the commencement date, capital expenditures that will reduce operating expenses (not to exceed the amount of the savings), and amounts amortized over the useful life of the improvements, and the landlord should be prohibited from passing through costs of compliance with legal requirements that were in effect prior to the lease term, because to permit the landlord to pass along those costs would be tantamount to requiring the tenants to pay for the cost of constructing and retrofitting the building.

Similarly, certain costs, such as ground lease payments and financing costs (including debt service), costs incurred by the landlord for buildout of tenant space, tenant improvement allowances, and brokerage commissions, as well as costs incurred by the landlord in completing the construction of amenity space, should be excluded altogether and borne entirely by the landlord. Other customary exclusions to limit the expenses passed on to the client would include any repairs and restoration covered by insurance (excluding the deductible), income and franchise taxes of the landlord, financing costs (including interest and depreciation), salaries and fringe benefits of any personnel above the level of building manager, any cost that would be the responsibility of an individual tenant, and management fees above a market cap (customary caps range from three to five percent of gross rents).

Termination Options

The client may wish to negotiate the right to terminate the lease before the expiration of the term. These rights are typically granted only (i) as of a date certain (such as at the beginning of the eighth lease year), (ii) upon significant advanced notice (such as one year’s notice), and (iii) upon payment to the landlord of the landlord’s then-unamortized expenses incurred in securing the lease, such as the tenant improvement allowance, brokerage commissions, and legal fees.

Although the abatement discussed above is an inducement or landlord expense, the sum of the abatement should not be included in this calculation if the unamortized portion of these expenses is calculated over the portion of the term that has lapsed exclusive of the abatement period. The termination payment will not be minimal, but it should be less than the rent that otherwise would be payable for the remainder of the term, and the availability of this option will afford the client more flexibility if it later determines that it needs to relocate for any number of reasons.

Amenities

The real estate industry is experiencing what many have touted as a “flight to amenities,” in both the commercial and residential (multifamily) markets. These amenities can include anything from rooftop features such as decks and conference centers to fitness facilities, bike storage facilities, cafés, and courtyards. Counsel should ensure the lease includes a covenant for the landlord to provide those amenities (that are important to the client) throughout the term of the lease, including that the amenities continue to be, for instance, located on the roof of the building (rather than being relocated to a basement or “mezzanine” or “concourse” level) and that they continue to generally be at least of a quality commensurate with that either promised or existing at the commencement of the lease term.

It is not uncommon for a landlord to market a building as having amenities that do not yet exist, intending to construct those amenities later with available rents or loan proceeds, or intending to construct those amenities once there is a sufficient tenant population in the building to warrant the

expenditure. Counsel should obligate the landlord to construct these amenities, including specifying the date by which such construction should be completed. Akin to remedies for the landlord’s failure to timely deliver the premises, as discussed above, counsel should include remedies, such as rent abatement, if the landlord does not meet its obligations in this regard. As discussed above, the cost of completing these amenities should not be passed along to the tenant as operating expenses.

Maintenance and Compliance with Law

The lease should obligate the landlord to maintain the building throughout the term commensurate with an appropriate standard, such as that of Class A office buildings in the central business district of the applicable city or metropolitan area. The generality of this requirement may help protect against unforeseen changes in the operational protocols for the building. As with amenities, if there are criteria that are important to your client, such as ensuring that the landlord provides janitorial services after a certain hour or that the

building be patrolled by one or more security guards, you should add these particular requirements.

The landlord should generally be responsible for ensuring that the building, as well as all structural elements, common areas, base building systems, and life safety systems, are in compliance with applicable laws in effect from time to time. There may be legitimate exceptions to this rule, such as compliance that is triggered only by something unique to the client as a user, rather than something applicable to commercial office tenants generally. For instance, if the client has a particularly dense occupancy profile, applicable regulations might mandate additional restrooms to serve those occupants, the cost of which might rightfully fall upon the tenant.

Interruption in Services, Access, Utilities

A typical lease will contain an express waiver of any liability for any interruption in services or utilities. Although the tenant can protect itself to some extent through insurance, such as business interruption insurance, the landlord also has rent insurance protection, and it is important for the lease to contain incentives for the landlord to actively seek to avoid permitting any such interruption. A workable incentive

is to provide for the abatement of the tenant’s rent for any interruption that continues beyond a minimum period, which abatement often will be conditioned upon the tenant not using the space during that period. Larger tenants may insist upon the right to terminate a lease for interruptions that continue for an unreasonably long period.

Landlord Lender Issues

As a general rule, the client’s rights as a tenant will be subordinate to the lien rights of any mortgagee of record before the date of the lease. A typical lease also will provide for the subordination of the rights of the tenant under the lease to the lien rights of future mortgagees. The ability to negotiate favorable terms requiring a mortgagee to recognize the rights of the tenant will depend on the size of the tenant and the lease term, with larger tenants having the leverage to require the mortgagee to recognize rights such as setoffs, self-help, and other tenant-negotiated provisions. The full negotiation of subordination, nondisturbance, and attornment rights as between tenants and the landlord’s mortgagees is beyond the scope of this article, but suffice it to say that in the current economic environment, one should be mindful of the ramifications of a foreclosure or other transfer of the property for then-client’s rights.

To the extent feasible, counsel should be sure that any subordination of the lease is only to the lien of the mortgage, rather than to the terms, conditions, and operation of the mortgage (as a contract), and that the tenant is granted the right to have its tenancy remain undisturbed, notwithstanding a foreclosure or similar action, so long as the tenant is not in default.

Assignment and Subletting Considerations

The tenant’s focus in the early lease negotiations is typically on the buildout and delivery date, and rarely does it consider the need for an exit strategy during the lease term. Unless an early termination right is negotiated into the lease form, as discussed above, most leases will not have a mechanism for permitting the tenant to terminate the lease before the expiration of the term; accordingly, the tenant may look to either assign the lease or sublet the premises as an exit strategy. As the trend of employees working from home persists, more and more tenants are seeking to reduce their office space, which may mean subletting a portion of their space or relocating to smaller premises.

A typical office lease will contain limited, if any, rights for the tenant to transfer the lease or sublet the premises,

and any right to transfer will be subject to restrictions and conditions. It is important to understand the differences between assigning and subletting. Under an assignment, the original tenant transfers all of its interest in the lease to a new tenant (i.e., assignee) but usually is not released from the lease obligations. The assignee assumes all of the lease obligations, usually from and after the date of the assignment. The assignee will have a direct contractual relationship with the landlord. If the assignee were to default under the lease, the landlord would be able to exercise its remedies against the assignee, or the tenant, or both. Because the tenant no longer retains any rights under the lease, it cannot exercise the lease remedies against the assignee, nor can it terminate the assignment or evict the assignee.

Under a sublease, the original tenant (i.e., sublandlord) transfers its interest in all or a portion of the premises, but not its interest in the lease. The tenant remains liable to the landlord, and the subtenant takes its rights of possession from the tenant without any privity of contract with the landlord. The subtenant communicates directly with the tenant on all matters relating to the subleased premises. The economic terms and rights in a sublease can vary from the lease. In this structure, the tenant continues to pay its rent to the landlord, and unlike in the assignment, if the subtenant defaults, the tenant can exercise remedies against the subtenant, including taking back possession of the premises.

At the commencement of the lease term, the client may not know what may be needed during the term; therefore, it is important to negotiate flexibility in the assignment and sublet provisions. Standard assignment and subletting provisions will favor the landlord and will require the landlord’s consent to a transfer, which may include assignments by operation of law (e.g., by court order, statute, etc.), transfers of the majority of the tenant’s corporate stock, and changes of control of the tenant. Although the landlord’s consent will be required, the

If no requirement of reasonableness is imposed, most state laws will not otherwise impose upon the landlord the obligation to be reasonable.

timing within which the landlord must respond to any such request for consent. The landlord may insist on having to recapture the space, rather than consenting.

Notwithstanding the restrictions discussed above, certain transfers should be permitted as of right and not be subject to the landlord’s consent or recapture. “Permitted transfers” would include transfers by merger, consolidation, or a sale of substantially all the tenant’s assets. Although these transfers may be permitted, the resulting tenant may need to evidence a financial net worth at least equal to or greater than the net worth of the original tenant. Other transfers that should be recognized as of right by a tenant are IPOs, the sale of stock on a recognized stock exchange, and transfers to affiliates. The client may want the right to allow “desk sharing” or to license a portion of the space without the landlord’s consent.

lease should provide that the landlord’s consent shall not be unreasonably withheld, conditioned, or delayed.

Note that if no requirement of reasonableness is imposed, most state laws will not otherwise impose upon the landlord the obligation to be reasonable. If the landlord agrees to be reasonable, it often will want to include a list of criteria for consent that it may impose without being deemed to be unreasonable. One such requirement often involves the financial wherewithal of the proposed assignee or subtenant; this standard should be tied to the economics of the lease, and not merely by comparison to the financial wherewithal of the tenant. For instance, if the tenant were a multimillion-dollar company leasing only a small office, then the demand for the new tenant to meet or exceed the original tenant’s net worth would not be reasonable. In this instance, it would be more appropriate to have the criterion tied to the rent, such as requiring that the new tenant have a net worth of at least five or 10 times the annual rent.

The lease should specify the

Further, landlords often prohibit transfers to an existing tenant in the building, as they do not want competition in leasing space to an existing tenant. Any such limitation should apply only so long as there is comparable space available in the building within the next few months. The foregoing are only a few of the exclusions that a landlord may impose. Each restriction or condition placed on the tenant’s right to assign or sublet should be considered in the context of the specific transaction and negotiated to give the client flexibility to exit the lease.

Conclusion

The goal of this article is to help attorneys to identify the types of scenarios that will need to be addressed to adequately represent a commercial office tenant in a lease negotiation; certainly, it is not comprehensive. For more assistance on these topics, please feel free to reach out to the authors at jjbruton@ venable.com and pstavile@venable. com. n

Novel Fiduciary Liability

Risks under the Corporate Transparency Act

By Steven H. Holinstat and Jacob E. Wonn

As of January 1, 2024, the newly implemented Corporate Transparency Act (CTA) mandates that most corporations, limited liability companies (LLCs), limited partnerships, and similar business entities formed or registered to do business in the United States file reports with FinCEN identifying, among other things, such entity’s “beneficial owners” and “company applicants.” So-called reporting companies that fail to comply with these new requirements are subject to fines of up to $500 per violation per day, and individuals responsible for any willful noncompliance may be sentenced

Steven H. Holinstat is a partner in the Litigation Department of Proskauer Rose LLP in New York, NY, co-head of the firm’s Fiduciary Litigation Group, and a Fellow of the American College of Trust and Estate Counsel. Jacob E. Wonn is an attorney in the Private Client Services Department of Proskauer Rose LLP in New York, NY.

to imprisonment for up to two years. Although trusts themselves are not reporting companies under the CTA, many trusts own interests in reporting companies, thereby mandating the disclosure of the trustees and other fiduciaries of such trusts as beneficial owners of these reporting companies in FinCEN filings. Accordingly, the fiduciaries of trusts that own interests in reporting companies understandably may have concerns regarding the extent to which they are responsible for compliance with filing requirements under the CTA and could be held personally liable for noncompliance. This article explores potential fiduciary liability risks under the CTA and suggests practices to potentially mitigate or limit those liability risks.

Background

Although a full description of the CTA’s specific filing requirements and deadlines is beyond the scope of this article,

a short summary of these requirements is warranted to set the stage for the discussion that follows. In general, the CTA requires any corporation, LLC, LP, or similar business entity (with some very limited exceptions) formed before 2024 to (a) file initial beneficial ownership information (BOI) reports with FinCEN on or before January 1, 2025, and (b) provide certain information regarding the reporting company’s company applicants and beneficial owners. 31 C.F.R. § 1010.380(a)(1)(iii). With respect to any reporting company formed during or after 2024, the initial BOI report must be filed within 90 days of receiving evidence of formation of the company. Id. § 1010.380(a)(1)(i)(A). Additionally, any change to the information included in an initial BOI report must be reported to FinCEN within 30 days of the change. Id. § 1010.380(a)(2) (i).

For purposes of preparing a reporting company’s initial BOI report, the

An important threshold question is whether liability would be imposed on the trustee in the trustee’s fiduciary capacity (in which case, any fines would be paid from trust property) or personal capacity (in which case, any fines would be paid from the trustee’s own pocket).

company applicants are defined as (a) the individual who actually files the documents forming the company with the relevant state agency and (b) the individual with primary responsibility for directing the filing. Id. § 1010.380(e). More importantly, for purposes of this article, a beneficial owner of a reporting company is defined as “any individual who, directly or indirectly, either [1] exercises substantial control over such reporting company or [2] owns or [3] controls at least 25 percent of the ownership interests of such reporting company.” Id. § 1010.380(d) (emphasis added). This definition of beneficial owners generally includes directors and officers of a corporation and managers of an LLC, and in the context of a trust that holds at least 25 percent of the ownership interests in a reporting company or exercises substantial control over such company (such as, for example, the power to remove and replace directors, officers, or managers of the company), it also encompasses the trustees and other fiduciaries of the trust and perhaps even the individuals with the power to remove and replace the trustees and other fiduciaries.

As previously noted, the CTA provides that any person who willfully fails to file required BOI reports or furnishes false information in those reports may be subject to fines of up to $500 per violation per day (not to exceed $10,000 per violation) or imprisonment for up to two years. 31 U.S.C. §§ 5336(h),

1010.380(g). In the context of a willful failure to file required BOI reports for a reporting company, these penalties may be imposed on any individual who “either causes the failure, or is a senior officer of the entity at the time of the failure.” 31 C.F.R. § 1010.380(g)(4)(iii).

Risks of Fiduciary Liability Under the CTA

Given the financial penalties associated with a reporting company’s noncompliance with the CTA’s reporting requirements, it is foreseeable that trustees and other fiduciaries of trusts owning interests in reporting companies may have concerns regarding the extent to which they may become liable for any such noncompliance. The applicable regulation indicates that a reporting company’s compliance with the CTA’s reporting requirements is an obligation of the company itself, id. § 1010.380(a), which implies that the senior officers or managers of the company would bear direct responsibility for compliance. This, however, does not resolve the question of whether trustees and other fiduciaries of trusts with interests in reporting companies also might become liable for noncompliance with such requirements. As noted above, a person’s liability for penalties under the CTA is predicated on that person’s willfully causing a failure to file required BOI reports or furnishing inaccurate information in those reports. Based on this standard, it seems plausible that the trustee of a trust with an

interest in a reporting company could be exposed to liability under the CTA if that trustee neglects to provide the company’s senior management with beneficial ownership information related to the trust’s interest or willfully furnishes inaccurate information for the company’s use in preparing a BOI report. Similarly, it is conceivable that such a trustee may potentially be held liable under the CTA if that trustee is in a position to exercise oversight with respect to the reporting company’s senior management—such as through a power to remove and replace officers or managers of the company—and fails to take reasonable steps to ensure that any required BOI report is filed within the prescribed deadline. Furthermore, even if the parties with direct liability for penalties under the CTA in such circumstances would be the reporting company itself or members of its senior management, rather than the trustee, there is a risk that the parties with direct liability may, in turn, sue the trustee for their fault in causing the liability.

In any event, assuming a trustee of a trust with an interest in a reporting company may be held liable for penalties under the CTA in the types of circumstances described above, an important threshold question is whether that liability would be imposed on the trustee in the trustee’s fiduciary capacity (in which case, any fines would be paid from trust property) or personal capacity (in which case, any fines would be paid from the trustee’s own pocket). If a trustee were held liable under the CTA in a fiduciary capacity, the key legal issue to consider is whether beneficiaries of the trust could then sue the trustee in a surcharge action for losses incurred by the trust. In contrast, if the trustee were held liable under the CTA in a personal capacity, the key issue to consider is whether the trustee would be permitted reimbursement from trust property. The distinction between these two issues may have important ramifications when analyzed with respect to the terms of the trust’s governing instrument, particularly any provisions

thereof related to the exculpation or indemnification of trustees.

Unsurprisingly, the CTA and its implementing regulations do not answer these questions, and no judicial opinions, administrative rulings, or expert commentaries have yet been published to address potential risks of fiduciary liability under the CTA. It is clear, however, that trustees generally have a fiduciary duty to exercise reasonable care, diligence, and prudence in the administration of the trust estate, including with respect to the avoidance of unnecessary expenditures. Indeed, legal precedents in analogous contexts illustrate that trustees may be held liable for losses resulting from the failure to comply with other types of governmental filing requirements (such as tax returns). See, e.g., Est. of Gerber, 73 Cal. App. 3d 96, 115 (1977) (holding trustee liable for failure to make timely claim for refund of taxes due); People ex rel. Madigan v. Manor, 2013 IL App. (1st) 113132-U, at P2 (holding trustee of charitable trust liable for failure to comply with state attorney general’s reporting and registration requirements).

To illustrate how the aforementioned principles and issues might play out in practice, consider the following hypothetical scenarios:

Scenario 1. A trust is the sole member of an LLC that is a reporting company, and the trustee of the trust is the manager of the LLC.

In this scenario, given that the trust is the sole owner of the LLC and the trustee (either as trustee or as manager of the LLC) is the only person able to exercise substantial control over the LLC, it is likely that such trustee would bear direct and exclusive responsibility for filing the LLC’s BOI reports and, as a result, could potentially be held liable for any penalties imposed under the CTA if the trustee either fails to file said reports or willfully files reports containing false information. Furthermore, if any associated penalties were charged against the trust property—including against the LLC’s assets, which are, in turn, indirectly owned by the trust—the trust beneficiaries may claim that such actions by the trustee (either as a fiduciary of the trust or manager of the LLC) constitute a breach of the trustee’s fiduciary duty and may seek to surcharge

the trustee for the losses resulting from said breach.

Scenario 2. A trust owns a 24 percent membership interest in an LLC that is a reporting company, the trustee also happens to be the manager of the LLC, and the remaining membership interests are owned by unrelated third parties.

The trustee, as manager of the LLC, would be responsible for filing the LLC’s BOI reports. If any associated penalties were charged against the reporting company for failing to timely file an accurate BOI for the reporting company, the trust’s beneficiaries could seek to surcharge the trustee for any indirect loss sustained by the trust because of its 24 percent interest in the reporting company. But, if the liability arises from the failure or refusal by the 76 percent owners to provide the requisite information, the trustee may seek to raise this fact as a defense to a claim by the trust’s beneficiaries (assuming, of course, that the trustee engaged in appropriate due diligence). It is also possible that the trust’s beneficiaries could nonetheless seek to hold the trustee liable unless the trustee (as manager of the LLC) were

to take all appropriate steps to recover any losses from the other owners who failed or refused to provide the requisite information.

Scenario 3. A trust is the sole member of an LLC that is a reporting company, the manager of the LLC is an unrelated third party, and the trustee of the trust has the power to remove and replace the manager of the LLC.

In this scenario, although the thirdparty manager of the LLC would be responsible for filing the required BOI reports, the fact that the trust is the sole owner of the LLC ostensibly gives rise to an affirmative fiduciary duty of the trustee to furnish the manager with accurate beneficial ownership information needed to file such reports. In addition, the fact that the trustee has the power to remove and replace the LLC’s manager suggests that the trustee’s fiduciary duties would entail an obligation to take reasonable steps to ensure that the manager, in fact, files any required BOI reports within the prescribed deadline, and perhaps even to remove and replace the manager if the trustee has reason to believe that the manager will not comply with the filing requirements. Accordingly, it is plausible that the trust’s beneficiaries could seek to hold the trustee responsible for any losses resulting from the trustee’s failure to provide the manager of the LLC with accurate information needed to prepare BOI reports, or to exercise reasonable oversight of the manager’s compliance with CTA filing requirements.

Scenario 4. A trust owns a 24 percent membership interest in an LLC that is a reporting company, the remaining 76 percent membership interests are owned by unrelated third parties, the manager of the LLC is also an unrelated third party, and the trustee does not have any role within the LLC or any power to remove and replace the manager of the LLC.

Unlike in the previous three scenarios, the trustee’s risk of exposure to liability in this scenario is much lower for any CTA reporting violations, given that (a) the trust’s membership interest in the LLC is under the 25 percent threshold required for beneficial

ownership information concerning the trust to be included in the LLC’s BOI report and (b) the trustee is not a manager of the LLC and lacks any other authority to exercise substantial control over the LLC. Even in this scenario, however, it would be advisable for the trustee to make an effort to communicate with the manager of the LLC regarding compliance with the CTA’s reporting requirements, if only to guard against the remote risk that the trust’s beneficiaries could later attempt to sue the trustee if the value of the trust’s interest in the LLC were to be diminished by penalties associated with any violations of such requirements.

Practical Guidance

In light of the foregoing potential risks of fiduciary liability under the CTA, trustees of trusts with interests in reporting companies should consider the following practices to attempt to potentially mitigate or limit such risks:

• Where the trustee of a trust with an interest in a reporting company also acts in a managerial capacity with respect to the company, the trustee should make reasonable efforts to ensure that any required BOI reports are filed within the prescribed deadlines using accurate information.

• In cases involving multiple unrelated third parties, compliance with the CTA will require clear communication and coordination between the trustees of trusts owning interests in reporting companies and the third-party managers, officers, etc. of those companies in order to assign responsibility for preparing and filing BOI reports, collecting and furnishing info required for BOI reports, and implementing internal procedures and safeguards to ensure compliance.

• Trustees of trusts owning interests in reporting companies should seek advice from appropriate professionals, including attorneys, to better understand

their obligations under the CTA and receive assistance with analyzing the beneficial ownership of such companies. The trustees also should consider engaging service providers to assist with monitoring CTA compliance and preparing necessary filings. These types of services are now being offered by vendors such as CT Corporation and Corporation Service Company, among others.

• Attorneys drafting LLC operating agreements and similar governance documents for other types of reporting companies should consider whether to clearly indicate in such documents who shall bear responsibility for filing BOI reports and to consider whether such documents should include provisions to exculpate or indemnify non-responsible parties who are assessed with penalties for violations of the CTA’s reporting requirements.

• Similarly, attorneys drafting trust agreements for trusts that will own interests in reporting companies should consider whether to include provisions defining the trustee’s obligations regarding CTA reporting requirements, and potentially including exculpation or indemnification provisions to the extent permissible under applicable law.

• Even in situations where the trustee of a trust with an interest in a reporting company is not directly responsible for preparing and filing BOI reports, that trustee would still be well-advised to proactively furnish the responsible party with beneficial ownership information required for such reports and to follow up with the responsible party before any applicable deadlines to ensure that BOI reports are timely filed. n

Enhanced Relief and Streamlined Procedures

A Review of the Final GST Exemption Allocation Relief Regulations

By Beth Shapiro Kaufman, Abbie M.B. Everist, and Amber M. Waldman

Following substantive comments and input from the public, the IRS recently issued final regulations offering guidance on generation-skipping tax (GST) exemption allocation relief (TD 9996). Proposed regulations

Beth Shapiro Kaufman is a partner in Lowenstein Sandler’s Washington, DC, office and the National Chair of the firm’s Private Client Services Group. Abbie M.B. Everist is a principal at BDO’s National Tax Office. She also serves as the vice-chair of the RPTE’s generation-skipping transfer tax committee. Amber M. Waldman is a senior director and member of RSM’s Washington National Tax practice.

on this topic were published more than 16 years ago on April 17, 2008. The final regulations, effective for requests for relief filed on or after May 6, 2024, provide clarity for the private letter ruling (PLR) process under Internal Revenue Code (Code) section 2642(g)(1) for taxpayers seeking to rectify past mistakes in GST exemption allocations and elections. Going forward, relief under Code section 2642(g)(1) will no longer be granted under Treasury Regulation (Treas. Reg.) section 301.9100-3 (9100 Relief). Instead, relief will be granted solely under Code section 2642(g)(1) pursuant to new Treas. Reg. § 26.2642-7.

The Code grants each taxpayer an

exemption from the generation-skipping transfer tax (GSTT) in the amount of $13.61 million (as of 2024, indexed for inflation). Code § 2631. GST exemption can be manually or automatically allocated to transfers or trusts funded by a transferor. Code section 2632(b) (1) provides for automatic allocation to “direct skips.” If a transferor does not want the automatic allocation to apply, the transferor must make an “opt-out” election under Code section 2632(b)(3). Since 2001, the Code also provides for automatic allocation to “indirect skips” made from “GST trusts.” Id. § 2632(c)). Under Code section 2632(c)(5), a taxpayer can make an “opt-out” election, so

Issue Is relief available under new regulation?

Failed to make a timely opt-in election after December 31, 2000

Opt-in election erroneously made after December 31, 2000

Yes

Yes

Failed to make a timely opt-out election after December 31, 2000

Opt-out election erroneously made after December 31, 2000

Yes

Yes

What is the general impact of the relief?

Failed to make manual allocation of GST exemption either (i) to a transfer made prior to December 31, 2000, or (ii) to a transfer made on or after January 1, 2001, to a trust that is not a “GST trust”

Manually allocated GST exemption erroneously

Yes

No, but see discussion of three exceptions below

A trust that is not a “GST trust” would not have an automatic allocation of GST exemption. A taxpayer could request relief to make an opt-in election as if it were made timely. If relief is granted, an automatic allocation would be effective as of the date of the transfer and the allocation would be based on the value as of the date of transfer.

Absent relief, an automatic allocation of the taxpayer’s GST exemption occurred on each transfer to this trust. The taxpayer could request relief to revoke the erroneous election. If relief is granted, the taxpayer would have the restored GST exemption available for other transfers.

A trust that is a “GST trust” would have an automatic allocation of GST exemption. The taxpayer could request relief to make an optout election as if it were made timely. If relief is granted, no automatic allocation would occur.

No automatic allocation of the taxpayer’s GST exemption occurred because of the erroneous opt-out election. The taxpayer could request relief to revoke the erroneous election. If relief is granted to revoke the erroneous election and the trust is a “GST trust,” an automatic allocation would occur. It would be effective as of the date of the transfer and the allocation would be based on the value as of the date of the transfer.

No allocation of the taxpayer’s GST exemption occurred because there was no automatic allocation and no manual allocation. The taxpayer could request relief to manually allocate GST exemption as if it were done timely. If relief is granted, the allocation would be effective as of the date of the transfer and the allocation would be based on the value as of the date of the transfer.

See “Clarity on Exceptions”

that a trust is not treated as a GST trust and therefore does not receive automatic allocation, or the taxpayer can make an “opt-in” election, so that a trust that is not a GST trust is treated as a GST trust and receives automatic allocation. These elections can be made with respect to a specific transfer, a specific trust, or all transfers by the transferor. Although generally helpful, these elections have been the source of considerable difficulty for taxpayers and their representatives.

Code section 2642(g)(1) was added to the Code in 2001. It provides that the Secretary of the Treasury shall promulgate regulations prescribing the circumstances and procedures under which extensions of time will be granted to make an allocation of GST exemption to a trust or transfer and elections under subsection (b)(3) or (c)(5) of Code section 2632. Pursuant to Notice 200150, 2001-2 C.B. 189, the IRS has granted 9100 Relief to make certain late elections and allocations pending issuance of final regulations under Code section 2642(g) (1) in hundreds of cases.

The final regulations prescribe the circumstances and procedures for obtaining extensions to make retroactive timely GST exemption allocations and elections. Significantly, the final regulations offer relief in circumstances that were not included in the proposed version: Taxpayers may request relief to revoke an erroneous opt-in or opt-out election. The relief outlined in the final regulations generally applies even if the gift or estate tax return statute of limitations has expired. It appears, however, that affirmative, or manual, allocations of GST exemption made on a timely filed gift tax return are still generally irrevocable, with a few narrow exceptions discussed below.

Relief Now Available to Revoke Erroneous Code Section 2632(b) and (c) Elections

Before issuance of the final regulations, there was no mechanism to undo an erroneous opt-in or opt-out election. Under the proposed regulations and 9100 Relief, the IRS took the position that it lacked the authority to grant relief for revoking erroneous opt-in or

The final regulations provide a detailed roadmap of the information the IRS requires when seeking relief via a PLR.

opt-out elections. Code section 2631(b) states that GST exemption allocations under Code section 2631(a) are irrevocable. The final regulations clarify that no such statutory rule exists for elections made under Code section 2632(b) (3) or (c)(5). This distinction is crucial. By removing the language in the proposed regulation that barred relief for revoking elections made on timely filed gift tax returns, the final regulations open the door for such fixes, provided that the regulatory requirements are met. This newfound flexibility offers valuable relief for taxpayers and their representatives who may have made inappropriate GST exemption elections.

The table on page 46 summarizes the availability of relief in light of the expanded scope of the final regulations.

Clarity on Exceptions to the Irrevocability of Manual GST Exemption Allocations

Manual allocations of GST exemption are generally irrevocable. This principle of irrevocability serves to ensure the finality and certainty of the taxpayer’s use of its GST exemption and to avoid a taxpayer’s use of hindsight to alter prior allocation decisions. The regulations acknowledge, however, the possibility of inadvertent errors and offer three limited exceptions to the general rule of irrevocability. The first two exceptions are not new and do not require a request for relief.

The first exception acts as a safeguard against overallocation. It ensures that taxpayers cannot allocate more GST exemption than is necessary to fully shelter a trust or transfer from the GSTT. This exception prevents the waste of a taxpayer’s GST exemption by voiding allocations in excess of the amount necessary to achieve a zero-inclusion ratio for the trust. This exception was already detailed in Treas. Reg. § 26.2632-1(b)(4).

The second exception applies when the trust to which the allocation is made has absolutely no potential to be distributed to a skip person at the time of the allocation. If the trust may have even a remote possibility of benefitting a skip person, this exception does not apply. In such a scenario, the allocation of GST exemption is deemed void. This exception prevents the unnecessary depletion of the GST exemption when it could not possibly provide a benefit. This exception was also already detailed in Treas. Reg. § 26.2632-1(b)(4).

The third exception, introduced in the final regulations, offers a relief mechanism for taxpayers grappling with pre-2001 late allocations. Before 2001, late allocations of GST exemption were the only option available to address an earlier failure to make a manual allocation of GST exemption. The third exception allows affected taxpayers to undo the late manual allocation in connection with administrative relief to make a retroactive timely allocation

This newfound flexibility offers valuable relief for taxpayers and their representatives who may have made inappropriate GST exemption elections.

based on the date of transfer values. A timely allocation that relates back to the date of transfer will use less GST exemption than a late allocation if the transferred assets have appreciated in value. Treas. Reg. § 26.2642-7(e)(2)(ii) (C). This exception provides a valuable opportunity to use Code section 2642(g) relief even if available self-help methods were used previously to mitigate damages.

Simplified Procedure for Relief During Automatic Six-Month Extension Period

The final regulations provide a simplified procedure for relief during the automatic six-month extension period for timely filing a gift or estate tax return or (in the case of a decedent dying in 2010) Form 8939. This relief is available when the return or form was filed by the return’s original due date and during the automatic six-month extension period for the gift or estate tax return, the taxpayer wishes to allocate GST exemption or make elections under Code section 2632(b)(3) or (c)(5) that were not made on the originally filed return. Id § 26.2642-7(i)(1). To request this relief, the taxpayer must file a supplemental return or form within the six-month extension period with “FILED PURSUANT TO SECTION 26.2642-7(i)(1)” written on the front page of the return or form and submit it to the same address

that a timely return or Form 8939 on which the allocation or election should have been made would have been sent. Because this relief is automatic, no request for a PLR is required and no filing fee is due.

Information Requirements and Affidavits for GST Exemption Allocation Relief PLRs

Taxpayers seeking GST exemptionrelated relief via a PLR will now look to the final regulations under Code section 2642(g)(1) rather than Treas. Reg. § 301.9100-3 for procedural guidance. The final regulations provide a detailed roadmap of the information the IRS requires when seeking relief via a PLR that echoes and elaborates on the guidance previously provided for 9100 Relief. Although these new procedures are not as onerous as those in the proposed regulations, they do introduce additional requirements beyond those required for 9100 Relief for taxpayers seeking GST exemption allocation relief. The final regulations’ emphasis on transparency and fairness can provide taxpayers with greater confidence when pursuing GST exemption allocation relief under Code section 2642(g) via a PLR.

First, to receive relief under the final regulations, the taxpayer must have acted “reasonably and in good faith,” and the grant of relief must “not prejudice the interests of the government.”

The Taxpayer Acted Reasonably and in Good Faith

Determining whether a taxpayer acted reasonably and in good faith requires a facts-and-circumstances analysis. The final regulations set forth a holistic approach to determine if that threshold has been met, based on the factors discussed below. No single factor is determinative.

1. Intent: The first factor to review is the transferor’s intent to allocate GST exemption to a transfer or trust or to make an election under Code section 2632(b)(3) or (c)(5). Treas. Reg. § 26.2642-7(d)(2) (i). The trust instrument, transfer documents, and other documents contemporaneous with the transfer can provide evidence of the transferor’s intent. Donor intent has always been an important factor in areas of gift, trust, and estate law, and it is not surprising that it is an important element for relief.

2. Intervening Events: Intervening events that are beyond the transferor’s or executor’s control that caused the failure to allocate GST exemption or to make an election under Code section 2632(b)(3) or (c)(5) to a transfer may be considered in evaluating whether the taxpayer acted reasonably and in good faith. Id. § 26.2642-7(d)(2)(ii).

3. Lack of Awareness: The taxpayer’s or executor’s lack of awareness of the need to allocate GST exemption to a transfer or make an election, despite exercising reasonable diligence, may be considered when the IRS evaluates relief. Id. § 26.2642-7(d)(2)(iii).

4. Consistency: The consistency of the transferor’s allocations of GST exemption to prior similar transfers may be a factor supporting relief. Changes in circumstances may diminish the importance of this factor if there were new facts to rationalize the change in GST exemption allocation or election. Id. § 26.2642-7(d)(2)(iv).

5. Qualified Tax Professional: GSTT is a complicated area of practice, so taxpayers typically rely on tax

professionals to help implement a tax-efficient estate or gift plan, including whether to allocate GST exemption or to make an election under Code section 2632(b) (3) or (c)(5). Reasonable reliance on a qualified tax professional is a favorable factor. Reliance will not be reasonable if the taxpayer or executor knew or should have known that the professional was not competent in this area of practice or was not aware of the relevant facts. Id. § 26.2642-7(d) (2)(v). Although this factor alone has been found to be sufficient to support 9100 Relief, the final regulations make it clear that for Code section 2642(g) relief, this factor will be considered along with others.

Granting Relief Would Not Prejudice Government Interests

As with 9100 Relief, the final regulations require the taxpayer to demonstrate that granting relief would not prejudice the interests of the government. The final regulations include a nonexclusive list of factors to be considered, outlined below.

1. Hindsight: The IRS will deny relief if it appears the taxpayer is using hindsight to the taxpayer’s advantage. Id. § 26.2642-7(d)(3) (i). This factor applies to situations involving multiple transfers made around the same time, with different property types. The regulation aims to prevent taxpayers from waiting to see which transfer appreciates the most before requesting relief to allocate GST exemption to that specific transfer (maximizing the benefit of the exemption). Relief will not be granted if a taxpayer has attempted to use hindsight to obtain an economic advantage.

2. Timing of the Request for Relief: Another important factor is the timing of the request for relief. Id. § 26.2642-7(d)(3)(ii). The regulations consider it a negative fact if the request for relief comes shortly after the window for a gift or estate

tax assessment closes. This rule specifically targets situations in which a taxpayer intentionally delays requesting relief until the IRS can no longer examine the reported value or transfer details. Such timing evidences an intent to deprive the IRS of sufficient time to examine the details of the transfer and will provide a reason to deny relief unless the taxpayer can produce evidence to rebut the presumption.

3. Intervening Events: The final regulations state that if there has been a taxable termination or taxable distribution, that will be considered in determining whether the government’s interests would be prejudiced by a grant of relief. Id. § 26.2642-7(d)(3)(iii). These events have immediate GSTT implications since they can trigger imposition of a tax. The IRS will assess whether the need to collect or refund a GSTT constitutes prejudice.

4. Gross Valuation Misstatements in Closed Years: The expiration of the period of limitations is not a bar to granting relief, but the IRS will consider whether the transfer involves an asset the valuation of which was grossly understated. Id. § 26.2642-7(d)(3)(iv). A gross

understatement is defined in Code section 6662(h)(2)(C) as an estate or gift tax valuation in which the value of property reported is 40 percent or less of the amount determined to be the correct amount of such valuation. The final regulations acknowledge that if the IRS determines the reported value of the transferred assets was grossly understated on the gift or estate tax return, that would be a negative factor in determining whether relief will be granted. This factor underscores the importance of accurate valuations in GSTT planning and the potential consequences of significant understatements.

The Role of Affidavits in a Request for Relief

The final regulations require affidavits from certain individuals to support the PLR request. These requirements were curtailed from those in the proposed regulations but still exceed the requirements for 9100 Relief.

Transferor or Executor Affidavit

The final regulations require a detailed affidavit from either the transferor or the executor when requesting relief. Id. § 26.2642-7(i)(3). This affidavit should describe the events that led to

the failure to timely allocate the GST exemption or make the election and the events that led to the discovery of the failure.

Affidavits from Others

The final regulations require additional affidavits beyond the one from the transferor or executor. Id. § 26.2642-7(i)(4). These additional affidavits must be obtained from various parties involved in the original GST exemption allocation decision. This includes:

• Any agent or legal representative of the transferor who participated in the planning or preparation of the tax return. This would include an executor and an agent acting under a power of attorney.

• The preparer of the relevant tax return and anyone who made a significant contribution to the preparation of the return.

• Each individual who provided information or advice with respect to a decision to allocate exemption or elect to opt in or opt out. This could encompass attorneys, financial advisors, or other professionals who participated in the planning process.

• Other relevant advisors. This broad category could include additional professionals who offered advice related to the GST exemption allocation.

Each affidavit should detail the scope of engagement, the responsibilities of

the individual, and the advice or services provided and should attach all relevant contemporaneous documents. Each affiant must conduct a “reasonably diligent” search for relevant documents. Treas. Reg. § 26.2642-7(i)(4)(vi) addresses the process to follow if the person required to provide an affidavit is deceased, unavailable, or unwilling to sign an affidavit. This comprehensive approach to affidavits aims to provide a wellrounded picture of the decision-making process and identify any potential factors that may have contributed to the error. All affidavits must be signed under penalty of perjury.

A request for relief under this regulation does not open, suspend, or extend the period of limitations for assessment of tax due under Code section 6501. Id. § 26.2642-7(g). The IRS may request an extended period of limitations, however, on assessment under Code section 6501. Although the taxpayer or executor is not required to agree to the extension request, declining to agree may affect the prejudice-to-the-government factor of the analysis. Id.

Another crucial point is that the request for relief is not a request for refund or credit and does not extend the time period to claim a credit or refund under Code section 6511. Id. § 26.26427(h)). The relief granted under Code section 2642(g)(1) may reduce an inclusion ratio or preserve a taxpayer’s GST exemption, but any potential refund or credit claim needs to be separately

preserved by the taxpayer or executor under Code section 6511. Id.

Requests for 9100 Relief have enjoyed a lower user fee than other PLR requests. The preamble to the final regulations indicates that the user fee schedule for relief under Code section 2642(g)(1) will be the same as that imposed for 9100 Relief. This change would require an update to the annual “-1” revenue procedure.

Conclusion

In response to identified challenges, the final regulations provide relief request procedures for most prior errors related to GST exemption allocations and elections, potentially yielding tremendous benefits for taxpayers and their advisors. Relief may be granted for facts that show reasonableness, good faith, and a lack of prejudice to the government. Bearing in mind that relief under Code section 2642(g) is not mandatory but is a matter of IRS discretion, to maximize the opportunity for a favorable outcome, taxpayers and their advisors should prepare careful and comprehensive PLR requests, supplying all information required by the final regulations. Of course, practitioners should adopt best practices to avoid errors and exposure in the first instance, proactively review their clients’ historical GST exemption allocations to identify potential problems, and use the final regulations as a solution when necessary. n

Previously, I wrote about the rise of algorithms in social media and search platforms and advised how to escape the pernicious bubble. See Algorithms Take Over Search—How to Take Back Control, Prob. & Prop. (Mar/Apr 2024). In so doing, I ignored the all-but-total dominance of Google Search and its effect on your ability to get accurate answers to your search questions. With the recent decision of the federal district court in Washington, DC, in United States et al. v. Google LLC (No. 1:20-CV-3010-APM), holding Google liable for monopolization of the general search market, the issue of alternatives to Google Search is no longer academic.

The DC district court is now in the remedy phase of the trial. It will look at options ranging from behavioral restrictions on Google (such as restricting default browser financial incentives) to force Google to open up white-label APIs to search and break up Google. These remedy proceedings (including the appeals process) will take years. Meanwhile, what can you do now to get the answers you need from our search engines?

What Is Search?

Let’s start with a definition of “search” and what is expected. At its most fundamental, a web search is a keyword search. It looks at the words in your search request and compares them to an index of words on the target web page. The more matching words, the

Technology—Property Editor: Seth Rowland (www.linkedin.com/in/ sethrowland) has been building document workflow automation solutions since 1996 and is an associate member of 3545 Consulting® (3545consulting.com).

TECHNOLOGY PROPERTY

Moving Beyond Search

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higher the rank of the given web page. Some words have more weight than others. Words like “the” and “a” are generally ignored—the more specific the word, the higher the rank. Further, the proximity of the words to each other also increases rank.

A talented online researcher will have learned to target their searches by using narrow keywords and placing them to get the desired information. Information comes back as a list of web links with snippets of information showing the user the portion of the page that answers the question. The user must then drill down by visiting the page and hunting for where that answer exists. The process is inherently inefficient. Furthermore, many sites contain information hidden behind a paywall, with the goal of the link to encourage you to pay for access to the information trove.

You may not be aware that words you don’t see on the target web page are also ranked. There is a science to search engine optimization (SEO) that involves adding keywords to meta-data on the web page that is not displayed. Weight is given to the name of the page, the titles, the hyperlinks, and even all the picture tabs that allow the publisher to target specific keywords. In addition, the reputation of a website is factored into the ranking. Reputation is

measured by the number of page visits to the side and the number of other websites with links back to that site or page.

In this world of search, Google is a monopolist with over 90 percent of the market. It has access to the largest trove of information and keeps it current. It also has a predictable search engine that learns what you are looking for and produces predictable results. The valuable information is surrounded by paid promotions and advertisements, many of which need to be clarified with accurate information. Increasingly, geography (where you are according to your IP address) and who you are (based on your search history, your purchasing history, and other public data) determine what web pages are served up in response. Because Google makes money from advertisers who want to sell you goods or political ideas, the objective quality of the information you receive from a typical search has declined over the past several years.

Voice Search versus Text Search Results

If you use Google Voice on your Android phone or Siri on your Apple phone, you get an answer to your question. If Siri is unsure, it will give you a list of top web search results instead. Over the past decade, voice search has improved dramatically, moving closer to the answers people seek. The early implementations of Google Voice and Siri were clunky. You needed to craft a very specific question that was generic enough that a search could be done and specific enough that you got useful information. You also needed to use instructions to frame the search to get useful results.

Today, voice search uses a large

language model to understand your question. The current buzzword for this analytical model is artificial intelligence (AI). The large language model can understand what you are asking and convert it into a search. The problem with this approach is that people need to ask straightforward questions. Search engines struggle to figure out what you want. One solution is to allow the voice search to engage in a dialog with the user. Siri will ask you to clarify your question by asking which of several possible results best answer your question. In so doing, it learns what you want. This rudimentary colloquy results in a better search experience. Although Google Voice lets you direct your phone to take certain actions, it doesn’t engage in dialogue to the same extent as Siri does.

Enter ChatGPT and Bing

While Google monopolized search, several innovators decided to do an end run around Google and focus on what type of answers users wanted. They discovered that most people did not want a list of links to websites that might contain the answers; users did not want to research the topic. They wanted the information to be digested and presented back naturally, as you would if you asked an expert. They also wanted to be able to specify some of the boundaries as to how the information is presented, either with or without specified bias. In short, they didn’t want to do the research; they wanted to hire a researcher.

Enter OpenAI, founded in 2015. It was initially a non-profit venture to foster the development of safe and beneficial AI. Microsoft, one of Google’s remaining competitors in the search engine space with its Bing search engine, saw an opportunity and invested billions of dollars in OpenAI and its for-profit arm. It also provided the computational resources to develop OpenAI’s technology into what is now known as ChatGPT. Released in November 2022, ChatGPT pioneered the development of generative AI.

With ChatGPT, you can ask a series of questions. You can specify whether

you want a short-sentence response, a full paragraph, or a complete treatise as your answer. Current versions of ChatGPT include footnotes in the response that link to webpages you can follow if you are inclined. If the answer needs to be more responsive or sufficiently detailed, you can ask follow-up questions until satisfied. You can also have fun. You can tell ChatGPT to give you an answer in the form of a limerick. You can even ask ChatGPT to pretend it is a travel agent and give you the itinerary for a ten-day trip to Portugal with a budget of $400 per day.

ChatGPT is now branded as CoPilot and a part of Microsoft’s Bing Search engine. It is also available as a sidebar in Microsoft Office; there is no need even to fire up your browser. Furthermore, the source material for the CoPilot was not limited to web searches. ChatGPT knows literature, music, images, movies, programming languages, and science. You can supply ChatGPT with additional information to train it to give answers based on the documents you provide access to. Once users discover ChatGPT, their web searches go down precipitously. Who wants to slog through lists of links when you can get the answer in a format that you can use immediately?

Competitors to ChatGPT

Generative AI has completely scrambled the competitive landscape. OpenAI was not the only group developing AI. ChatGPT’s success has opened the floodgates of venture capital investment. Moreover, ChatGPT has rented its engine to developers for use in a host of specialty applications.

In the legal space, NetDocuments has incorporated the ChatGPT engine in its PatternBuilder Max (PBMax) document generation system. Using ChatGPT prompts and instructions, PBMax can extract data from legal documents or do case summaries. Other vendors in the legal AI space address specific niches. Spellbook (spellbook.legal) focuses on data extraction tools and contract drafting wizards. Paxton (www.paxton. ai) includes contract review and document drafting assistance and adds

legal research. The leading vendors in case law research also have AI addons. If you have Westlaw, you want to investigate Thomson Reuters’s CoCounsel (casetext.com/cocounsel). If you have Lexis, you may want to look into Protégé (https://www.lexisnexis.com/ en-us/products/protege.page).

Perplexity (https://www.perplexity. ai/) is a generalized AI tool, like ChatGPT, but it may give you more reasoned answers and be less susceptible to hallucinations. Its motto is “where knowledge begins.” Perplexity claims to focus on providing well-researched answers and drawing evidence from various sources to support its claims. Unlike a simple search engine, Perplexity aims to understand the intent behind a question and deliver a clear and concise answer, even for complex or nuanced topics. If you want to understand better the business your client engages in or some of the downside risks for that business, Perplexity can give you those answers. Whether you work on a franchise offering, a public offering, or a routine security disclosure, AI tools can help you put explanations in plain English. Legal work involves writing. Court motions, briefs, and appeals require proper citation to legal authority. Whether using an associate or paralegal to write your first draft or generative AI, you will want a separate tool to confirm the legal citations are both real and proper. There are add-ons for Lexis and Westlaw, as well as stand-alone services like TypeLaw (https://www.typelaw. com/citations/), that will aid in this process.

And then there are potentially embarrassing grammar errors that can confuse a court as to what you really mean, or inside a contract, grammar errors that change the intended meaning of a legal provision. You can turn on Word’s basic grammar check, which is limited to Microsoft products and may not work on your phone or tablet. Here, products like Grammarly (https:// www.grammarly.com/) offer you crossplatform grammar checking. It can be the second set of eyes on an email or a document before you send it out. Other

grammar checkers, like Trinka by Enago (trinka.ai/features/legal-writing), offer special modules for legal writing. There are also legal niche products, like PerfectIt (intelligentediting.com/product/ legal-checking/), that focus exclusively on legal drafting. One of its tricks includes checking all capitalized terms in your contract and ensuring they are defined in the final document. PerfectIt applies Blue Book® citation rules and Black’s Law Dictionary rules for the hyphenation of legal terms.

Lawyers are constantly encouraged to engage in social media marketing to create a buzz around the law firm’s accomplishments. Some firms use social media to send clients valuable and relevant information on real estate trends, new laws and regulations, and political developments. These efforts can require engaging a costly marketing specialist or dedicating non-billable legal time to creating content. With generative AI, you can streamline the production of marketing materials, build better web pages, draft blog posts, and even harvest leads from marketing campaigns.

Writesonic (https://writesonic.com/) is an AI-powered writing assistant. It will let you specify the tone and the style of the answer. Copy.ai (Copy.ai) will help a team with marketing copy on one side, lead generation, and followup. Numerous tools use AI to enhance client communications, including Jasper AI (formerly known as Jarvis.ai) and Rytr LLC (rytr.me). Some of the legal CRM products like Clio Grow (clio. com/grow/) have added AI features, including tools that read emails and auto-generate responses to increase client engagement.

you can engage Pi (pi.ai). Pi will answer your questions and advise you, manage task checklists, and help you learn a new language.

What Is Next for Google Search?

Even Google, not to be left behind, has done a limited release of a product called Gemini (gemini.google.com/). Google has a significant advantage because it already has access to much of the data used to train generative AI tools. One remedy available to the court to prevent Google from leveraging its monopoly in internet search into the area of generative AI is to require Google to offer its tools to other generative AI vendors at reasonable rates. This requirement would allow aggregators like Poe (poe.com) to provide

access to AI from multiple platforms. The user would ask their question and get responses from various platforms, including ChatGPT, Gemini, DALLE 3, and others. They could then decide which platforms provide what they are looking for. Google could also open its platform to allow direct links via footnotes to supporting documentation. The transition from search to answers has only just begun. We will always need some form of generic search engine. There is no need to wait for the Washington, DC, district court to fashion a remedy in United States et al. v. Google LLC. There are tools to escape the bubble that I outlined in my last article. And the generative AI tools reviewed in this article let you go beyond search. n

You can also use generative AI tools to indulge your creative and emotional side if you want a break from work. You could always ask Siri to tell you a joke, but with Replika (replika.com), you can now have an AI friend to chat with on your daily commute to the office. With character.ai (character.ai), you can chat with Clarence Darrow or the Honorable Oliver Wendell Holmes Jr., and see how they would frame your legal issue for trial. If you want a personal assistant,

Conference Dates: Wednesday, April 30 - Thursday, May 1, 2025 Leadership

Dates: Thursday, May 1 - Friday, May 2, 2025

ENVIRONMENTAL LAW UPDATE

The Fallout of EPA’s New Regulation of PFOA and PFOS as CERCLA Hazardous Substances

Since our last update column, the Environmental Protection Agency (EPA) and the Securities and Exchange Commission (SEC) have taken significant environmental regulatory actions. In April 2024, the SEC stayed its new climate disclosure regulations promptly after enacting them due to a resulting barrage of lawsuits. In June 2024, EPA issued regulations limiting specific power plant emissions. The US Supreme Court’s recent invalidation of the Chevron deference doctrine, which for the past 40 years allowed trial courts to defer to federal agencies’ interpretation of the agencies’ regulations, will have lasting implications. Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024). We will discuss the Court’s decision in our next update. EPA’s latest action in its ever-increasing regulation of per- and polyfluoroalkyl substances (PFAS) has an immediate, mostly overreactive, effect on transactions affecting real property and businesses.

The New PFAS Regulations and Enforcement Policy

As the name suggests, PFAS are a class of thousands of “forever chemicals” that may take hundreds of years to degrade in the environment. Under EPA’s final regulation that became effective on July 8, 2024, two widely used PFAS, perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS), are now classified as hazardous substances under the Comprehensive Environmental Response, Compensation, and

Environmental Law Update Editor: Nancy J. Rich, Katten Muchin Rosenman LLP, 525 W. Monroe Street, Chicago, IL 606613693, nancy.rich@katten.com.

Environmental Law Update provides information on current topics of interest in the environmental law area. The editors of Probate & Property welcome suggestions and contributions from readers.

Liability Act (CERCLA), 42 USC § 9601 et seq., also known as Superfund.

In support of its rationale for its recent listing of PFOA and PFOS as hazardous substances, EPA stated that PFAS exposure has been linked to cancers, effects on the liver and heart, and immune and developmental damage to infants and children. Depending on the outcome of the US federal elections in November 2024, EPA may propose to list additional PFAS chemicals as CERCLA hazardous substances as it continues to implement its PFAS Strategic Roadmap to regulate PFAS further.

As noted in the most recent Environmental Update, EPA has also proposed changes to regulations under the Resource Conservation and Recovery Act (RCRA), 42 USC § 6901 et seq, by adding nine PFAS compounds, their salts, and their structural isomers to its list of hazardous constituents in Title 40 of the Code of Federal Regulations, Part 261, Appendix VIII. As of mid-August 2024, EPA has not yet promulgated this regulation, but it may do so before the end of the current Presidential term.

In addition to the final regulation listing PFOA and PFOS as CERCLA hazardous substances, EPA has issued a separate CERCLA enforcement

discretion policy that makes clear that EPA will focus enforcement on parties who significantly contributed to the release of PFAS into the environment, including parties that have manufactured PFAS or used PFAS in the manufacturing process, federal facilities, and other industrial parties. The policy also notes that EPA does not intend to pursue entities when equitable factors do not support seeking response actions or costs under CERCLA. These entities include municipal landfills, water utilities, airports, farmers, and local fire departments.

Managing the Effect of the New Regulations and Policy

The new and expected PFAS regulations and policies create concerns for lawyers who assist their clients in identifying and evaluating risks in buying, selling, or financing real property and businesses. The Phase I environmental assessment reports required by buyers and lenders may complicate or even jeopardize deals unless the consultant correctly determines the likelihood of any PFAS-related risk affecting the target property.

The following example illustrates that an accurate assessment of PFAS risk is possible. This often requires legal counsel and clients to review draft environmental reports and request appropriate revisions carefully. Additional work, such as the detailed contour map review discussed below, may be needed to adequately evaluate the consultant’s determination that PFAS are a concern.

1. The Transaction: A client wants to purchase a business that does not use any PFAS compounds. There is no

evidence that the business has ever used PFAS. There are other industrial property uses in the area. The lender, the client’s representation, and the warranty insurer require the client to obtain a Phase I environmental site assessment (ESA). What could go wrong?

2. The Draft Phase I Report: Thankfully, in this scenario, the client requires the consultant to issue the Phase I ESA report in draft form for review and comment. The draft report identifies a neighboring industrial facility as a “Notable Finding” because of the facility’s suspected use of PFAS. The Notable Finding designation is not defined in the ASTM E1527-21 Phase I assessment standard. Nonetheless, consultants sometimes use it to describe matters that do not rise to the level of a Recognized Environmental Condition or a de minimis condition. Because of the publicity surrounding PFAS and PFAS litigation matters, however, a PFAS Notable Finding is a concern for the transaction and must be adequately explained or, if warranted, deleted in the final report.

3. EPA’s Online PFAS Database: EPA’s Enforcement and Compliance History Online (ECHO) database includes a list of North American Industry Classification System (NAICS) codes for industries known to use or handle PFAS. This database was generated based solely on whether any companies in each broad NAICS code were known to use PFAS rather than whether PFAS were used by specific companies or types of companies within a NAICS code. The consultant who prepared Phase I for the client in this scenario applied the limited analysis required by ASTM E1527-21 to determine whether the adjacent industrial facility was upgradient to the target property. The consultant determined that it was upgradient and stated in the draft report that the operations on the adjoining property were a Notable Finding due to the potential use of PFAS and the resulting potential for migration to the downgradient target property. The executive summary section of the draft report discussed the PFAS issue

at length, based solely on these two assumptions.

4. Pushing Back With Site-Specific Facts: The client was understandably concerned that the lengthy discussion of the potential migration of PFAS to the target property would adversely affect their ability to obtain financing. They were also concerned about their ability to obtain representation and warranty insurance for environmental matters and about the future marketability of the property. We scheduled a call with senior management of the environmental consulting company to discuss whether (a) the industrial property is upgradient and (b) if so, there are any exposure pathways—i.e., air, groundwater, or surface water—that would allow workers or other occupants of the target property to be exposed to PFAS.

• The industrial property is not upgradient of the target property. The consultant resolved this issue by obtaining and reviewing a more detailed contour map than required to comply with the ASTM Phase I standard. This map indicated that the industrial property is sidegradient. Because groundwater and surface normally flow in a downgradient direction, the risk of groundwater or surface water migrating to the target property is low.

• There is no PFAS exposure pathway. The consultant acknowledged that the target property is connected to the municipal water supply and that the municipality obtains the water supply from a source located a significant distance away from the property. There are no private wells on the target property. Based on the nature of operations at the adjacent property, the draft report concluded that there was no risk of airborne exposure to PFAS.

Takeaways

PFAS have become the latest hot topic in environmental regulation and litigation. Although it has been described as the “new asbestos,” unlike asbestos,

PFAS have been historically used in many everyday consumer products. These include food packaging, cookware, and clothing. PFAS have been discharged into public water supply sources. In contrast, the exposure pathway for asbestos is limited to inhalation of airborne particles of friable material. Our scenario is an unfortunate example of consultant overreaction to PFAS issues. EPA’s broad list of NAICS codes associated with PFAS use may contribute to such overreactions. When possible, attorneys should collaborate with clients to focus their environmental consultants on the specific facts that affect the target property. Attorneys can also, as in our example, identify and stop misapplication of the Phase I ASTM standard regarding PFAS issues. For instance, if the company at the adjacent property were listed in EPA’s ECHO database as a hazardous waste generator regulated under RCRA instead of as a possible PFAS user, the consultant would not have classified the adjacent property as a Notable Finding under the ASTM Phase I standard. In both the RCRA scenario and our PFAS scenario, the adjacent property is located sidegradient to the target property, there are no known releases of hazardous substances, and the exposure pathways were eliminated. Thus, the consultant’s draft report applied a more stringent and inconsistent standard in the PFAS scenario.

Attorneys should also evaluate when the consultant needs to perform additional work to assess PFAS risks adequately. The type and scope of further work should focus on what is required to identify whether or to what extent PFAS may be a concern for a particular target property or business transaction. As shown in our example, the consultant determined the adjacent property at issue was sidegradient rather than downgradient by reviewing a particularly detailed contour map. Consulting firms are marketing a variety of PFAS services. Some of these services may fit your client’s needs, but others may not be needed or, at worst, produce negative or inconclusive results.

LAND USE UPDATE

Architectural Design Review

Your client is a housing developer who wants to build a subdivision of 26 homes. He learned he must get design approval from the city’s Architectural Review Commission. He has many architectural designs for his homes that local architects created, but a preliminary discussion with the commission indicates that it will only accept some of them. He likes his architectural designs because he markets them successfully and does not want to change them. He asks for your advice.

Understanding Architectural Design Review

Architectural design review supplements other land use regulations, like zoning. An architectural design ordinance provides for the appointment of an architectural design review commission. It considers design proposals for new buildings in a review process that applies design standards specified in the ordinance. Your client may have to change his designs to get them approved.

Appearance codes are early architectural design ordinances. They often require look-alike designs so that new architectural designs look like those of existing structures in the surrounding area. This compatibility requirement prevents design innovation by requiring conformity and is exclusionary in upscale residential areas. An anti-lookalike standard does just the opposite. It requires architectural designs that do not resemble neighboring structures’ designs. Your client’s designs may not meet these requirements.

Detailed and specific design standards are an alternative to appearance codes.

Land Use Update

Editor: Daniel R. Mandelker, Stamper Professor of Law Emeritus, Washington University School of Law, St. Louis, Missouri.

They can cover various design issues, such as materials, orientation, and façade, and specify design standards for alternative building variations, substantially different roof types, elevation plane variations, and exterior surface distinctions. If they are not clear and objective, detailed design standards may give an architectural review commission the discretion to make unprincipled decisions.

Case law on architectural design review is limited and troublesome. A group of early cases dominates. Most arose in upper-income residential suburbs with upscale development, where look-alike requirements create exclusion.

State ex. rel. Stoyanoff v. Berkeley, 458 S.W.2d 305 (Mo. 1970), is a typical early case. The court blatantly upheld the Architectural Board’s rejection under a look-alike ordinance of a contemporary residence in an affluent Saint Louis suburb that was a pyramid structure with a flat rooftop and triangular-shaped windows or doors at one or more corners. (It had won an architectural award.) The court applied the rule courts followed at the time, that “the aesthetic factor to be taken into account by the Architectural Board is not to be considered alone” because the commission also should consider “the effect that the proposed residence would have upon the property values in the area.” Most courts today hold that aesthetics alone can be the basis for aesthetic design standards.

Statutory authority can be a problem because the model Standard State Zoning Enabling Act, which most states adopted, does not authorize architectural design review. The Stoyanoff case held that the state zoning statute, based on the Standard Act, conferred implied authority because architectural design review protects property values. This purpose is a zoning purpose authorized by the Standard Act.

The Free Speech Issue

Constitutional free speech protection of architectural design review began when the US Supreme Court held in 1976 that commercial speech is protected free speech. Virginia Pharmacy Board v. Virginia Citizens Consumer Council, 425 U. S. 748 (1976). Architectural design can be expressive conduct protected as nonverbal commercial speech when it conveys an architectural message. Free speech protection is a muchdebated and important issue. Architectural design ordinances are more difficult to uphold if the residential design is protected as free speech because courts apply a higher standard of judicial review than the reasonably debatable standard applied to social and economic legislation. Burns v. Town of Palm Beach, 999 F.3d 1317 (11th Cir. 2021), cert. denied, 142 S. Ct. 1361 (2022), is the first case to consider this issue and rejected the free speech argument.

Palm Beach, Florida, is an upscale residential community. Burns planned to replace an existing 10,063-square-foot mansion on the Atlantic oceanfront with a 25,198-square-foot mansion in the midcentury modern design, reduced to 19,594 square feet after neighbor opposition. He said his design would be “a means of communication and expression of the person inside: Me.” He chose an international or midcentury modern architectural design because it emphasized simple lines, minimal decorative elements, and open spaces built of solid, quality materials. A limestone wall with a louvered gate and heavy landscaping, including a 16-to-18-foot-tall hedge and a large specimen of trees, would protect the house from view from a public road. Burns needed architectural design approval for his mansion from the Town of Palm Beach Architectural Review Commission because all applications for demolition and construction require a building permit from the commission except for minor changes and changes to historic buildings.

The architectural design review ordinance had detailed look-alike architectural design standards. A proposed building or structure could not be excessively dissimilar to any existing structure within 200 feet of the proposed site as measured by ten exterior design and appearance features. The features included “Architectural compatibility,” arrangement of the structural components, “Appearance of mass from the street or from any perspective visible to the public or adjoining property owners,” and “Diversity of design that is complementary with size and massing of adjacent properties.” The Architectural Review Commission denied Burns a building permit because it found that his mansion was not in harmony with proposed developments on land in the general area and was excessively dissimilar to other homes within 200 feet in terms of its architecture, arrangement, mass, and size.

Burns did not appeal the denial to issue a building permit. He sued in federal court and argued that the design standards in the ordinance violated his free speech rights because his mansion was expressive free speech conduct. The court applied the test for expressive conduct adopted by the US Supreme Court in Texas v. Johnson, 491 U.S. 397 (1989), and disagreed. This test asks (1) whether an “intent to convey a particularized message was present” and (2) whether “the likelihood was great that the message would be understood by those who viewed it.” When applying the second factor, a court must ask whether a reasonable person would interpret the conduct as some sort of message, not whether an observer would necessarily infer a specific message.

Palm Beach conceded that there was an intent to convey a message, but the appeals court held that the residential design did not have free speech protection because its expressive elements were carefully shielded from public view. The court nevertheless considered whether the residential design was expressive conduct protected as free speech. It applied five contextual factors the court adopted in Fort Lauderdale Food Not Bombs v. City of Fort Lauderdale, 901 F.3d 1235 (11th Cir. 2018), to decide whether there was a great likelihood that some sort of message would be understood by those who viewed the mansion. It concluded that a viewer would not comprehend that

Burns’s residential design conveyed a message even if the proposed mansion could be seen. A reasonable observer would view the mansion as a massive house, not an expression of a message.

The court explained that the Burns’s mansion was only a private oceanfront residence surrounded by lush greenery on a quiet residential street. Burns had no plans to set up tables, distribute literature, or hang a banner in front of his mansion. He did not give tours or hand out informational brochures on the mansion’s design elements; there was no evidence that the house would be open to everyone or that Burns had invited the public to view his architectural design. It was not a traditional public forum. “To the reasonable observer, it is nothing more than another big beachfront home.”

The evidence did not show that residential midcentury modern architecture was the town’s public concern or that residential architecture had historically been used to convey a message. There was no “evidence that residential architecture, specifically, has a historical association with communicative elements that would put a reasonable observer on notice of a message from Burns’s house.” Although the Burns case is limited to its facts, the decision makes it difficult to protect residential architecture as free speech.

Void for Vagueness

Architectural design review must not be void for vagueness. This substantive due process doctrine holds that a law is not void for vagueness if regulated parties know what the law requires of them so they can act accordingly and if persons who enforce the law cannot act in an arbitrary or discriminatory way. Architectural design standards often are too ambiguous and thus may fail the void-for-vagueness requirement. Early cases are mixed on this issue, with most cases rejecting the voidfor-vagueness argument, and the issue has been dormant.

The court in the Burns case held that the Palm Beach look-alike architectural design standards in the Palm Beach ordinance were not void for vagueness. It upheld the ordinance because it required the Architectural Review Commission to consider ten design criteria when it

reviewed an architectural design for approval and because the “excessively dissimilar” standard was geographically limited. The court was impressed both that the commission included architects and other members “special qualified” in relevant professions or who had the “civic interest and sound judgment” necessary to consider the design standards and that the town council had the power to review arbitrary commission decisions. Architects usually serve on architectural review commissions.

Reforming Architectural Design Review

Architectural design review needs reform. Clear architectural design review standards are necessary. A Washington statute adopted in 2023 requires that the design review process must have “clear and objective development regulations governing the exterior design of new development” and “one or more ascertainable guideline, standard, or criterion by which an applicant can determine whether a given building design is permissible under that development regulation.” Wash. Rev. Code § 36.70A.630(2).

Statutes must also regulate the content of architectural design standards because they can increase housing costs and the design review process because it can cause unreasonable delays. A statute should provide that “Design standards shall not have the effect, either individually or cumulatively, of prohibiting or discouraging residential housing, including multifamily and manufactured housing, through unreasonable cost or delay.”

Another problem is that an architectural review commission can cause problems for a proposed development by requiring more restrictive regulations than required by the zoning ordinance. The Washington statute prohibits this strategy by stating that the design review process “May not result in a reduction in density, height, bulk, or scale below the generally applicable development regulations for a development proposal in the applicable zone.” Id. § 36.70A.630(2)(b).

For a discussion of design standards for planned developments, see my book, Designing Planned Communities (2010), tinyurl.com/code3820. n

CAREER DEVELOPMENT AND WELLNESS

Personality Tests as a Tool to Identify and Improve Communication Skills

Across many professions, personality tests are used to assess and develop team members, including those in leadership positions. The legal profession is no exception, and personality tests are commonly used at larger firms with learning and development staff who advocate for and implement their use. That was my initial exposure, and I found the experience so beneficial for my professional development that I share it here and encourage anyone who has yet to try it to consider doing so. Personality tests from the major providers are available online, often with abridged versions for free, and can provide helpful insight that can improve your communication skills, as it did for me.

These tests are less about personality than an effort to understand how an individual interacts with people and projects based on a combination of personality traits. Once a personality type is identified, the assessment provides a guide to common strengths and weaknesses and insight into how that personality type interacts with other people generally and with other personality types specifically. The value of the personality test goes beyond learning about yourself— it can provide valuable perspective into how others perceive you and insight into other personalities that can inform how you perceive others. Understanding how you are heard and perceived by others and that what you hear and perceive may not be what was intended allows you to adapt your approach to improve communication and, ultimately, relationships.

As one well-known personality test company puts it, “[b]y developing a clearer sense of self-awareness and awareness of others, you’re able to frame decisions better, reduce miscommunication, and understand personal needs more effectively.”

See All About the Myers-Briggs® Assessment, https://tinyurl.

Contributing Author: Marissa Dungey is a co-founder of Dungey Dougherty PLLC. She is Vice-Chair of TE CLE and a member of Council for RPTE, an ACTEC fellow, and an adjunct law professor.

com/4m29cyn9. I could not agree more. My experience was eye-opening and led to transformative personal development that accelerated the growth of my practice and improved my relationship with team members. In my case, I discovered that I lacked awareness of how others perceived me, so let’s start there!

Awareness of How Others Perceive You

Regarding communication, what is said is just as important as how it is heard, as is understanding that these concepts are different. What is said is affected by how it is transmitted, tone, body language, and context. Those things are at least known or in the control of the speaker. Still, it can also be affected by factors contributed by the listener, including as affected by their personality.

The personality type I was assigned after taking the personality test was unsurprising; the description was so spot on that I could have self-identified based on the description without the test. I didn’t need the test to know that I was an introverted, intuitive thinker and in my head a lot. What I did not know, and the assessment articulated, was that a weakness common with my personality type was how others could perceive those qualities. Specifically, people interacting with my personality type can perceive us as detached, aloof, and uninterested in what they have to say, which can affect, if not impede, a relationship.

Before the assessment, I had heard that first impressions of me were that I appeared cold and disinterested. This didn’t make any sense from my perspective. It never occurred to me that I was doing anything or that there was anything I could do about it.

Learning about this common weakness with my personality type, I immediately reflected on these past first impressions and finally got it. Spending so much time in my head meant I didn’t seem (and maybe wasn’t) fully present in those interactions, and I hadn’t been conscious of

how I lost eye contact while thinking.

Once I grasped that it was me, I became self-aware of my tone of voice, body language, and eye contact during interactions. I shifted my behavior and made a more intentional effort to show that I was fully present in those moments, which made a big difference in outwardly conveying the interest, warmth, and friendliness I felt on the inside. Being more aware of the other person’s body language also showed me that I had missed cues in those conversations.

The insight, which had arguably already been pointed out many times, hit home only through the personality type assessment. The assessment had given me the tools to understand it as a perception, where it came from, and how to address it. The result was a dramatic improvement in my communication skills and relationships.

Improve Communication in Working Relationships

The personality type assessment also introduced me to a related concept— that the personality types of others

affect their perceptions and how they communicate. For this reason, it is also valuable to understand the personality type of those you work closely with and how it will interact with your personality type. The personality assessment guidance can include this insight and allow you to avoid expected communication hurdles, which can pay dividends in productivity.

My personality type provides an example of how this can play out. Knowing I can come across as aloof and detached, I reflected on how I give feedback to those who support my practice and how it may be perceived. In doing so, I realized that my default approach directed at a personality type sensitive to feedback is a recipe for miscommunication and a less productive working relationship. I work to be more mindful in my interactions, but I also make a point of telling new members of my team that if I come across as aloof and detached when giving feedback, it’s not intentional or indicative of my level of care and interest. This transparency has made for positive interactions

within the team and productive lines of communication.

All communications involve a second person. Making the extra effort to understand how the person on the receiving end will hear and perceive the communication based on your and their respective personality types can make a difference in your effectiveness and the overall relationship.

Self-Aware Is Halfway There

All personal and professional development requires an element of self-awareness. With technical learning, it’s easier to be self-aware and identify what you know and don’t know. Soft skills are more challenging, but you know what you need to work on once you have self-awareness. None of us is perfect, and all of us have areas where we are naturally strong and areas that we’ve had to work at.

If you have not had a personality type assessment, I highly recommend doing so for the interesting and valuable insight and perspective it offers! n

2024 PROBATE & PROPERTY INDEX

Adler, Robert J., Fixing Damaged ILITs (Plus a Checklist to Avoid Problems), Jul/Aug at 36.

Baron, Andrew L., Challenges in Estate Planning with Investment Real Estate, Sep/Oct at 36.

Beaton, Travis A., An Introduction to Operating Expenses in Commercial Leases, Jan/Feb at 32.

Beyer, Gerry W., The Viability of Inserting Descriptive Photos in Wills: A Picture Is Worth a Thousand Words, Mar/ April at 26.

Bigge, Stephen J., Understanding and Using Financial Statements in Valuations and Planning, Mar/Apr at 31.

Blair, Laurel R.S., Fiduciary Considerations in ESG Investing, Jul/Aug at 18.

Blosser, Scout S., The Viability of Inserting Descriptive Photos in Wills: A Picture Is Worth a Thousand Words, Mar/April at 26.

Bove, Alexander A., Jr., Springing Trust Protectors— Now You See ‘Em, Now You Don’t, Sep/Oct at 10.

Bronza, Timothy K., Understanding and Using Financial Statements in Valuations and Planning, Mar/Apr at 31.

Brown, Carol Necole, Investigating Appraisal Discrimination, May/Jun at 54.

Bruton, Jennifer J., Commercial Office Lease Drafting and Negotiation—Tenant Pitfalls to Avoid, Nov/Dec at 30.

Cerise, Jonathan B., Protecting against Competition: Exclusive Use Clauses and Radius Restrictions in Commercial Leases, Jul/Aug at 6.

Clapp, Allison R., Advance Directives: Drafting and Implementation, Jan/Feb at 28.

AUTHOR INDEX

Cody, Marnie Christine, Billboard Leasing, May/Jun at 26.

Crowfoot, D. Joshua, Leases and REAs, COREAs, and Operating Easements: Considerations for Drafting and Negotiating, Mar/Apr at 6.

Cunningham, Barry J., Intangible Assets in Property Tax Appeals, Mar/Apr at 52.

Drennan, William A., The Law of a Last Request: Bury Me with My Favorite Toy, Part 2, Jan/Feb at 6.

Earthman, Abigail R., Understanding and Using Financial Statements in Valuations and Planning, Mar/Apr at 31.

Everist, Abbie M.B., Enhanced Relief and Streamlined Procedures: A Review of the Final GST Exemption Allocation Relief Regulations, Nov/Dec at 44.

Everist, Abbie M. B., Solving Generation-Skipping Transfer Tax Problems: Five Practical Remedies to Resolve Exemption Allocation Issues, Jan/Feb at 39.

Farach, Manuel, Present Day Loan Workouts, Jul/Aug at 26.

Fersko, Jack, Cannabis Leases: Landlord and Tenant Considerations, Jan/ Feb at 18.

Fielding, Scott W., An Introduction to Operating Expenses in Commercial Leases, Jan/Feb at 32.

Frazier, Bryanna C., Understanding the Energy Efficient Commercial Buildings Deduction, Jul/Aug at 40.

Greene, Robert, What Attorneys Need to Know About Handling Pet Care in Estate Wills, May/Jun at 12.

Guest, Paxson C., What Landowners Need to Know about Solar Leases, Nov/Dec at 8.

Hamlin, Richard F., Billboard Leasing, May/Jun at 26.

Hausman, Michael J., Fixing Damaged ILITs (Plus a Checklist to Avoid Problems), Jul/Aug at 36.

Hoffman, Debbie, Bequeathing Bitcoin: Storing and Transferring Cryptocurrency upon Death, Nov/Dec at 20.

Holinstat, Steven H., Novel Fiduciary Liability Risks under the Corporate Transparency Act, Nov/Dec at 38.

Kaufman, Beth S., Enhanced Relief and Streamlined Procedures: A Review of the Final GST Exemption Allocation Relief Regulations, Nov/Dec at 44.

Krause, Dale M., Crisis Planning: The Oxymoron That Could Save Your Client, Mar/Apr at 48.

Lanzel, Ashley F., Advance Directives: Drafting and Implementation, Jan/Feb at 28.

Miester, Alvin C., III, Protecting against Competition: Exclusive Use Clauses and Radius Restrictions in Commercial Leases, Jul/Aug at 6.

Miller, Justin T., Don’t Guess and Make a Mess with QSBS, Jul/Aug at 46.

Mouland, Anna, Bequeathing Bitcoin: Storing and Transferring Cryptocurrency upon Death, Nov/Dec at 20.

Nashiwa, Karen M. T., Leases and REAs, COREAs, and Operating Easements: Considerations for Drafting and Negotiating, Mar/Apr at 6.

Newman, Norman R., Representations and Warranties in Real Estate Sales Contracts, Jan/Feb at 44.

Newman, Richard A., The Charitable Trust Doctrine: Application to Unrestricted Gifts, Jan/Feb at 50.

O’Reilly, Mary P., Challenges in Estate Planning with Investment Real Estate, Sep/Oct at 36.

Plasha, Hope K., Purchase Agreement Pitfalls to Avoid—Traps for the Unwary, Sep/Oct at 22.

Roussel, Randy P., What Landowners Need to Know about Solar Leases, Nov/Dec at 8.

Ruffalo, Rachel, Five Common GST Allocation Mistakes and How to Avoid Them, Sep/Oct at 46.

Ruffalo, Rachel, Solving GenerationSkipping Transfer Tax Problems: Five Practical Remedies to Resolve Exemption Allocation Issues, Jan/Feb at 39.

Sander, Richard, Investigating Appraisal Discrimination, May/Jun at 54.

Sanford, Misty M., Purchase Agreement Pitfalls to Avoid—Traps for the Unwary, Sep/Oct at 22.

Saponaro, Joseph M., Leases and REAs, COREAs, and Operating Easements: Considerations for Drafting and Negotiating, Mar/Apr at 6.

Stavile, Patrice D., Commercial Office Lease Drafting and Negotiation—Tenant Pitfalls to Avoid, Nov/Dec at 30.

Stedronsky, H. James, Intangible Assets in Property Tax Appeals, Mar/Apr at 52.

Sugiyama, John H., AI and the Formulation of Critical Data for Trust Mediations, Sep/Oct at 32.

Tannahill, Bruce A., Understanding and Using Financial Statements in Valuations and Planning, Mar/Apr at 31.

Tubbs, Eric R., Corporate Transparency Act: Understanding the Act and Its Implications, May/Jun at 48.

Waldman, Amber M., Enhanced Relief and Streamlined Procedures: A Review of the Final GST Exemption Allocation Relief Regulations, Nov/Dec at 44.

Waldman, Amber M., Five Common GST Allocation Mistakes and How to Avoid Them, Sep/Oct at 46.

Waldman, Amber, Solving GenerationSkipping Transfer Tax Problems: Five Practical Remedies to Resolve Exemption Allocation Issues, Jan/Feb at 39.

SUBJECT INDEX

Warley, Carol G., Five Common GST Allocation Mistakes and How to Avoid Them, Sep/Oct at 46.

Warley, Carol, Solving GenerationSkipping Transfer Tax Problems: Five Practical Remedies to Resolve Exemption Allocation Issues, Jan/Feb at 39.

Wenig, Damon J., The Value of Adding Basic Funeral Planning to Your Practice, Sep/Oct at 52.

Wonn, Jacob E., Novel Fiduciary Liability Risks under the Corporate Transparency Act, Nov/Dec at 38.

Wright, Glenn D., Billboard Leasing, May/Jun at 26.

Zelenock, Katheryne L., Charging Forward! EV Charging Stations on Commercial Properties Create Real Estate Questions, May/Jun at 40.

Zive, David L., Strategies for Remediating Loan Defaults, Mar/Apr at 44.

Advance Directives

Allison R. Clapp and Ashley F. Lanzel, Advance Directives: Drafting and Implementation, Jan/Feb at 28.

Dale M. Krause, Crisis Planning: The Oxymoron That Could Save Your Client, Mar/Apr at 48.

Artificial Intelligence

John H. Sugiyama, AI and the Formulation of Critical Data for Trust Mediations, Sep/Oct at 32.

Corporate Transparency Act

Steven H. Holinstat and Jacob E. Wonn, Novel Fiduciary Liability Risks under the Corporate Transparency Act, Nov/Dec at 38.

Eric R. Tubbs, Corporate Transparency Act: Understanding the Act and Its Implications, May/Jun at 48.

Easements

D. Joshua Crowfoot, Karen M.T. Nashiwa, and Joseph M. Saponaro, Leases and REAs, COREAs, and Operating Easements: Considerations for Drafting and Negotiating, Mar/Apr at 6.

Environmental Issues

Bryanna C. Frazier, Understanding the Energy Efficient Commercial Buildings Deduction, Jul/Aug at 40.

Paxson C. Guest and Randy P. Roussel, What Landowners Need to Know about Solar Leases, Nov/Dec at 8.

Katheryne L. Zelenock, Charging Forward! EV Charging Stations on Commercial Properties Create Real Estate Questions, May/Jun at 40.

Estate Planning

Robert Greene, What Attorneys Need to Know About Handling Pet Care in Estate Wills, May/Jun at 12.

Debbie Hoffman and Anna Mouland, Bequeathing Bitcoin: Storing and Transferring Cryptocurrency upon Death, Nov/Dec at 20.

Mary P. O’Reilly and Andrew L. Baron, Challenges in Estate Planning with Investment Real Estate, Sep/Oct at 36.

Damon J. Wenig, The Value of Adding Basic Funeral Planning to Your Practice, Sep/Oct at 52.

Generation Skipping Tax (GST)

Beth Shapiro Kaufman, Abbie M.B. Everist, and Amber M. Waldman, Enhanced Relief and Streamlined Procedures: A Review of the Final GST Exemption Allocation Relief Regulations, Nov/Dec at 44.

Carol G. Warley, Abbie M. B. Everist, Rachel Ruffalo, and Amber M. Waldman, Solving Generation-Skipping Transfer Tax Problems: Five Practical Remedies to Resolve Exemption Allocation Issues, Jan/Feb at 39.

Carol G. Warley, Amber M. Waldman, and Rachel Ruffalo, Five Common GST Allocation Mistakes and How to Avoid Them, Sep/Oct at 46.

Insurance

Robert Adler and Michael J. Hausman, Fixing Damaged ILITs (Plus a Checklist to Avoid Problems), Jul/Aug at 36.

Landlord/Tenant

Jack Fersko, Cannabis Leases: Landlord and Tenant Considerations, Jan/Feb at 18.

Leases—Commercial

Scott W. Fielding and Travis A. Beaton, An Introduction to Operating Expenses in Commercial Leases, Jan/Feb at 32.

Patrice D. Stavile and Jennifer J. Bruton, Commercial Office Lease Drafting and Negotiation—Tenant Pitfalls to Avoid, Nov/Dec at 30.

Alvin C. Miester III and Jonathan B. Cerise, Protecting against Competition: Exclusive Use Clauses and Radius Restrictions in Commercial Leases, Jul/ Aug at 6.

Katheryne L. Zelenock, Charging Forward! EV Charging Stations on Commercial Properties Create Real Estate Questions, May/Jun at 40.

Leases—Specialized

Jack Fersko, Cannabis Leases: Landlord and Tenant Considerations, Jan/Feb at 18.

Richard F. Hamlin, Marnie Christine Cody, and Glenn D. Wright, Billboard Leasing, May/Jun at 26.

Paxson C. Guest and Randy P. Roussel, What Landowners Need to Know about Solar Leases, Nov/Dec at 8.

Real Estate

Mary P. O’Reilly and Andrew L. Baron, Challenges in Estate Planning with Investment Real Estate, Sep/Oct at 36.

Real Estate—Appraisals

Richard Sander and Carol Necole Brown, Investigating Appraisal Discrimination, May/Jun at 54.

Real Estate—Lending

Manuel Farach, Present Day Loan Workouts, Jul/Aug at 26.

David L. Zive, Strategies for Remediating Loan Defaults, Mar/Apr at 44.

Real Estate—Sales

Norman R. Newman, Representations and Warranties in Real Estate Sales Contracts, Jan/Feb at 44.

Hope K. Plasha and Misty M. Sanford, Purchase Agreement Pitfalls to Avoid— Traps for the Unwary, Sep/Oct at 22.

Tax

Barry J. Cunningham and H. James Stedronsky, Intangible Assets in Property Tax Appeals, Mar/Apr at 52.

Justin T. Miller, Don’t Guess and Make a Mess with QSBS, Jul/Aug at 46.

Trusts

Robert J. Adler and Michael J. Hausman, Fixing Damaged ILITs (Plus a Checklist to Avoid Problems), Jul/Aug at 36.

Laurel R.S. Blair, Fiduciary Considerations in ESG Investing, Jul/Aug at 18.

Alexander A. Bove Jr., Springing Trust Protectors—Now You See ‘Em, Now You Don’t, Sept/Oct at 10.

Richard A Newman, The Charitable Trust Doctrine: Application to Unrestricted Gifts, Jan/Feb at 50.

John H. Sugiyama, AI and the Formulation of Critical Data for Trust Mediations, Sep/Oct at 32.

Valuation

Stephen J. Bigge, Timothy K. Bronza, Abigail R. Earthman, and Bruce A. Tannahill, Understanding and Using Financial Statements in Valuations and Planning, Mar/Apr at 31.

Wills—Drafting

Gerry W. Beyer and Scout S. Blosser, The Viability of Inserting Descriptive Photos in Wills: A Picture Is Worth a Thousand Words, Mar/April at 26.

William A. Drennan, The Law of a Last Request: Bury Me with My Favorite Toy, Part 2, Jan/Feb at 6.

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Manuscripts should be submitted to the appropriate articles editor:

FOR REAL PROPERTY: FOR TRUST & ESTATE:

Kathleen K. Law

Michael A. Sneeringer Nyemaster Goode PC Brennan Manna & Diamond 700 Walnut Street, Suite 1600 200 Public Square, Suite 1850 Des Moines, IA 50309-3800 Cleveland, Ohio 44114 kklaw@nyemaster.com masneeringer@bmdllc.com

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If you have any questions, please email erin.remotigue @americanbar.org.

THE LAST WORD

Statutory Construction: A Supreme Court Twist on Deflategate?

Sunday afternoon in our house triggers “Family Sundays.” During this time, parents and kids cannot be with friends, including electronic friends like smartphones and tablets. We voted—just the four of us—for dinner, games, and movies. Such became house law.

The recent US Supreme Court decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), ended Chevron deference, which deferred to agencies’ interpretations (rules and regulations) when a statute is ambiguous. Chevron U.S.A. Inc. v. National Resources Defense Council, 467 U.S. 837 (1984). But in this column, we consider the Court’s unstated analysis, not whether Chevron was rightly decided.

Loper involved the 1976 Magnuson-Stevens Fishery Conservation and Management Act, which specifies three types of fisheries that must pay the cost of government representatives serving as observers without addressing Atlantic herring fishermen. 16 U. S. C. § 1801 et seq. In 2015, the governing agency adopted a regulation requiring that Atlantic herring fishermen pay for observers if the agency determines an observer is needed but declines to assign a government-paid one.

As for our Family Sundays, one child’s tendency to procrastinate eventually necessitated passing a regulation clarifying the house law. We resolved to include homework that involves a parent (like practice tests). So, we, as parents, unilaterally adopted a regulation expanding Family Sundays to suit

The Last Word Editor: Mark R. Parthemer, Glenmede, 222 Lakeview Avenue, Suite 1160, West Palm Beach, FL 33401, mark. parthemer@glenmede.com.

changing circumstances (we didn’t risk putting this up for a full vote, of course).

What is the parallel? We added a fourth category of what can be done on Family Sundays—certain types of homework—to an explicit list in the “law” that didn’t include it. In Loper, the agency added a fourth category—Atlantic herring fisheries—to an explicit list in the law that didn’t include it.

How should we decide if additional categories fit within the original law? One tool of statutory construction is canons. Three Latin canons provide syntactical presumptions. Ejusdem generis limits a general word appearing at the end of a list by preceding specific words. Generalia specialibus non derogant resolves a conflict between a general and a specific provision in favor of the latter.

But the one perhaps most applicable here is expressio unius est exclusio alterius, which means “the expression of one thing is the exclusion of the other.” The import of this canon is that when interpreting legislation, a presumption may be made that an express reference to one matter excludes other matters.

Under this canon, when a statute explicitly sets forth certain terms, it may be interpreted as not applying to terms that have been excluded from it. In Loper, fishermen challenged the regulation adding Atlantic herring fisheries to the three named in the statute. Since 1984, Chevron has stood for the proposition that a duly passed agency regulation was (rebuttably) presumed a proper interpretation of the relevant statute. Loper declared this no longer the rule.

Our Family Sunday homework regulation would have enjoyed the benefit of Chevron deference. But after Loper?

Let’s say that our form of authority is being the parents, so sometimes fiat works. But what about the effect of Loper on federal agencies seeking to update, elaborate, or clarify a law through an agency rule or regulation?

One perceived potential abuse of Chevron deference is characterized by viewing the agency’s presumption of interpretation as making the applicable law a political football. Under this line of critique, the concern is that a new administration could appoint federal agency leaders who pass new rules and regulations defining and applying existing laws aligned with their political platform. Loper seeks to eliminate such a potential by declaring that the meaning of a law is fixed at the time of passage.

The 2014 AFC Championship NFL game featured the New England Patriots hosting (and beating) the Indianapolis Colts. It is also known for a scandal dubbed Deflategate. Patriots quarterback Tom Brady was accused of instructing a team employee to deflate the footballs to be used by Brady. (Each NFL team begins the game with 12 footballs for their use, so the Colts were not using the same footballs as the Patriots.) The alleged goal was to inflate the Patriots’ passing attack by giving Brady a deflated, softer football that was easier for him to grip. Eventually, Brady served a four-game suspension, and the Patriots were fined $1 million and docked first-round and fourthround draft choices.

By contrast, through Loper, the Supreme Court inflated the role of courts and deflated the use of agency rules and regulations as a political football. n

2024–2026 RPTE FELLOWS

REAL PROPERTY FELLOWS

CASSANDRE DAMAS

Atlanta Volunteer Lawyers Foundation

Atlanta, GA

TRUST & ESTATE FELLOWS

LEXIS GIBSON

Osterbrock & Associates, LLC

Atlanta, GA

LEAH BOSTON

Law Office of Leah Boston LLC College Park, MD

MEGHAN R. GORDON

Arnall Golden Gregory LLP Atlanta, GA

Miles & Stockbridge Baltimore, MD

CASEY C. HOLLOWAY

BRANDON LEE WOLFF

Brandon Lee Wolff, Esq. King of Prussia, PA

SAMANTHA CONTRERAS

Croke Fairchild Duarte & Beres Chicago, IL

SAMUEL DANGREMOND

Curtis, Mallet-Prevost, Colt & Mosle LLP New York, NY

CARLY JOHNSON

Maslon LLP Minneapolis, MN

NATASHA D. MCFARLAND

Birchstone Moore LLC Washington, DC

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