BizLawBuz …. The Power of Know

…there are still protective measures that businesses and individuals can take to attempt to limit their exposure to liability if a child is injured….

Michigan Supreme Court: Parental Waivers are Unenforceable

Previously, we informed you of a Michigan Court of Appeals decision from 2008, which held that a parent’s waiver of liability for a child’s personal injuries is ineffective. On June 18, 2010, the Michigan Supreme Court decided that the Court of Appeals reached the correct conclusion: parental waivers are unenforceable. The Court reasoned that parental waivers are an attempt to contractually prohibit a minor from filing a lawsuit. Since parents cannot legally contract on behalf of their children, such waivers cannot be enforced.

While the Supreme Court decision solidifies concerns over heightened liability for commercial recreation establishments, schools, and churches, it does not prevent the legislature from crafting a law that specifically authorizes the enforcement of parental waivers. In fact, a bill is currently pending in the Michigan House of Representatives that would allow a parent or guardian of a minor who participates in a recreational activity to sign a written waiver releasing a person (the sponsor or organizer of the activity, or the owner or lessee of the property) from liability for resulting injuries. The bill would authorize parents or guardians to sign the waivers in advance of the activity. It is unknown at this time, however, if and when the bill will become law.

For now, we are operating under the Supreme Court decision; but there are still protective measures that businesses and individuals can take to attempt to limit their exposure to liability if a child is injured. First, to reiterate our advice from our prior email blast, establishments and individuals should act prudently, maintain adequate insurance, and continue use of pre-injury waivers (while at the same time understanding the potential ineffectiveness of those waivers). Also, some establishments may want to investigate the suitability of contracts that provide for the parents themselves to “indemnify” (or reimburse) the establishment for any losses that arise from the injuries that a child suffers while participating in the activity at the establishment. While parents cannot contract for their children, they can enter contractual commitments of their own. An indemnification agreement would essentially have a parent agreeing that, “If my child is injured while participating in your activity – and if that injury leads to a claim against you – I will reimburse you for the cost of that claim.” While not nearly as clean or as risk free as a release, such an agreement would at least provide one additional tool to use in defense of an injury claim.

For additional information, feel free to contact Wright Penning & Beamer.

Julie Pfitzenmaier

These days it’s hard to listen to the radio, watch television or go on-line without being inundated by ads pitching the latest and greatest do-it-yourself, on-line, estate plan documents: who needs those money grubbing lawyers anyway? One thing all of these pitches have in common is the assurance that the forms are legally valid and binding. Truth be told, “legally valid” is not a tough threshold to meet. If the person signing the Will (or trust, or, you name it) has the requisite mental capacity under the laws of the state where the document is being signed, and the document is signed, witnessed, or notarized in accordance with the laws of the state, it is legally valid. Legal validity, however, is only part of the story. Imagine the shock years down the road when it is discovered that an estate plan put in place by well meaning parents, intending to provide for each other and their children upon their disability and eventual deaths, does nothing of the sort.

I recently had the opportunity to help a young couple with very small children, where one spouse was facing a life threatening illness. They were referred to me to review their revocable living trust. I was under the impression that it had been drafted by another lawyer, and, therefore, my initial review was not clouded or prejudiced in any way. As I went through the document I was appalled at what I perceived to be the utter incompetence of a fellow practitioner, and, quite frankly, dumfounded as to why and how any attorney could pass something like this off on unsuspecting clients. The document was grossly deficient in a number of particulars, and, more importantly, would not have accomplished the desired result of providing for the surviving spouse and children upon the disability or death of one of the parents. It was then that I learned that in their haste to insure that the surviving spouse and children would be provided for, the couple turned not to a lawyer, but to one of the popular on-line sites for their estate planning needs, which included a revocable living trust (for which they paid a fairly sizeable sum I might add).

To enumerate and explain the deficiencies in the document would exceed the space allowed here, so I’ll only touch upon three, specifically:

1. form
2. concept, and
3. substance.

First, from the standpoint of form, although touted by the website to be a Michigan specific document, the terminology used was not consistent with, or reflective of, Michigan law. This past April 1, 2010, the Michigan Trust Code went into effect, changing many aspects of Michigan trust law. Those changes had not found their way into the document.

Second, the document was premised upon property law concepts that are not followed in Michigan. Admittedly, this is where the explanation can get technical and complicated, so I’ll convey only the basics. Insofar as property ownership between a husband and wife is concerned, 40 states follow concepts derived from, and based upon, English common law. There are 10 states, however, that characterize property owned by a husband and wife pursuant to concepts that can be traced to French and Spanish civil law. Those states are said to be “community property” states. And, even within these groupings of common law and community property law jurisdictions, there are many variations. The salient fact remains, however, that property owned by a husband and wife is treated differently in community property and common law jurisdictions. Michigan is not a community property state. Yet, this document, although touted to be a Michigan specific document, employed community property terminology and concepts.

Lastly, there are many reasons why people need estate plans, and trusts in particular, ranging from tax savings to probate avoidance. For people with children, the primary need for a trust is to provide for the children upon the death or incapacity of one or both parents. Without a trust, minor children will receive their inheritance when they turn 18; all of it. Because that is rarely a good idea, trusts are the means of providing a method for holding property and administering it for the benefit of the children according to a detailed plan of distribution determined by the parents, in advance. The trust document I was asked to review contained none of these provisions. Although this couple had a number of children, upon the death of the second spouse to die, the trust assets would simply be held for distribution to each child as he or she turned 18. The document contained no provisions for the administration and distribution of the trust property for the care of the children while they were young.

Was this a legally valid and binding trust? It was. Would this trust have fulfilled the intentions and desires of this young couple and the needs of their family? Not even close. The problem is that they had no way of knowing that. For users of these on-line documents, it will be years or decades before the ultimate beneficiaries will learn just how bad the documents are. Merely filling in the blanks on a form is no substitute for the expertise of an experienced estate planning attorney. There is a reason why we dedicate our working lives and energy doing what we do.

Duane L. Reynolds

By the time you read this, I will be basking in sunny Arizona while attending a conference related to one of my volunteer interests. (Well, maybe not “basking.” The temperature is expected to exceed 100°!) As virtually all of us volunteer in some capacity at one time or another, I thought a review of what expenses we volunteers can claim as tax deductions might be helpful.

I’ll set this in the context of a real-life example. Some of you still make periodic trips down to the Gulf Coast to help with post-Hurricane Katrina recovery efforts. If you are going down as a volunteer with a charity and your out-of-pocket expenses are not reimbursed, then your travel expenses and possible other expenses can be deducted as long as they are properly documented. This is true whether you’re a laborer building houses, or a board member attending meetings.

In any case, only expenses directly related to your volunteer service may be deducted. Typical examples are the cost of transportation, meals and lodging. (Sorry, probably no deduction for the admission to Dolly World on the way through Tennessee, or the cost of replacing your cell phone after you accidentally drop it into fresh cement.) If you purchase items such as food or building materials for the charity you are working with, then those items are generally deductible, too.

Under no circumstances, however, may you deduct the value of your services. Your 40 hours spent hanging drywall may save the charity considerable expense, but that’s not a gift for which Uncle Sam is willing to give you a tax break.

In order to be deductible, your expenses must be reasonable, and there can be no significant element of personal pleasure associated with them. This doesn’t mean you can’t take a day to relax in the course of a week spent building homes, but the element of pleasure must be minor when contrasted with the importance or duration of your charitable service. (There is, unfortunately, no bright-line rule on how to measure when that element of personal pleasure ceases to be minor!)

As you would expect, you must maintain careful records of your expenses. If you intend to deduct your mileage (this year’s charity rate for vehicle mileage is $.14 per mile), then you must keep a detailed mileage log. If you prefer instead to deduct your actual cost of gas, then you must keep receipts. If a receipt’s charitable purpose is not clear, then describe that purpose right on the receipt.

If an expense exceeds $250, then you must get a written acknowledgment or receipt from your charity. The acknowledgment should describe the expense incurred and state whether the charity provided you with any goods or services in return. If you did receive goods or services, then the receipt needs to give a good-faith estimate of their value.

We Americans are extraordinary in our willingness to give of our time and our money. That generosity of spirit is one of the many things that make our country exceptional. Continue to volunteer wherever you can, but don’t miss the opportunity to take advantage any tax deductions that may become available to you as a result!

Lee Flaherty
Wright Penning & Beamer