BizLawBuz …. The Power of Know

Since the 1970s, Michigan drivers have operated under a “No-Fault” insurance model. Essentially, the no-fault system requires drivers to look to their own insurance carrier for primary medical coverage resulting from an accident, regardless of whether or not the covered driver caused the accident. Under the current system, drivers receive protection for unlimited lifetime medical benefits (as well as up to 85% of lost income, subject to monthly maximum).

The unlimited medical benefits derive from two sources. The injured driver’s insurance carrier pays the first $500,000 in benefits. If medical expenses exceed $500,000, the insurance carrier will pay the additional amounts but will then be reimbursed from the Michigan Catastrophic Claims Association (MCCA). Michigan drivers pay for these benefits in the form of a premium paid to the carrier and an additional assessment ($145 per vehicle for 2012) paid directly to MCCA. The current debate stems from the MCCA’s claim that the system is unsustainable and that the MCCA cannot afford to cover the spiraling costs of unlimited lifetime medical benefits. Consumer groups complain that the MCCA (which is operated by insurance industry executives) has not shared the data on which it bases its argument.

Pending legislation before the Michigan House would modify the current no-fault statute to impose limits on lifetime medical and rehabilitation benefits. Those limits (ranging from $500,000 to $5 million) would depend upon the level of insurance coverage drivers choose to purchase. Motorcyclists would have medical benefits capped at a maximum lifetime benefit of $250,000.

Assuming the Legislature implements the proposed changes, the question remains, “How will catastrophic claims beyond the available insurance coverage be paid?” If I opt for the cheapest available coverage and then end up in a catastrophic accident, where will I turn for medical benefits? One option is to purchase excess insurance coverage to protect against the risk. A more probable source for most drivers will be government benefits such as Medicaid. And of course, the possibility remains that the injured driver must forego treatment.

This is a complex, but extremely important, issue. Both sides of the debate raise valid questions that should be answered. Every Michigan driver should take some time to review the issue and understand the potential implications for herself, her household and the State of Michigan.

Dirk A. Beamer

Good news coming from the federal government? It’s true!

In October, the IRS announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2012 tax year. This is the first time since 2008 that the limits have been increased, which is mainly attributable to the fact that the cost of living in recent years either decreased or did not increase enough to trigger adjustments.

According to www.irs.gov, here are a few highlights of the changes (see below for expanded information):

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
• The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
• The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2012 from $49,000 to $50,000.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $160,000 to $165,000.
• The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $110,000 to $115,000.

As always, if you have any questions, please contact Wright Penning & Beamer.

Julie P. Cotant

For several years now, Michigan Medicaid recipients have been waiting apprehensively for the state to implement a program whereby Medicaid benefits paid out during a person’s lifetime will be recovered from that person’s estate after death. Generally called “estate recovery,” this program is required by federal law. Michigan submitted its proposed program to the federal government four years ago, but cannot implement it until the feds approve it. That approval is expected at any time.

In anticipation of the federal approval, on July 1, 2011, the Michigan Department of Human Services will publish new policy detailing how it proposes implementing estate recovery. According to the new policy, estate recovery will only affect people who began receiving Medicaid after September 30, 2007, Medicaid recipients over age 55, and recipients who are permanently institutionalized regardless of age.

When estate recovery takes place
Estate recovery will not take place until after the Medicaid recipient dies. If the Medicaid recipient is survived by a spouse, by a child who is under age 21, or by a child who is blind or permanently disabled, then there will be no estate recovery until after those persons die.

The state may decide not to pursue recovery at all if recovery will create an “undue hardship.” Undue hardship exists when the assets of the Medicaid recipient are the sole source of income for surviving family members, such as a family farm or business. It also exists when the home is of “modest value” or when a survivor would become eligible for Medicaid if estate recovery were to occur.

Asset preservation strategies
Importantly, the state will only seek recovery from a decedent’s assets which pass through probate court. This means that a number of asset preservation strategies are still available, such as joint ownership, ownership subject to a life estate, and beneficiary designations on accounts and life insurance policies.

Assets exempt from estate recovery
Finally, there are certain assets that are exempt from estate recovery. For example, the state will not pursue recovery if the cost of recovery is expected to exceed the value of the asset.

The Department of Human Service’s new policy answers a number of questions, but it does not contain a lot of detail. We will still have to wait for the program to be put into practice to see just how it will affect Medicaid planning.

Lee Flaherty

Recent changes to the Michigan Vehicle Code have the potential for impacting many Michigan drivers, this time in a positive way. Public Act 289, which became effective in the closing days of 2010, amends the Michigan Vehicle Code to allow eligible drivers who are ticketed for certain moving violations to avoid the imposition of points if they successfully complete an approved basic driver improvement course. Further, if the requirements of the law are met, the Michigan Secretary of State (SOS) will not report the violation to any insurance carrier, thereby allowing the driver to avoid an almost certain premium increase, surcharge, or worse.

Key provisions of the law include the following:

• The SOS will determine if a ticketed individual is eligible to take advantage of the program. If so, the SOS will mail a notice informing the individual of the location of basic driver improvement courses and the time frame within which the course must be completed.
• The approved sponsor of the course must notify the SOS of the individual’s successful completion of the course within 60 days after the individual received notice.
• An individual is not eligible to take the course if:
  1) the individual was operating a commercial vehicle or was licensed as a commercial driver at the time of the violation;
  2) the violation is a criminal offense;
  3) the violation involves 4 or more points;
  4) the violation involves careless or negligent driving, a work zone speed violation or a violation involving a school speed zone or stopping for a school bus;
  5) the individual was cited for more than 1 moving violation at the same time;
  6) the individual’s license was suspended as a result of the violation;
  7) the individual previously completed a driver improvement course;
  8 ) the individual has 3 or more points on his or her record;
  9) the individual has no license or his or her license is restricted, suspended or revoked; and
  10) an individual is not eligible to take the course for a second or subsequent violation within 60 days.
• The SOS will maintain a computerized data base as necessary to implement the law. The SOS will make the information available to course sponsors so that they can track the effectiveness of their programs and provide a report to the SOS every 5 years.
• Approved sponsors cannot charge more than $100 for the course, a portion of which they will pay to the SOS to fund the implementation of the program.
• Sponsors of basic driver improvement courses must be approved by the SOS.

Read the entire text of the new law online by clicking here.

Duane L. Reynolds

In 2009, the Credit Card Act (”CCA”) was enacted to provide protections for American consumers against unfair credit card company practices. Since roughly 80% of American families have at least one credit card, and 44% of families carry balances on their credit cards, it is important for consumers to know their rights under the CCA.

Here are a few notable reforms:

The CCA bans retroactive interest rate hikes on existing balances. Credit card companies cannot increase the interest rate due to “any time, any reason” and retroactive rate increases due to late payments are restricted. Some exceptions that permit card companies to increase the interest rate include:

• The end of an introductory or “teaser” period;
• The interest rate is tied to an index and is variable;
• The consumer completes the terms of a workout plan for debt repayment or fails to comply with terms of a workout plan;
• The consumer is more than 60 days late making a monthly payment. The card company must provide the reason for the increase and restore the interest rate to the previous, lower level after six months if the consumer proceeds to make on-time payments during that six-month period;
• Military service members end active duty. As long as service members are on active duty, their card APR cannot exceed 6%. The Federal Reserve Board added a provision that allows card companies to increase interest rates on cards owned by service members to restore APRs to previous levels after they return from active duty.
• “Universal default,” the practice of increasing interest rates based on their payment history on unrelated accounts, is banned under the CCA for existing card balances.Significant first year protections are imposed by the CCA. Contract terms must be clearly spelled out and stable for the entire first year on new accounts, and interest rates cannot increase except under the above exceptions. Promotional rates must be clearly disclosed and last for at least six months.

Unfair late fee traps are no longer permissible. Card companies have to give consumers a reasonable time to pay the monthly bill – at least 21 days from the time of mailing. Weekend deadlines, due dates that change each month, and middle-of-the-day deadlines are also impermissible.

Card companies must obtain a consumer’s permission to impose over-limit fees. Without this permission, purchases that would exceed credit limits will be rejected. If a consumer chooses over-limit fees, the consumer must be informed of the amount of the fees and must have the right to revoke permission at any time.

College students and young adults also receive additional protections under the CCA. For example, card companies and universities must disclose agreements with respect to the marketing or distribution of credit cards to students.

Card companies must disclose card terms in plain sight and in plain language so that consumers can see and understand the terms and plan accordingly to avoid unnecessary costs and manage their finances.

Julie Pfitzenmaier

While the changes are mainly technical in nature, some are substantive and worth noting. Changes to the Michigan Limited Liability Company Act (”LLCA”) took effect on December 16, 2010.

The LLCA now:

• Enables corporations to easily convert into limited liability companies (”LLCs”) and vice versa. This represents one of the most important changes to the LLCA. Prior to the amendment, it was necessary to go through a formal merger of a corporation and an LLC to make the conversion. There are several reasons, such as tax implications and corporate governance, that may make it desirable to change the form of an existing business entity, and this process will make such a change much simpler.
• Clarifies how a person is admitted to an LLC as a member. Previously, the LLCA indicated that a person could only become a member of an LLC at the time of formation if the person signed the initial operating agreement, but LLCs are not required to have operating agreements. Now, a person will be admitted as a member if he or she signs an operating agreement, or if the person’s status as a member is reflected in the LLC’s records. Additionally, a person can be admitted by the other members in any other writing.
• Provides processes and guidelines for the approval of transactions with interested managers or agents (i.e., the transaction was fair, material facts of transaction were disclosed, and disinterested managers/members approved the transaction);
• Explicitly authorizes LLCs to provide broad indemnification of members, managers, and others, subject to some exceptions. The former LLCA seemed to some to only permit indemnification of managers, not members and agents.
• Explicitly authorizes LLCs to purchase errors and omissions (D&O) insurance for members, managers, and others. Like indemnification matters discussed above, the former LLCA was interpreted to prohibit LLCs from purchasing errors and omissions insurance on behalf of any person other than a manager.
• Limits the rights of an LLC member’s creditor. As a result of the amendments, a creditor cannot take the member’s membership interest in the LLC and either sell it or become a member itself; creditors receive only a charging order and the right to distributions that would be payable to the member. Under the prior version of the LLCA, creditors were attempting to go beyond attaching the economic rights of their debtors and attempting to participate in management of the LLC or sell the membership interest.
• Clarifies that members and managers of LLCs may be entities rather than natural persons.

For additional information regarding changes to the LLCA and how they affect your business, please contact an attorney at Wright Penning & Beamer.

Julie Pfitzenmaier

While cell phones and smart phones are a tremendous convenience, and, in some cases, a necessity, they come with an ever widening array of devices, capabilities, charges and service contracts. Ever try canceling a service contract early in order to take advantage of the latest-greatest plan offered by a competitor? While possible, the early termination fees are substantial. What happens, then, when members of our military are transferred or deployed overseas, to areas where their cell phones and smart phones are worthless? While most of us have probably never even thought of this, those who serve in our military have. Until now, their only choice was to continue to pay for service they couldn’t use for the unexpired term of the service contract, or pay the high, early termination fees charged by the service provider. At a minimum, service members facing transfer or deployment often found themselves having to deal with this trivial detail at a time when far more important matters needed to be attended to, and often from remote and obscure locations.

Early Christmas present from the Michigan legislature
This past December 9, 2010, the brave men and women of Michigan who serve in our nation’s armed forces received an early Christmas present from the Michigan legislature in the form of the “Military Personnel Wireless Contract Act.” The Act allows service members who are transferred or deployed overseas to terminate their wireless telecommunications service contracts without incurring early termination fees and penalties.

Key provisions of the Act are as follows:

1. The Act applies to active duty members of the US armed forces, the reserve, or the Michigan National Guard.
2. The Act applies in situations where the service member is transferred or deployed overseas, on active duty, for a period of 179 days or more, to an area where the service member’s existing wireless service provider does not offer facilities-based wireless service.
3. The Act allows the service member, or his or her spouse, to terminate the service contract, if: (i.) the service member is a party to the contract; (ii.) the contract was entered into on or after December 9, 2010; (iii.) the contract was entered into before the service member was transferred or deployed overseas; and (iv.) the contract does not involve service to a wireless telecommunications device installed in a motor vehicle.
4. Termination of the contract is effective upon the service member, or his or her spouse, providing the service provider with: (i.) written notice, sent by certified mail, stating the service member’s intention to terminate the contract; (ii.) a copy of the service member’s orders transferring or deploying him or her overseas; and (iii.) the service member returning to the service provider any equipment acquired from the service provider and not owned by the service member, within thirty (30) days of the notice.
5. The service member remains responsible for all fees up to the date of termination and the Act does not apply to prepaid wireless telecommunications services.
6. Upon the service member’s compliance with the Act, the service provider may not impose an early termination charge.
7. Service providers who disregard the Act face civil action by the state attorney general and fines up to $2,000 per violation. Money recovered by way of fines will go to the Michigan, Military Family Relief Fund.

The full text of the Act can be found in Michigan Compiled Laws, Sections 484.1901 to 1907

Duane L. Reynolds

The Michigan Construction Lien Recovery Fund, in effect for nearly 30 years, was recently dissolved by the Michigan Legislature. The Fund was initially established to protect homeowners who pay a residential building contractor and are left holding the bag when that contractor fails to pay the subcontractors and suppliers who provide labor or material on a project. Before the Fund was established, if the contractor was uncollectible the subcontractors and suppliers had no recourse but to go after the homeowner for payment. The end result was that unlucky homeowners sometimes ended up paying twice for the same work.

Large number of claims
The Fund was intended to remedy that problem, providing a resource from which subcontractors’ and suppliers’ claims could be settled in those cases where they were unable to collect from the contractor. Sadly, the Fund has been exhausted due to the large number of claims made against it in recent years.

Homeowners at increased risk
The elimination of the Fund leaves subcontractors and suppliers at increased risk of not getting paid for their labor or materials, which in turn places homeowners at increased risk of being drawn into litigation with subcontractors and suppliers. Homeowners will be able to avoid paying twice if they can prove that they paid the contractor in full, but subcontractors and suppliers will no longer have an alternative source of payment available to them (particularly if the contractor has absconded or is otherwise uncollectible).

8 Protection recommendations
In light of the dissolution of the Fund, we recommend that homeowners, subcontractors and suppliers consider taking the following steps to protect themselves:

1. carefully assess the financial strength of the general contractor;
2. insist on a written contract, either prepared or reviewed by your attorney;
3. maintain receipts for all materials provided;
4. preserve proof of all payments made;
5. if you are a subcontractor, exchange a waiver of lien directly for a check;
6. if you are a homeowner, obtain waivers of lien from the general contractor and all subcontractors at the time of payment;
7. require that checks be joint; and
8. insist on a construction escrow fund to be held by a third party.

Lee Flaherty

Recently, a business client contacted our office because he received a request from someone claiming to have Power of Attorney over one of his customers (let’s call her Jane). This individual was looking for copies of Jane’s personal records and prior purchase information. Jane is an elderly woman, who had been a long-time customer of the Business. To the best of the Business Owner’s knowledge, Jane did not have any close family or friends in the area.

Requests for personal information
The individual, a male, who contacted the Business “on Jane’s behalf” was forceful, discourteous, and seemed to suggest that the Business had sold goods to Jane for an amount greater than the actual value. This raised red flags for the Business, so we were contacted for advice on whether the Business should comply with the request for Jane’s personal information.

Use caution
These requests are not unusual, and many of you may receive similar requests at some point. If you are contacted by someone seeking another individual’s personal information, use caution. Always request a copy of the Power of Attorney document and ensure that the person to whom you are talking is the person nominated as Power of Attorney in the document. The following steps would also be prudent:

• Request a copy of the person’s driver’s license or other identification. Don’t assume that the person requesting information is who they say they are.
• Ask an attorney to review the Power of Attorney to ensure that the person claiming to have power of attorney is authorized under the document to accomplish the task he or she is attempting.
• Ask an attorney to prepare a short affidavit for the individual to sign, certifying that:
  • The person is who they say they are;
  • The person has personal knowledge that the other individual is not deceased (powers of attorney are only valid if the individual is alive);
  • The Power of Attorney is effective;
  • The person has no knowledge that the Power of Attorney has been revoked or is otherwise invalid.

Protecting yourself
While you might not be in a position to contest the validity of the Power of Attorney, you can protect yourself in the event someone later questions your decision to provide confidential information to a third party. Taking the above actions, and keeping a record of those actions, will show that you acted prudently before disclosing the confidential information.

Julie Pfitzenmaier

Michigan’s Super Drunk Driving Law Takes Effect October 31,2010

On January 9, 2009, Governor Granholm signed into law a series of amendments to the Michigan vehicle code dealing with drunk driving and related offenses. Those amendments, referred to by many as Michigan’s “Super Drunk” driving law, take effect on October 31, 2010. In adopting these amendments Michigan joins some 45 other states that have adopted similar laws. Key provisions of the new law include the following:

1. Beginning October 31, 2010, drivers with a blood alcohol content (or, BAC) of .17 percent or greater will face significantly enhanced penalties. First offenders will face fines ranging from $200 to $700 (up from $100 to $500 under current law), up to 6 months in jail (up from 93 days under current law), up to 360 hours of community service and will be required to attend 1 year of substance abuse treatment, Alcoholics Anonymous or other community based support groups (only required for repeat offenders under current law.) The duration, frequency and type of treatment must be based on an assessment from a licensed alcohol assessor, paid for by the offender.
2. The new law and enhanced sanctions apply only to offenders convicted of offenses that occur after October 31, 2010. License and punitive sanctions for second and subsequent offenses remain unchanged regardless of the offender’s BAC.
3. The licenses of offenders convicted under the new law will be suspended for 1 year, and restricted licenses may not be granted for the first 45 days (referred to as a “hard” suspension.) Thereafter, for the next 320 days, the granting of a restricted license is contingent upon an ignition interlock device being installed in the offender’s vehicle, at their expense, including all charges for monthly monitoring of the device. Such devices are designed to prevent a vehicle from being started or driven by anyone with a BAC of .025 or greater (reduced from .04 under current law.) Under current law as applied, the Secretary of State recognizes the potential that these devices may not allow the vehicle to be started for reasons other than a BAC of .025 or greater. As a result, if a “startup” failure is followed by a “clean test” within 15 minutes, the startup failure is not recognized. Under the new law, after the first 2 months that the device is in use, all startup failures will result in sanctions; period.Any tampering or attempted tampering with the device, or, operating or attempting to operate a vehicle equipped with the device with a BAC of .025 or greater, will result in another 1 year suspension, including 45 days of no driving at all. If an offender who has been ordered to have a device installed in his or her vehicle is stopped driving a vehicle that is not equipped with the device, that vehicle may be impounded, the license plate may be confiscated and destroyed and the offender will face additional suspension and criminal sanctions, including up to 6 months in jail and up to a $5,000 fine. The interlock device must remain in the offender’s vehicle until the Secretary of State orders its removal.
4. The vehicle of anyone who is convicted of knowingly allowing an intoxicated person to drive their vehicle must be immobilized for 90 to 180 days, with the option of avoiding the immobilization if a monitoring device is installed.

Currently, the average BAC of a person arrested for drunk driving in Michigan is .16. It is therefore estimated that the new “Super Drunk” driving law is likely to impact almost half of all persons arrested for drunk driving. Will it result in reduced incidents of drunk driving and greater safety? Only time will tell. What is certain is that convictions for drunk driving will be substantially more expensive and more consequential under the new law.

Duane L. Reynolds