Sunday, April 30, 2006

What Are Some Secrets of Profitable Licensing Deals?

Hi. I’m Richard Stim, author of Profit From Your idea: How to Maker Smart Licensing Decisions from Nolo, and this episode is entitled Secrets of Profitable Licensing Deals. I am sure you’re wondering … Secrets …how could I be telling you secrets if it’s being published on the Internet. It might be more accurate to say that what I’ll be talking about here are things that are sometimes overlooked when entering into a licensing deal. And by licensing deals we’re talking about the general terms that comprise a license of a product, invention, artwork, music, trademark or image.

Let’s start with some basic principles. The business makes and sells the product is the licensee. The company that created or invented the product is the licensor.

A license – just so we’re clear -- lets someone commercialize an invention, duplicate artwork, reproduce music or place an image on a t-shirt. In return for granting the license, the licensor receives money—either a one-time payment or continuing payments called royalties. Think of a license like renting out ideas. At the end of the rental period, the rights are returned to the owner.

The ability to make this kind of agreement is based on the premise that the licensor has exclusive rights to something—that is, something is protected under copyright, patent, trade secret, or trademark laws (collectively known as intellectual property or IP laws). These laws give the owners “suing rights” – they can go after anyone who makes copies of the property without permission. So, a licensor must have something protectible to get a deal.

For example, many clothing, jewelry and furniture designs are not protectible under intellectual property laws and so chain stores are not violating the law when they knock-off these creations without paying the creators.

Determining whether you are protected is beyond the scope of this podcast, but you can find plenty of helpful resources at the Patents, Copyright and Art section of the Nolo website. If you’re in doubt, check with an attorney. In some big cities, you can get low-cost advice from arts attorney organizations such as Volunteer Lawyers for Arts. There’s a national directory at the www.VLANY.Org website .

Know the Other

The worst thing to overlook in a license deal the other party. What I mean by that is that sometimes the parties are swept up in the excitement of the licensed product and fail to properly investigate each other. For example, the licensee fails to investigate the licensor and learns too late that there is a dispute as to the ownership of the product rights. More commonly, the licensor, excited by the potential deal, fails to investigate the licensee.

Always keep in mind that as they say – when it comes down to it, it’s the people not the paper, that matters the most in a licensing deal. Do the research. There are plenty of ways to research companies on the web. Consider obtaining a Dun & Bradstreet report if necessary to determine a licensee’s history of repayment. If possible talk to other companies or individuals who have signed with the licensee.

The worst thing for a licensor is to be trapped in a bad licensing deal, chasing royalties, and trying to get your rights back.


Many licensees, particularly first-time licensees, will focus a great deal of attention on the amount of the royalty and the advance and focus very little attention on deductions against royalties. That’s a mistake.

Deductions are amounts that the licensee can subtract from net revenue before calculating the royalty.

Last week musicians from Cheap Trick and the Allman Brothers sued an international record company over music licensing deals. The musicians wanted to know why deductions such as packaging costs and breakage expenses – deductions associated with vinyl recordings – were being made on royalty payments for digital downloads. The musicians claimed that millions of dollars were being diverted by these deductions. The record company claimed that the agreements permitted these nonsensical deductions.

Whether licensing inventions, music, or artwork, always pay attention to deductions. They often have a bigger impact on royalty checks than any other factor. Some deductions – such as shipping, credits for returns and local taxes are normal but some companies also attempt to deduct what should be costs of business from your calculation of net sales. Be wary of deductions for marketing, bad debts and sales commission deductions, for example. If you reach an impasse on deduction negotiation, at least try to put a cap of say 10% of gross sales on the amount of all deductions.

Audit Provisions

If there is a dispute over royalties, the licensor will want to audit the books of the licensee. So both parties should carefully review the audit provision to make sure they’re comfortable. Usually, a typical audit provision permits audits once a year under certain conditions. Many audit provisions require that the licensor hire a certified public accountant to perform an audit. Licensors should try to avoid this as a CPA may be a very expensive proposition and the licensor may prefer to send a non-certified accountant or lawyer to the audit, instead. Also, a licensor should seek a statement that if an underpayment of say 5% is discovered, the licensee will pay the cost of the audit and any interest on the past due amount.

The Prosecute Infringement Provision

When you license your work, the licensee generally assumes the obligation of chasing infringers. That’s a good thing for licensors and one of the major advantage of signing a license agreement versus manufacturing a product. Plus, just having a big name licensor such as Black & Decker, Mattel or Time-Warner on your side, often deters someone from infringing in the first place. Review this provision and examine how the recovery from these lawsuits will pay out. The most equitable approach is to split the recovery after the licensee’s legal fees and costs are deducted. The least equitable is to pay the licensor the same royalty on recoveries as on licensed products.

Know the Industry

Just as some licensors fail to investigate the licensees, they also fail to properly investigate the industry in which they are licensing. After my book, Profit from Your Idea had been out for a few years., I heard from an inventor, David Silva, whose company Localoc had successfully used the book to license two of his patented hair accessory products invention. When I asked David if he had any tips when making a product pitch this what he told me.

Pitching something you believe in and worked hard to create is always nerve racking. My advice is to not only prepare exactly how you will present the invention, making sure it can be understood in a short period of time (a few minutes or forget it), but to also learn the history of the company you are pitching to, including the names of the people who run it, and the industry itself.

The company you're pitching to really needs to sense that you know what you're talking about. You would think a company that sells a particular type of product would be aware of all their industry’s latest trends, but nine times out of ten they are experts in advertising, marketing, and distributing, not experts in the latest trends relating to their industry.

For example, when I asked Helen of Troy how many hairstylists they had working in their 500-employee hair-product company, their answer was “None.” Believe me, convincing a company that you know a lot about their industry and its trends makes all the difference. Also, the old saying “don't take no for an answer” is true. If they do say no, continue to come up with reasons why they are wrong.

What happens when one party says “That’s the best we can do.”

Let’s say you believe your product will be very successful. However, the licensee is offering you what seems to be the royalty rate of say 5 to 10% and a relatively small advance. Having worked for years to perfect your product, you feel that the proposed royalty and advance is too small. After all, the licensee is a successful company, so it should be able to pay more money.

Before assuming that the company is bluffing examine the two most important numbers in the licensing negotiation. Cost of goods – what it costs to manufacture your product – and retail price. What you expect the consumer to pay (often a multiplier of five of the cost of goods). That’s how the licensee is looking at it. If your price is, for example, higher than competing products, you may have an explanation right there why the licensee is cautious about offering a higher royalty.

If you believe that the company is simply bluffing, you may have to -- as my office mate Lisa Guerin says -- play it like Columbo.”

Weigh the alternatives, consider the people involved and consult with someone in the industry, before rejecting any offer. One possible solution may be to accept an offer but limit the time period for the agreement for as short as possible. That way, if the product is successful, you can renegotiate for a better arrangement. Another possible solution is to suggest a fluctuating or sliding royalty that increases as sales increase. That’s what David Silva did, for example, in one of his licensing arrangements.

Tip #5 Keep it Short

One successful licensor I’ve worked with is a cartoonist who has followed two basic principles. Always make sure that all rights revert after the license is over and always keep the deal as short as possible. Why keep it short? If it’s successful, the licensor will want to renew and you’ll have an opportunity renegotiate. If it’s unsuccessful you’ll probably want out as soon as possible anyway … in order to try somewhere else. Using this approach he has entered into three separate videogame licenses as well as a license for Saturday morning TV shows, all the while retaining all rights in his characters.

I’m afraid that’s all the time we have for right now and if there’s enough of a demand maybe we can follow up with another set of tips in the future.

Finally, I’m proud to say that Nolo has the best collection of licensing materials available to help you. Even if you get an attorney, our materials will help you save on attorney fees. If you’re an inventor, check out my book, Profit from your Great Idea, and if you’re a musician or artist, check out my book, Getting Permission.

Sunday, April 16, 2006

Should You Pursue a Personal Injury Claim?

We’re speaking with Attorney Joseph Matthews, an expert on personal injury lawsuits, and the author of, “How to Win Your Personal Injury Claim,” published by Nolo.

NOLO: Joseph, all of us suffer injuries from time to time as a result of the actions of others. But how does a person determine that they deserve to be compensated for that injury? In other words, are there any simple ways to determine whether or not a person should pursue a personal injury claim?

JOSEPH MATTHEWS: When you’re deciding whether to pursue an insurance claim for a personal injury - and I want to make very clear here that we’re not necessarily talking about a legal action or a lawsuit, but simply a claim against an insurance company for the injuries that you’ve suffered - you have to determine whether or not the injury is worth your time pursuing. That is, unless you have received some treatment for the injury, or have lost time at work or school, then, in general, you’re going to have to say, “This is not something that’s worth my time and energy to pursue.” However, if you have received any kind of medical treatment for your injury, or if you’ve lost any time at work or school, then you move into the category of a valid claim. The question of whether or not you can collect on that claim depends then on who was at fault for the accident. But this is not any kind of scientific calculation; the sense of who was at fault is a combination of common sense – who’s done something careless and who’s been careful – on the one hand, and the insurance system as it’s set up, which is, that people pay into insurance companies precisely to compensate people who are injured, so that insurance companies are there, ready to make payments to people if they present a logical and sensible claim that they have been injured as the result of somebody else’s carelessness.

NOLO: Joseph, how do insurance adjusters view people who bring personal injury claims?

JOSEPH MATTHEWS: Insurance adjusters are professionals in the business of settling insurance claims. However, they don’t know nearly as much about your accident, how it happened, what your injuries were, and what’s happened since your injuries, as you do. So that, although some insurance adjusters may bluster and try to intimidate you not to pursue your claim, once you get yourself organized with the help of the personal injury claims book, you can present a claim to the insurance adjuster that makes the adjuster understand that you know how much your claim is worth. That figure is the kind of mystery that the book solves, and it’s the thing that, once an adjuster knows that you understand, will quickly move towards settling your case. Your claim is based on the seriousness of your injury, the amount of your medical bills, the kinds of residual problems you suffer because of your injuries, and the amount of time you’ve lost from work, school, or other events. Once you know how to put numbers on those elements of the claim, the insurance adjuster will quickly understand that you know how much the claim is worth, and will come to a settlement with you. It’s only getting over that initial process of making the adjuster understand that you know how the claims process works that’s the difficult hurdle. Once you’re past that, it’s only a matter of arriving at a final figure, and most people, except for very serious injury cases, are capable of doing that work themselves, without having to hire a lawyer, which may get you an extra 10, 15, or 20% above what you could get yourself from insurance, but you lose all of that and much more, because you have to pay a lawyer one third to 40% for the lawyer’s work.

NOLO: You often hear about cases where two people are injured, and both had degrees of fault. For example, a driver runs a red light, and hits a pedestrian who’s jaywalking. How does the law go about determining which of the two has to pay for the injury?

JOSEPH MATTHEWS: In most situations in life when there’s an accident, some fault can be attributed to both parties, or three parties, if there are three involved. Nobody, usually, is completely blameless in an accident. However, in order to collect on an insurance claim, you do not have to be 100% blameless to in order to collect. The law has a concept known as comparative fault, or comparative negligence, which says, if you, for example, were injured but were 10% at fault for the accident, the amount that you collect in the insurance claim or in court will be reduced by that 10% that you were at fault. Now, there’s no way, of course, to put an exact number on the amount that you and the other side were at fault; this is part of the negotiating process that we explain in the personal injury book, so that you put it into a hopper along with the amount that your pain and suffering is worth, and you begin a negotiating process with the insurance adjuster. But you always have to bear in mind that under this notion of comparative fault, even if you too contributed to the accident, you are still entitled to compensation for your pain and suffering, and your injuries, and your medical bills, and your lost work, or your lost school or other events, and the insurance adjuster knows this as well, and you will be able to pursue your claim to a successful conclusion, even though it’s clear that you might have done something to avoid the accident, or even if you contributed to the accident yourself in some way.

NOLO: Here’s a question I’m sure a lot of people wonder about. Is using a cell phone in an automobile enough to demonstrate that you’re at fault if an accident occurs?

JOSEPH MATTHEWS: One of the most increasingly common phenomena in life on our roads today is the person driving and talking on the cell phone at the same time. Studies are now coming out, and it’s a slow process, because the phone industries of course are keeping their own research private, and not disclosing what their own research finds, but slowly research is coming out that essentially establishes that talking on a cell phone while driving is the equivalent of drunk driving. That is, the amount of distraction it causes while you are driving to talk on a telephone slows your reaction time down to the same amount that being drunk does. It’s an extremely dangerous and increasingly frequent occurrence in our phone culture, and it now is something that’s part of accidents more and more frequently. If you can prove, and this is, of course, the difficult part, but if you can prove that someone was talking on the telephone when they got in an accident with you, you have a very powerful tool for showing that that person, in and of itself, was liable for the accident, no matter what else they did in their driving. The problem is proving it. Now, if you have a witness or two, passengers in your car, or people standing on the street, who all can say, “Yes, I saw this person talking on the telephone while they were driving at the moment the accident happened,” you have a very powerful tool for winning your claim. Or, you may be able to get a hold of the telephone records for the person who was doing the driving in the other car, which also may show exactly when they were using their telephone. In either event, if you can show that they were on the phone at the time of the accident, you have a very powerful tool for winning your claim, in addition to whatever else they may have done in the actual operation of the vehicle.

NOLO: When I was in law school, I was led to believe that it was very difficult to win a slip-and-fall lawsuit. Is that true or not?

JOSEPH MATTHEWS: Slip-and-fall lawsuits, or slip-and-fall insurance claims, which is what we’re really talking about here, not going and doing a lawsuit by yourself… slip-and-fall lawsuits are more difficult to win than automobile accidents, just because slip-and-falls don’t have their own set of rules-of-the-road the way that automobile accidents do. Because there are no absolute rules on how somebody should build, maintain, and clean their stars, and how exactly you should walk up and down those stairs, it’s sometimes more difficult to prove that somebody was at fault for a slip-and-fall accident. On the other hand, there’s no particular reason why a slip-and-fall accident – as opposed to any other kind – can’t be won in an insurance claim, if there is good evidence showing how the accident happened. So, if you fell in a wet spot on the floor, and it’s obvious to several people - including yourself, and the managers or employees of the place that you fell, or the residents of the place that you fell - that that floor was wet, you don’t necessarily have any more complicated thing to prove than you would in a car accident case. On the other hand, when you’re talking about a staircase, or a slip-and-fall on a floor, where it’s not obvious what the cause was, then you have a more difficult claim, because you have to show that there was something wrong with that floor, or those stairs, that caused you to fall, rather than simply your own carelessness in not walking properly

NOLO: Joseph, how does a person determine whether or not they can handle their own personal injury claim, or whether they should pass it along to a lawyer?

JOSEPH MATTHEWS: Of course, there are certain kinds of cases that people should not handle themselves, even at the insurance claim stage. If you receive a very serious and permanent injury where you’re going to have a loss of the use of a limb or bodily function for the rest of your life, or even for a long period of time, that case is simply too serious for you to handle on your own, and a lawyer’s expertise will be worth the amount of money you have to pay the lawyer to handle your claim. However, most cases which involve injuries, and even serious injuries, people can handle themselves, at least in the insurance claim stage, if they have the information that we provide in the book, and they get themselves organized in order to present a claim that an insurance adjuster can see explains the injuries, and the pain and suffering, and the lost income, sufficiently to make a settlement offer. In most cases, people can handle that themselves. But we do want to reiterate that, with certain kinds of cases where there are serious injuries, or very technical legal questions, such as medical malpractice, toxic injuries, or the like, you will need the assistance of an experienced personal injury lawyer. However, for most run-of-the-mill kinds of accidents, where there is no serious permanent damage done to your body, bodily functions, and ability to function in the world, you can handle at least the insurance claim portion of your claim by yourself, and save yourself considerable money in attorneys fees by doing so.

NOLO: In your book, you indicate there are deadlines for filing lawsuits, often as short as one year. But what if the insurance company drags out its settlement discussions past the deadline for filing the lawsuit?

JOSEPH MATTHEWS: There are deadlines in every state about when you must file a lawsuit against the person you believe is responsible for your accidental injury without losing all of your rights to pursue a claim against that person. Those deadlines, in most jurisdictions - that is, in most states - are two or three years; however, there are some as short as one year. When that jurisdiction deadline comes up in your case, you must file a lawsuit, in order to protect yourself, in order to pursue your claim beyond that deadline. That doesn’t mean you necessarily have to pursue that lawsuit, but you do have to get it on file in the court in order to protect yourself. You can do that yourself in many cases, with the assistance of this book, and with the assistance of the courts, who try to help pro-per – that means people doing things without a lawyer – litigants, or you can hire a lawyer on a very short-term, by-the-hour basis, to simply file that paper for you to protect your rights, and then continue to pursue your claim on your own until you reach some point that you believe that the insurance company is simply not going to provide you with a decent offer or settlement, in which case you then might have to turn to a lawyer to help you finalize the case.

NOLO: Joseph, thanks so much for speaking with us today.

JOSEPH MATTHEWS: Yeah, it’s been a pleasure, and I just want to emphasize for people that there is an entire insurance industry out there collecting payments from everybody, every day, specifically to provide for compensation for injuries to people who are injured in accidents; so, one of the things to remember is that if you’re injured in an accident, don’t feel like you’re trying to take advantage of the system by filing an insurance claim. The insurance industry collects billions of dollars every year from people precisely to provide for this compensation, and if and when you are injured and have a legitimate claim, it’s absolutely the right thing to do to pursue your claim in order to collect a portion of that billions of dollars that the insurance company has collected for just this purpose. Thank you very much for having me.

We’ve been speaking with Attorney Joseph Matthews, author of “How to Win Your Personal Injury Claim,” published by Nolo.

Sunday, April 9, 2006

What's the Difference Between a Green Card and Citizenship?

We’re speaking with Attorney Ilona Bray, author of “Becoming a U.S. Citizen: A Guide to the Law, Exam, and Interview.”

NOLO: Ilona, immigration has become a hot button topic these days. You practiced immigration law with several nonprofit immigration agencies, and you’ve written book about marriage visas, and student and tourist visas. So maybe you can start out by explaining the difference between a visa and a green card.

ILONA BRAY: A green card just means that you have U.S. permanent residence, that being the right to live and work in the U.S. for an unlimited amount of time. The only condition there is that you have to not commit any crimes or do other things that would make you removable from the U.S. But as long as you sort of stay out of trouble, you can stay here pretty much forever. The reason they call it a green card is because the ID card that you carry used to be green; it’s actually now pink. A visa is a right to enter the United States; it’s really a physical thing. Your passport gets stamped with a visa by a U.S. consulate, and then you can come to the U.S., say as a student, a visitor, or on some other temporary status. The reason some confusion comes into this is that a visa is also used by some immigrants who come to the U.S. for permanent residence, for example the spouse of a U.S. citizen. So, going back to the temporary visitors, they might use the visa more than once, because they’re traveling in and out of the U.S. before their status or their visa expires. But for the permanent resident folks, it’s a one-time-use visa, so they would basically trade it in for a green card the second they enter the United States.

NOLO: I’m fascinated by the color change of the green card. Why did they change it to pink?

ILONA BRAY: I would love to know the answer to that; can’t tell you.

NOLO: I think some people are under the impression that if you marry a U.S. citizen, you automatically become a U.S. citizen, without a green card. Is there any way you can become a U.S. citizen without going through the green card process?

ILONA BRAY: Pretty much not, you’re right, that’s a common misconception. But in almost every case, you need a green card first, and then after you’ve had the green card for a certain number of years, you can apply to become a U.S. citizen, through the process that I describe in my book. And the actual process is called naturalization. The false information about that does lead to some really sad cases. I’ve heard of people showing up at the U.S. border or airport with their new husband or wife, and being told, “Nope, sorry, you’ve got to go home again and do a couple years worth of paperwork.” In fact, at that point, they probably wouldn’t even let the spouse in as a tourist, because they’d say, “No, you’re not a tourist; you want to live in the U.S. permanently, so get back on your own soil and go through the paperwork.” It’s an awful situation. Now, there are a couple of exceptions to whether you can skip over the green card and go right to citizenship, just small ones. One is, that if you’ve served with the U.S. military during certain wars, and that includes the current war in Iraq, and you signed up for the military while you were on U.S. territory, you can apply directly for citizenship or naturalization. The other exception is for children of U.S. citizens who were born overseas, and they can in many cases become citizens automatically, without even applying for it. And that actually applies to newly adopted children, too. So, even though they would come to the U.S. on a green card, the minute they get to the U.S., they just automatically become citizens; they don’t have to worry about the application or anything.

NOLO: Ilona, does everyone who has a green card qualify for U.S. citizenship?

ILONA BRAY: No, unfortunately. That’s a very personal sort of thing, depending on how you’ve acted basically since getting your green card. In theory, everyone should be able to go through the right number of years and then apply, but you’ve got to figure out whether you’re truly eligible before turning in that application.

NOLO: Okay, what about someone who’s in the country illegally now? Is it possible for that person to go from illegal status to green card or to citizenship?

ILONA BRAY: Pretty much not; only in the two situations that I described above, where if you’re in the military -- and you can actually serve in the U.S. military as an undocumented alien -- you can get a green card on that basis. And then the other one that I described were children who can become citizens through their parents. And they actually wouldn’t have been illegal in the first place, but they might have thought they were illegal, and that does sometimes happen. If someone thinks that they’re undocumented, they may get hauled into immigration court, and when the attorney starts researching their chain of descent, and discovers, “Oh, your parents were actually in the U.S. with citizenship at the right time.”

NOLO: One of the requirements for citizenship is that the person be of good moral character. You say in the book that someone lacks good moral character if they’ve abused drugs, avoided the military during wartime, or if they’ve had a drinking problem. Apparently those haven’t been impediments to political office in the U.S., so why are they so important to the USCIS?

ILONA BRAY: This is just one of the many areas where it seems like foreign-born people are held to higher standards than U.S. Citizens. Another area that comes up a lot is in the commission of really minor crimes. Stuff that would get you a slap on the wrist in a U.S. court, like, first time drug peddling between friends or, say, shooting a gun on the fourth of July, which I understand is sometimes a tradition in some communities… those would get an immigrant deported, believe it or not. Now, we can guess at the justification pretty easily, it’s that U.S. citizenship is the highest benefit that anyone can be granted under the U.S. immigration laws, so you want to set some limits on who it can be granted to. At the same time, I certainly would not object to raising the limits on who can gain political office in the United States.

NOLO: Let’s talk about the written test for a second. What’s the thinking behind that test? Why do new citizens need to know the name of the boat that brought the pilgrims to the U.S.? Is this the same sort of thing we were talking about before where we have to establish a higher standard?

ILONA BRAY: There’s some of that, and I think also it’s that, before we give someone the right to vote and to fully participate in U.S. society, it’s going to be helpful for that person to understand what philosophy this country operates by and some of its history. I think one of the questions is even what month our election’s held in, so, “What month do you go and vote in?” So that’s a good thing for people to know, to get them involved in U.S. civic life. But, you’re right, a lot of the exam seems really out-of-date, and a weird part of it is that, to make it standard, they’ve boiled it down to one hundred questions, which are published, and everybody knows what the questions are, and you can practically memorize them without knowing what the true meaning of the answers is, which is sort of awkward. And, some of the questions are just obscure. Like, I like to make a game sometimes out of asking my U.S. citizen friends to answer some of the weirder questions, like, there’s one, “Who said ‘Give me liberty or give me death’?” Or, one of the hardest ones on the exam is, “Can you name the thirteen original states in the U.S.?” And many of my friends failed these. I think I might fail the thirteen original states if you asked me right now, which I hope you won’t.

NOLO: Of the three requirements: the exam, the interview, and the swearing-in, the interview seems the most intimidating, especially for someone who may not have excellent English language skills. So, how hard is the interview, and should you bring an immigration attorney with you?

ILONA BRAY: The interview doesn’t have to be hard, just to give people some comforting thoughts first. It doesn’t last very long, it lasts about twenty minutes usually, and it contains almost no material that you don’t know to expect in advance if you’ve done a little preparation. Basically what they do is sit you down, swear you in, they go over your application, they’ll ask you a few of the one hundred questions to see if you can pass that, they’ll ask you to write a sentence in English, and all along the way you’re actually being tested on your English but you don’t really know it, because you’re interacting with the examiner. And that’s it. If you speak English pretty well, you should really do fine. Now, as you mentioned, it’s a lot harder for people who don’t speak English so well, and it can be a double-whammy if you get a USCIS officer who’s rude, or who’s having a bad day. I’ve been in citizenship interviews where I’m overhearing an interview being held with someone who doesn’t have an attorney, say, in the cubicle next to me, and sometimes just go from bad to worse because of a language barrier. Like, the interviewer may say, “Stand up,” the interviewee doesn’t understand, they don’t stand up, the interviewer gets frustrated, and it just goes from bad to worse. If something like that happens, actually, the person should ask to see a supervisor and just find a way to stop the interview for that day, because they can always reschedule for another day, hopefully with another person. Whether you need a lawyer is an interesting question. For some things, it actually would be helpful just to have a third person there, and a lawyer is your best bet. Like, in the situation I described when there’s a big misunderstanding over some simple language concerns, a lawyer can at least make everybody feel better and potentially understand what’s going wrong and fix it. They are not using their legal knowledge, but they’re awfully handy to have there. Not everyone needs a lawyer, and if their English is good, and their legal eligibility is solid, it can easily be done without. Some people, however, definitely need a lawyer. In fact, some people should be consulting with a lawyer far beyond the interview, when they’re putting their application together. But if they didn’t, it’s never too late to call up a lawyer and say, “Can you look over my application and come with me?” The people that would fall under that category are the ones who have legal issues in their case such as crimes, or the biggest concern would be if they weren’t eligible for their green card in the first place. For example, some people have managed to get a green card, say, as the unmarried child of a U.S. citizen, when in fact they were married and they just didn’t tell anybody coming in. Citizenship is a chance for them to open up the file again, look at all your personal history, figure out that problem, and then say, “Ah, I guess you don’t really have a green card, so you’re not only not going to get citizenship, you’re going to be put into immigration court proceedings and be removed from the country.” So, an immigration attorney can help figure out whether there are problems like that in the case. And they will in some cases say, “Don’t even apply. You’ve got a green card, you can sit happily in the U.S. infinitely, because you probably won’t come into contact with the immigration authorities on any other basis, but don’t put yourself in front of them by submitting this citizenship application.”

NOLO: Ilona, you’re an immigration attorney. Are you one of the attorneys who can get an applicant to the head of the line?

ILONA BRAY: I would never claim to be able to get anyone to the head of the line, and anyone who does claim that is probably not someone you want to be associate with, because it’s basically not possible. The immigration service, USCIS, is a frustrating bureaucracy, and I’m sure there are times when many attorneys have wished that someone would take a bribe or do something underhanded, but really, they don’t. For the most part, they operate according to law, except for a few weird things you hear occasionally in the news, where someone gets caught for taking a bribe or something. But they’re on the lookout for that; that’s not the way the agency operates, thank goodness. But I would say that it’s good to have an attorney who is professionally well connected, just because given that it’s such a bizarre bureaucracy, belonging to a professional association, like one called AILA, which is the American Immigration Lawyer’s Association, gets you in touch with other attorneys who can share tips, can share inside phone numbers, just something as simple as, “Who’s the latest supervisor for the adjustment of status unit that I call if my application gets lost?” That’s important information; it’s not underhanded, it’s just keeping up with what’s going on. And, AILA also actually holds something called liaison meetings, where the USCIC people consent to meet with attorneys and answer questions more or less once a month, and that’s a great chance for the attorneys to find out what’s really going on behind the scenes and to bring up concerns. So, someone who’s not connected in that sense, they could still do a good job legally in many ways, but they won’t have some of the secret tips on sort of the latest issues and ways to get around them.

NOLO: How many shots does an immigrant get at U.S. citizenship? Is it three tries and you’re out?

ILONA BRAY: Well, that depends. If the interview doesn’t go well, and you don’t get approved that day, it’s not necessarily the end of the line. And if the reason was that you failed the English or the U.S. History and Government exam, they’ll pretty much automatically bring you back; you’ll get a new appointment notice to come back within ninety days, and you can retry the exam, which is great. Sometimes it won’t be so systematic; they may say, “Well, you didn’t pass because we’re not sure you actually paid your taxes; provide us with a tax return.” Or, “We’re not sure that that marriage of yours that lasted one year and got you a green card was the real thing; you’ve got this divorce here. Bring us proof that it was a bona fide marriage.” So, in that case, you’ll have to supply the documents, and you’ll have to convince them, and it can drag on for a while, but there’s hope of eventually getting an approvable. If there’s a more serous problem, like I described earlier, with someone who wasn’t eligible for the green card in the first place, in that case, the denial of the citizenship application is pretty much an outright denial, and you would have to go to immigration court just to fight for your right to the green card.

NOLO: You wrote your book before 9/11. Based on what you know now, do you think the hurdles are higher for those seeking U.S. citizenship?

ILONA BRAY: The hurdles are higher for everybody, but it’s the least difficult for people applying for citizenship. They’ve had their green cards for a few years by now; they’re sort of presumed to have been settled in U.S. society, and there isn’t the big question of, “Who are you? You’re coming from outside the borders; we have to run five million security checks on you.” Now, they do still take your fingerprints, and they will still check them carefully, and more carefully then they would have before 9/11 and other terrorist events. But, it’s less of a problem for the citizenship applicants than for others. Now, there is one thing I should mention though, that can be a problem, which is, there is a problem on the citizenship application form, which is form N400, that asks you, “Are you associated with any groups?” And that’s a question that we attorneys like to encourage people to answer pretty fully, in the sense that civic involvement is a good sign; it shows that you have good moral character, which is one of the requirements for citizenship. But if you mention a group that is on the U.S.’s list of terrorist organizations, and that’s a pretty broad category these days, any group that provides funding in any way for anything considered violent or terrorist can be dubbed a “terrorist organization.” Then you’re going to have real trouble. So I would say, if you’re from a country that has any groups that might possibly be suspected, it’s worth checking with an attorney before putting that on your application. Or even if you don’t put it on your application, before going to your interview, just in case there’s some question about, “What group are you involved in, and what’s really the nature of that group?”

Sunday, April 2, 2006

Do You Need a Will or a Trust?

We’re here with Attorney Denis Clifford, an expert on estate planning, the author of several books on wills, estates, and trusts, including the best-selling “Estate Planning Basics.”

QUESTION: Let’s start out. A lot of estate planning books recommend that a person planning their estate assemble a team of experts, including a lawyer, accountant, and a life insurance expert. This seems like an expensive proposition, so, tell me what your take is on that.

DENIS CLIFFORD: My take is, it’s a totally wasteful proposition for the average person; there’s no need for a “team of experts” at all. What you need is, first some good advice and understanding of what estate planning involves and how that applies to your situation. Many people don’t need anyone at all; with the help of a Nolo book, they can do all their estate planning themselves.

QUESTION: Two common ways to transfer property to people after your death: living trusts and wills. Just for those who don’t know the difference, perhaps you could give us a brief explanation of each.

DENIS CLIFFORD: Well, they’re both documents that transfer property when you die. The difference is a will is the traditional document that’s been used for many centuries, and you name the property or identify it some way, and name beneficiaries who receive the property. Almost all wills have to go through a process called probate, which is a court approval process, which is time consuming and expensive, and in almost all cases, provides no benefit except to the lawyers involved. A living trust is the alternative transfer method that does not require probate, by which you transfer all or at least most of your property to the same beneficiaries without the expensive courts and lawyers after you die.

QUESTION: Next is joint tenancy and tenancy by the entirety. Could you give us a brief explanation of what those mean?

DENIS CLIFFORD: Joint tenancy is a type of shared ownership between two or more people. And, in almost all states, each person has to own an equal share of the joint tenancy property. It’s most common between couples, whether married or not, owning real estate. The unique characteristic of joint tenancy is when one of the owners dies, the other owner receives the property “automatically,” outside of probate. Again, it’s a probate avoidance device. There are some complexities if you want to enter into joint tenancy just to avoid probate, which are discussed in my books. But for people who are buying property and want to own it in common, joint tenancy is often a very useful way to avoid probate of that, and, in fact, I own my house in joint tenancy with my wife. Tenancy by the entirety is a type of joint tenancy, and it applies in a number of states, particularly to married couples. It’s basically indistinguishable from joint tenancy, expect that you use different terms in the deed defining the ownership, and you use the terms as tenants by the entirety rather than as joint tenants.
QUESTION: Okay, I guess this next thing is sort of what I would call the Joan Crawford question, which is, if for some reason a person does not want to give any money to their children or spouse, do you have to specifically disinherit that person?
DENIS CLIFFORD: Well, first let me refer to “spouse,” and there’s two different situations here, depending on whether you live in what’s called a “common law state,” which is a vast majority of states in the United States, which derive their law from the English legal system, or the community property states, such as California, which derive their marital property law from a Spanish system. In community property states, each spouse owns half of the property acquired during marriage, no matter who “earned” it. In community property states, a spouse does not have any obligation to leave his or her half of the community property to the other spouse. In common law states, there are laws protecting a spouse from being disinherited from the other spouse, since one spouse may own all the property, it may be in his or her name, and the other spouse may get nothing in a will. So, there are laws that protect a spouse, and our Nolo rule is that, if you are going to leave your spouse at least half your property in a common law state, see a lawyer. As far as disinheriting children, you can disinherit any child you want to. You should do it specifically by saying, “I intentionally leave no property to my son, daughter, whatever,” because there’s a rule that says if you forgot to mention a child in your will, that child may be entitled to a certain percentage of your estate.

QUESTION: Can you tell me about the problem that might occur if you die and your children are still minors?

DENIS CLIFFORD: Well, in all states, children, meaning children under the age of eighteen, are not legally entitled to own outright a significant amount of property, the idea being that they are not old enough to responsibly manage it; they’re not adults, same as they can’t vote until they’re eighteen. So, some adult has to be responsible for having legal control and supervising any property or money you leave to a child. There are a number of ways you can do this. You can set up what’s called a gift in your will or living trust under what’s called the Uniform Transfers to Minors Act, in which you appoint a custodian. Often people will name their spouse or their mate, or if they don’t have one of those they name a close friend or relative or sister or brother to be the custodian, and that custodian manages the property until the child turns between eighteen and twenty-five, depending on the specific state, and when that state law says that the property has to be turned over to the child. There’s also a device called the Children’s Trust, which basically works the same as the Uniform Transfers to Minors Act, except you can extend the age at least up to thirty-five before the child gets the property. There are other devices as well, but those are the best two.

QUESTION: This term “pour-over will.” We can visualize the concept, but maybe you could explain that a little better.

DENIS CLIFFORD: Yeah, pour-over will is actually often used with a living trust. What it means is that the will directs that all the property subject to the will be poured over into the living trust. In other words, you leave most of your property by trust, but you say, “I have a pour-over will, and that says any property subject to my will after it goes through probate shall go to my living trust.” I think pour-over wills are rarely a good idea; that’s one of those things that has a fancy name, and some people like a fancy name, and lawyers like to push it because it makes more probate work for them. But there’s no reason to direct property to go first through probate and then into a living will. If you’re leaving some property by will it will have to go through probate more than likely, and then it might as well be distributed when probate’s done. To let it go through the will will hold up the whole process of transferring all the property through the living trust if it’s poured over. So, I’ve mentioned in my books a couple of instances where I think it might be useful, but in general, it’s not a good idea.

QUESTION: This is definitely going to be a basic question for you, but probably for a lot of people that are still not clear on the form that a will has to be in… in today’s world, can you have an electronic will? Is an oral will ever going to be valid, or a video format? Can you just tell us a little bit about the format that a will should be in?

DENIS CLIFFORD: Yeah, the answer to all those options is no, they are not legal in any states. Nevada has a statute that if they ever get sufficient identification mechanisms and procedures, so that we can identify who is speaking orally or on a video, then that could be a valid device, but there’s no recognition system that’s infallible or close to infallible right now. So the answer is, a will has to be a printed document and is subject to certain rules. In a minority of states you can have a hand-written will, but I discourage them strongly. They’re suspect by courts, they’re more strictly construed than other wills, there can’t be any erases or cross-outs, and it’s not hard, certainly with a Nolo book and a computer, to prepare a valid will following the requirements of state law. Then you print it out, sign it, have it witnessed, and it’s done.

QUESTION: Estate tax, a huge issue… is there a way to just give us a summary of the kinds of things that are commonly exempt from estate taxes?

DENIS CLIFFORD: Well, first of all, I don’t really think estate tax is a huge issue, except for millionaires; by definition, it’s only for millionaires, at least federal estate taxes, which are the ones that take the biggest bites. Each person has a two million dollar exemption from federal estate taxes when they die, so if your net estate is worth less than two million dollars, your estate cannot be subject to estate taxes. It’s a very small percentage, roughly one percent or less of the estates in the United States are now subject to estate taxes. It’s the kind of thing that people who are interested in protecting only the rich scream about, but in fact it concerns very few people. There are some state estate taxes, but they are much less significant, and there isn’t much you can do about them except move to another state, and it’s almost never worth bothering with that. If you live in two states and one has estate taxes, you might want to see a lawyer to see how you can transfer your residence to the other state if that state doesn’t. In terms of other exemptions, the major other exemption from federal tax is any property, no matter worth how much, that you leave to your spouse, is exempt from tax. Also, of course any property that you leave for legitimate charitable purpose is exempt from tax.

QUESTION: Okay, I was duped as many people were in 2001 into believing that estate taxes were repealed. But that’s not true?

DENIS CLIFFORD: No, for various technical and other reasons, the estate tax was not repealed. The Republicans put through a particularly wacky law that raises the amount of exemptions; it’s now at two million per person, in 2009 it’ll go to 3.5 million per person free of federal estate tax. In 2010 the estate tax is repealed for one and only one year. In 2011 the estate tax comes back and currently the exemption will be lowered to one million dollars. There has been a considerable and extensive political fight in Congress over whether they are going to permanently repeal the estate tax or not. Personally, I think repealing the estate tax is a disastrous idea, leading to creating, even more than we are now, a class of inherited wealth, sort of like the Bourbons in pre-Revolutionary France. And, the cost to the treasury, although only one percent pay estate tax, the amount they pay is many billion dollars a year because of the class of wealthy people we’ve created in this country. And to enable them to pass their wealth on forever without any tax seems to me an abomination.

QUESTION: Let me just get one thing clear on that. You mean if you die on December 31, 2010, there is no estate tax, but if you die the next day, there’s a one million dollar exemption and that’s it? Is there a way to tell when it’s time to seek an attorney’s advice? Are there any simple guidelines?

DENIS CLIFFORD: Well, I was thinking about this, and the answer is yes and no. One simple guideline is, if you feel insecure, or just don’t want to do the work or are, you know, the kind of person that always wants a paternal figure or a maternal figure to say you’re okay, so, one way to look at it is a subjective thing. I say you should start with some solid information about what your situation is and what your estate planning option is, and personally, obviously I believe the best way to get that information is through Nolo Press resources. In our Nolo resources, we often have little sites saying, “If you’re in this situation, see a lawyer,” because there are a number of situations, many in estate planning, where I think, “We can’t explain this well enough; it’s such a relatively unique thing, and it’s fairly complicated; go see a lawyer if you’re in this situation.” So, another approach to it is to read through the Nolo resources applicable to you, and see if you fall under these categories where there are little red flags saying, “Consider seeing a lawyer.” But let’s take a couple of average situations. Whether you’re single or not, and you have some children and maybe a grandchild, and basically you want your property to go to them, or maybe your spouse and then to them, unless there are some complicated tax problems or other problems, you can state what you want in a sentence or two. There’s no reason to have to run to a lawyer and say, “I want to leave my property to my kids; can I do that?” Of course you can do it, and with the proper legal forms, which Nolo provides, you can do it without seeing a lawyer. So I think you should start with the confidence that “I can figure this out.” And if you can’t, then go see a lawyer.