May 18, 2012
3800 VerMaas Place, Suite 200
Lincoln, NE 68502 (map)
Phone: 402.475.7011
Toll Free: 800.714.3439

Individual Retirement Accounts Inherited From Someone Other Than A Spouse – Are They Exempt in Bankruptcy?

Courts have struggled with the issue of whether Individual Retirement Accounts (IRAs) that are inherited from someone other than a spouse qualify for exemption from a debtor’s bankruptcy estate under the Bankruptcy Code.

When a debtor files for bankruptcy, all assets and interests held by the debtor become a part of debtor’s the bankruptcy estate. 11 U.S.C. § 541(a)(1). Some assets are protected from creditors, or exempt from the bankruptcy estate, to help the debtor make a fresh start. 11 U.S.C. § 522(b)(1). Retirement funds are one of those assets. Both Nebraska and federal law provide an exemption for “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation” under the Internal Revenue Code. 11 U.S.C. § 522(d)(12), § 522(b)(3)(C). Thus, a debtor’s retirement funds that are held in an IRA are exempt so long as they are retirement funds and are held in an IRA account that that is tax-exempt under Internal Revenue Code § 408 (IRAs).

The issue with inherited IRAs is that the debtor did not personally direct income into the IRA; rather, a person other than the debtor’s spouse established an IRA for their own use and died before depleting the account. The debtor inheriting the account cannot treat the account as their own or roll the funds into their own IRA but must set up a separate account and maintain it in the name of the deceased IRA owner for the benefit of the beneficiary. 26 U.S.C. § 402(c)(11)(A). This raises the question of whether funds that were originally saved for retirement by a non-spouse and inherited by the debtor are still considered “retirement funds” and exempt from the debtor’s bankruptcy.

A majority of courts that have addressed the issue have determine that even though the funds are inherited by the debtor, the term “retirement funds” as used in the Bankruptcy Code applies to any account holding funds that had been originally accumulated for retirement purposes so long as they are tax-exempt under the Internal Revenue Code. The funds in an inherited IRA account do not lose their character as “retirement funds” simply because they have been inherited by a non-spouse beneficiary. As summarized by one court, 11 U.S.C. § 522(d)(12) “requires that the account should be comprised of retirement funds, but it does not specify that they must be the debtor’s retirement funds.” In re Nessa, 426 B.R. 312, 314 (8th B.A.P. 2010).

If you have additional questions about filing for bankruptcy or would like to speak to someone about your particular situation, please contact our office and ask to speak to one of our bankruptcy attorneys.

Fremont, Nebraska: The E-Verify System and Employer Compliance

The city of Fremont, Nebraska, has passed an ordinance requiring all private businesses (and city contractors) within the city limits to use the E-Verify system.  Other portions of the ordinance were recently struck down by the federal court, but the portion of the ordinance requiring use of E-Verify was upheld.  The city will require compliance by May 4, 2012.

Approximately 3,000 of Fremont’s businesses will be required to double-check the citizenship status of every new employee.  An appeal of the decision has been made, but for the present time employers in Fremont are advised to comply with the law.

In Nebraska, it is already mandatory for  public employers and public contractors to use E-Verify for their employees and all subcontractors.  A public contractor means any contractor (and includes his or her subcontractors) who is awarded a contract by a public employer for the physical performance of services within the State of Nebraska.

A business entity may register online at USCIS E-Verify.  A business entity that applies for any contract, loan, grant, license, or permit from the City after March 5, 2012, must provide documentation that the business entity has registered in the E-Verify program and must execute an affidavit stating that the business entity does not knowingly employ any person who is an unauthorized alien.

The E-Verify system is an internet-based process that compares information from an employee’s employment eligibility verification form (Form I-9) to data from U.S. Department of Homeland Security and Social Security Administration records to confirm authorized employment eligibility.

If you are one of the businesses required to use the E-Verify system, you will need to know what information to acquire from new employees in order to conduct an E-Verify initial verification.  After hiring a new employee and completing the employment eligibility verification form required for all new hires (regardless of E-Verify participation), the employer must submit a query that includes information from the Form I-9, including:

  • Employee’s name and date of birth,
  • Social Security Number (SSN),
  • Citizenship status he or she attests to,
  • A number or I-94 number, if applicable,
  • Type of document provided on the Form I-9 to establish work authorization status, and
  • Proof of identity and its expiration date, if applicable.

Response to the initial query is sent within seconds of submitting the query.

Can an Employee be Disciplined for Engaging in Political Speech in the Workplace?

Election season will be in full swing in a few short months, as in any election, there is a strong possibility that the contentious world of politics may spill into the world of your business.  If this happens, most of the time, it will likely be harmless banter among employees.  However, there is always the risk that things may get out of control and impede its smooth operation.  Employers should be mindful of what they can and can’t do when politics enters the workplace.

When analyzing whether an employee has a valid claim against an employer for being disciplined when engaging in political speech in the workplace, the critical question an employer needs to ask is whether it is a public or a private employer.  If the employer is a public entity, courts will engage in a three part test to determine if the employee has a valid claim against the employer by first determining whether the speech relates to a matter of public concern, then balancing a variety of factors relating to the effect of the speech on the public and on the operation of the public entity and finally by determining whether the speech was made pursuant to the employee’s official duties.  If an employee’s speech is related to a matter of public concern, passes the balancing test, and was not made pursuant to his or her official duties, the employee will have a claim against the public employer.

If an employer is a private employer, the analysis in the paragraph above goes out the door.  As a general rule, private employees have no Federal Constitutional protection when making political speech in the workplace.  Private employers can generally discipline an employee for making political speech on the job.  Thus, private employees should be wary of bringing politics into the workplace.  Like most rules, there are some exceptions.

Employers need to keep in mind that anti-discrimination laws still apply to speech based disciplinary actions, thus employers need to ensure their political speech policies do not discriminate based on sex, national origin, religion or other protected areas.  Some states have statutes which prohibit an employer from disciplining an employee for engaging in behavior, such as political speech, that is protected by that state’s constitution.  Statutes such as these are few and far between and most of these statutes do not apply to political speech that occurs in the workplace.  Accordingly, while the general rule described above most likely applies, human resources departments and employees alike should look at the statutes and case law in their particular state when developing and enforcing policies or when thinking about engaging in political activities in the workplace.

While private employees have no Federal Constitutional protection and very little state constitutional protection, private employees do have one major avenue of protection when it comes to workplace speech: the National Labor Relations Act (“NLRA).  The protections for employee speech provided by the NLRA apply to both union and non-union employees.  Employee speech is protected by the NLRA if it is (1) concerted, (2) about a work related object, and (3) protected.   Employee speech is concerted if it is “engaged in, with or on the authority of other employees and not solely by and on behalf of the employee himself.”  Meyers Industries, 281 NLRB 882 (1986).  Note that this does not require official union activity or even talk of collective bargaining.  Employee speech is about a “work related object” if it is intended for mutual employee aid or related to wages, hours or other terms of employment.  However, even if employee speech is concerted and about a work related object, it must also be “protected”.  Employee speech will not be “protected” if the employee’s actions are unlawful or overly disruptive.  Employers have to jump a relatively high hurdle to establish that an employee’s actions are not protected, rudeness is not enough.  In most cases, political speech involving elections will not be protected by the provisions of the NLRA but it is a good idea to keep it in mind.

Of course, in addition to knowing what limits the law imposes on their ability to curtail employee political speech, employers should consider issues such as employee morale and the feasibility of enforcement when crafting a policy on workplace political speech.  Employer policies should attempt to balance workplace efficiency with employee freedom.  For example, a policy could include a prohibition on political speech in areas within view or earshot of customers and limit the size and permissible locations of political buttons and posters.

In sum, most private employees should be careful about what they say and do in the workplace when it comes to political speech because, in most circumstances, they can be disciplined for political speech unless it falls within the purview of the NLRA or other generally applicable federal or state law.

Why are learning communities different than NRDs?

In Garey v. Nebraska Dept of Nat.  Resources, 277 Neb.  149 (2009) this firm successfully argued that the property taxes authorized by LB 701 violated Nebraska’s constitutional prohibition on property taxes for a state purpose. This constitutional amendment was adopted when Nebraska adopted income taxes for the first time; the logic being if the state was going to collect income taxes it should not also be allowed to collect property taxes for state purposes.

LB 701 allowed three Natural Resources Districts (NRDs) to levy property taxes in order to allow the NRDs to comply with the Republican River Compact, a three-state water use agreement between Colorado, Kansas and Nebraska about use of the stream flows in the Republican River.  In Garey the Nebraska Supreme Court found that complying with the compact was a state purpose and therefore the NRDs could not levy the property tax.

The Nebraska Supreme Court was asked to revisit what constitutes a state purpose in Sarpy County Farm Bureau v. Learning Community of Douglas and Sarpy Counties, ___N.W.2d___ (2012)  The Farm Bureau had successfully argued to the district court that the learning community was established for a state purpose.  This time the Nebraska Supreme Court disagreed.  The court noted that “Where state and local purposes are commingled in a statutory enactment, the crucial determination is whether the controlling and predominant purposes are state purposes or local purposes.”  The court found that in determining this question one factor it would look at was whether the operational control of the entity supported by the taxes stayed with the state or with the local entity.  The court found that the operational control of the learning community was local.  Therefore the court concluded “the controlling and predominant purpose of the learning community legislation was to address complex educational issues presented within metropolitan school districts.”  Therefore the levy was held constitutional.

 

The take away message from these cases is that the court will continue to do a careful case by case analysis of the predominant purpose of property tax legislation when deciding these issues and there is no hard and fast rules subject to easy analysis as to what will automatically be considered a predominant state purpose.

Nebraska Supreme Court: Contribution, Comparative Negligence Not Available Against Employer Of Injured Employee

In Downey v Western Community College Area, 282 Neb. 970 (2012), the Nebraska Supreme Court recently held that, because Workers’ Compensation is the exclusive remedy against an injured employee’s employer, a third party tortfeasor cannot seek contribution from or argue the comparative negligence of the employer when the third party tortfeasor is liable to an injured employee.

In Downey, the injured employee, Downey, was injured while working on a scoreboard at a community college.  He received Workers’ Compensation payments from his employer, the sign company.  He then sued the community college for negligence.  The community college claimed that the employer was also negligent and tried to seek contribution from the employer.

The Court held that, due to the exclusivity of Workers’ Compensation, the employer was not liable to Downey in tort.  Since the employer was not liable to Downey in tort, the community college, a third party tortfeasor, could not seek contribution.

Importantly, the Court did explain that its decision in Downey did not apply to indemnity.  Indemnity will be allowed against an employer who would be immune from suit in tort because indemnity and contribution are distinct concepts.

CLASS Act Repealed

The House Ways and Means Committee voted 23-13 to repeal the CLASS Act.  H.R. 1173, Fiscal Responsibility and Retirement Security Act.

The vote comes after the Department of Health and Human Services issued a statement saying that the CLASS Act could not be implemented and the Congressional Budget Office issued a ruling that allowed the repeal of the act.

Republicans argued that the Act needed to be repealed, stating that if left on the books it would allow the Obama Administration to try and revive the Act and even open the White House up to lawsuits.  A Congressional Research Service report states that by not implementing the CLASS Act, the Department of Health and Human Services is violating the healthcare law.

On February 1, 2012, the House of Representatives repealed the Act.  It is expected that the Senate will not vote to repeal the CLASS Act as it doesn’t appear that there is enough support for the Fiscal Responsibility and Retirement Security Act.

 

Changes to Nebraska’s Guardianship and Conservatorship Laws

As Nebraska’s elderly population continues to grow, the need for guardians and conservators will continue to increase. In response, the Nebraska legislature has adopted new laws which went into effect on January 1, 2012. These laws are designed to provide the courts with more information on the individual who seeks appointment as guardian or conservator and about the ward’s assets before the nominated guardian or conservator has access to the ward’s financial assets.

Highlights of the new laws include:

  • The definition of “interested person” has been revised to increase the number of persons/entities monitoring the actions of a guardian or conservator.
  • A court may enter an ex parte order upon application of an interested person filing an affidavit showing the court that the safety, health or financial welfare of the ward or protected person is at issue.
  • A guardian or conservator may not move a ward outside of Nebraska without first obtaining permission from the court.
  • Copies of all essential reports must be mailed to all listed interested parties which increases oversight and monitoring of the guardian or conservator.
  • A guardian or conservator must notify the court regarding changes in the ward’s address or demise.

These new laws should permit nursing home facilities to bring concerns or problems about a guardian or conservator to the court’s attention, as well as keeping facilities informed about the financial status of the ward through receipt of most documents the guardian or conservator files with the court. Ultimately, having a larger safety net monitoring the lives and finances of these vulnerable individuals should ensure that they are properly protected.

Running TTD Awards

If a workers’ compensation case goes to trial before the plaintiff is deemed to have reached MMI, and the plaintiff carries his or her burden of proof regarding causation, the Workers’ Compensation Court will issue what is called a running TTD award.  This basically states that the defendant is to continue paying weekly TTD benefits until such time as the plaintiff reaches MMI.  In the future, even though all doctors may agree that the plaintiff now has reached MMI, the defendant cannot stop paying those weekly benefits until a petition for modification is filed.  In other words, the defendant cannot unilaterally stop paying the TTD even though the plaintiff is clearly at MMI until the parties either stipulate that MMI has been reached and such stipulation is approved by the court, or until a petition for modification is filed by the defendant.  Petitions for modification can only be filed six months or more after the entry of the original Award.

 

Therefore, in any case in which a prior running TTD Award has been entered, a stipulation approved by the court or a petition for modification must be filed before the TTD can be stopped.  Otherwise, there will be a 50% penalty added on to the amount of TTD that was not paid.

Capital Humane Society Honors Jeanelle Lust

On January 17, 2012, Jeanelle Lust of the Knudsen Law Firm was honored by Executive Director Robert A. Downey and the Capital Humane Society for her invaluable time, talent and efforts as an advocate for animal welfare.

Permanent and Total Disability

In Lovelace v. City of  Lincoln, 283 Neb. 12 (2012), the Supreme Court held that an employee cannot be considered permanently and totally disabled for a period of time when he or she was working part time or full time at the same job he or she had prior to his or her work-related injury.

In the instant case, Lovelace suffered an injury in the course and scope of her employment on March 21, 2006.  Lovelace continued to work for the same employer after her injury until June 22, 2006, when she had surgery on her left knee.  She returned to work on October 2, 2006 and continued working until November 6, 2007, when she fell and sustained an additional injury to her right leg.  Lovelace had another surgery on her left knee on December 19, 2007 and did not return to work.  Her position was terminated in June 2008.

The Supreme Court affirmed the review panel’s decision, which held that no benefits were to be paid prior to June 22, 2006 because Lovelace worked full time between the first accident, which occurred on March 21, 2006, through June 22, 2006.  Further, the Supreme Court held that Lovelace was not entitled to permanent total disability benefits for the period of October 2, 2006 through December 18, 2007, when she was working either part time or full time and receiving temporary partial disability payments.  A worker cannot be considered permanently and totally disabled for a period of time when he or she was working part time or full time at the same job he or she had prior to his or her injury.  Lovelace was not an odd-lot worker and entitled to permanent total disability payments until December 19, 2007.

The Supreme Court’s opinion can be found at http://www.supremecourt.ne.gov/opinions/2012/january/jan13/s10-1241.pdf.

Client Testimonial:

I don’t know how to thank you for your quick, clear and valued reply. I was worried that it was unreasonable of me to put all of this on your lap during the eleventh hour of the Agreement’s discussions – THANK YOU! Your reply was well-structured and succinct but also simple enough that even us lay-folks can see the legal linings. I’m struggling to find the right words to completely convey my satisfaction. You have my profound “appreciation” Laura!”

Jon, a Knudsen client