Why Title Matters

Real estate can take on different forms of ownership depending upon the number of parties and the unique circumstances involved. Understanding how your real estate is owned, or “titled,” is necessary because this determines the extent of control you have over your real estate, how susceptible your property is to creditors, and what will happen to it upon your death. Below are some of the common ways in which real estate is owned.

Individually
One of the most common ways people own real estate is individually. As the sole owner, you have full control over the real estate. You can transfer it to anyone and can mortgage it. However, although the bankruptcy code offers some protections for personal residences, should you have creditor issues, the real estate could be vulnerable to being taken to satisfy debts or creditors’ claims. Additionally, at your death, the real estate will be transferred to the individual(s) named in your will (or trust) or according to state law, both of which will require probate court involvement to transfer ownership to your heirs. This can be a time-consuming, public, and expensive process for your loved ones (especially if the real estate is very valuable).

Tenants in Common
When several people own real estate as tenants in common, the entire property is owned by the group, meaning that no one person can claim ownership of a specific portion of it. Yet the ownership does not have to be equal. One person can own a 25% interest (i.e. “share”) while the other has a 75% ownership interest. Each co-owner is free to transfer or mortgage their interest as they wish. However, the more co-owners, the higher the possibility for creditor issues. Although creditors can only collect from the co-owner that owes them money, they may be able to force a sale of the real estate to satisfy their claim. Upon a co-owner’s passing, their ownership interest will transfer to whomever the co-owner has specified in the owner’s will or by state law if no estate plan was prepared. Both options require the real estate to go through the probate process to transfer ownership to the co-owner’s heirs.

Joint Tenancy
For this type of ownership, also known as “joint tenancy with right of survivorship,” two or more individuals own an equal and undivided interest (share) in the real estate. When one of the owners dies, their interest automatically passes to the remaining co-owners, and the survivor(s) continue to own the real estate. Each co-owner is able to transfer their interest to another person, but the new co-owner does not become a joint tenant (with right of survivorship) but rather a tenant in common (whose interest does not automatically transfer to the surviving owners upon their death) with the original co-owners. One downside of joint tenancy is creditor exposure. Because there are multiple co-owners, creditors of any of the co-owners can go after the co-owner’s interest in the real estate to satisfy their debts or claims. The creditor may be able to force a sale of the real estate, even though the other co-owners may be against it. As mentioned before, a benefit of this type of ownership is that ownership is transferred automatically at death, avoiding probate. However, if you become the sole owner, then you will face the issues associated with owning real estate individually.

Tenancy by the Entireties
In some states, real estate received or purchased by spouses can be owned as tenants by the entirety. Although some of the applicable state laws still refer to the parties as husband and wife, with the proper language in a deed, which clearly demonstrates the desire to own the real estate as tenants by the entirety, all individuals who are legally married at the time they receive the real estate are able to own it as tenants by the entirety. This type of ownership can apply to any real estate, not just the primary residence. Because spouses are considered one unit, one spouse cannot transfer or mortgage the real estate without the other spouse’s consent. However, this also means that a creditor of one spouse cannot go after real estate that is owned as tenants by the entirety (with the possible exception of a federal tax lien) to satisfy the creditor’s claims. At a spouse’s death, the surviving spouse will automatically become the sole owner. This keeps the real estate and its value out of the probate proceedings, but as the sole owner, the surviving spouse will face the issues associated with owning the real estate individually.

In a Trust
Another option for real estate ownership is to transfer it to or have it purchased by a trust. As the trustmaker, you can establish rules for the use of the real estate, appoint a person (sometimes yourself) to oversee the maintenance of the real estate while allowing others (sometimes yourself) to enjoy it. However, it is important to note that the control and benefits can vary depending upon what type of trust is being used. If the real estate is in a revocable trust, then you will have the utmost freedom to manage and use the real estate if you appoint yourself as the trustee and name yourself as a beneficiary. But if it is in an irrevocable trust for asset protection purposes, the selection of the trustee and beneficiaries becomes more complicated. While a primary residence can be transferred to a trust with or without a mortgage, other properties with a mortgage might first require bank approval before it can be transferred to a trust. One of the primary benefits of transferring ownership of your real estate to a trust is that at your death, the real estate does not have to go through the probate process. This is because the trust, not you, is the owner, and the trust can never die. In most cases, the trust document will provide instructions about what will happen to the real estate upon your death.

By a Limited Liability Company
Another entity that can own real estate is a limited liability company (LLC). Instead of owning the real estate, you own a part of the LLC (known as a membership interest), and that is what will need to be transferred upon your death according to the terms of an operating agreement or estate planning documents, or based on state law if there is no will or trust. In the LLC operating agreement, you can also include rules instructing how the real estate is to be used and managed, as well as outline the rules pertaining to the membership interests in the LLC. One of the major benefits of using an LLC is that it provides limited liability. If a lawsuit is filed based on a claim arising from the real estate, or if a creditor seeks to satisfy a claim, the only assets available to satisfy any judgments or creditors are those owned by the LLC. In many states, if you have personal creditor issues, the creditors are limited as to what they can reach inside the LLC to satisfy their claims. It is important to note that the asset protection benefits of an LLC can vary depending on state or federal law, or your unique situation. If this is a concern for you, we encourage you to call us as soon as possible.

Give Us A Call Today!

Regardless of how you think you own your real estate, it is important that you review your documents and confirm your understanding with an experienced attorney. The title of your real estate can play a large role in how your estate plan is set up, and if your real estate is not titled properly, it can completely undo your intent for your estate planning. Give us a call today so we can review your deeds and create an estate plan that will protect your property for future generations.

Common Mistakes with DIY Estate Plans

The internet offers all the information and tools we need at our fingertips to create our own estate plan, right? For most people, this is simply not true. Several years ago, Consumer Reports®, an independent nonprofit consumer watchdog group, created wills using the forms provided by DIY websites and asked three law professors to review them. Although the professors found that the wills drafted using the DIY services were better than wills drafted by non-lawyers on their own, they were inadequate to fully meet the needs of most consumers. Although your DIY “estate plan” may initially cost only $49.95, it may end up being much, much more expensive than an estate plan designed by an experienced estate planning attorney.

Wills are only one part of a comprehensive estate plan that fully protects you and your family. Even if your DIY will meets all your state’s requirements and is legally valid, the will alone is unlikely to be sufficient to address all of your estate planning needs. Furthermore, DIY packages you can buy online that purport to be comprehensive may not include important documents you may be unaware that you need. As a non-lawyer, you have not received legal training and are unlikely to know which documents you need to fully plan for the future. This is not a criticism—an estate planning attorney doesn’t know how to fly a plane or create a delicious crème brûlée without the necessary training and experience. Without expertise in a particular area, we simply don’t know what we don’t know—and this could lead to unnecessary heartache for you or the family and loved ones you will one day leave behind.

DIY estate plans may not conform to the applicable law. The law that applies to estate planning is determined by each state—and there can be wide variations in the law from state to state. Although the forms you can find on the internet may claim to conform to your state’s law, this may not always be the case. In addition, if you own property in another state or country, the laws in those jurisdictions may differ significantly, and your DIY estate plan may not adequately account for them.

A DIY estate plan could contain inaccurate, incomplete, or contradictory information. For example, if you create a will using an online questionnaire, there is the possibility that you may select the wrong option or leave out important information that could prevent your will from accomplishing your goals. In addition, some online services allow users to insert additional information not addressed by their questionnaire that could contradict other parts of the will.

Your DIY estate plan may not account for changing life circumstances and different scenarios that could arise. For example, if you create a will in which you leave everything to your two children, what happens if one of those children dies before you? Will that child’s share go entirely to his or her sibling—or will it go to the child’s offspring? What if one of your children accumulates a lot of debt? Is it okay with you if the money or property the indebted child inherits is vulnerable to claims of the child’s creditors? What if your will states your daughter will receive the family home as her only inheritance, but it is sold shortly before you die? Will she inherit nothing? As opposed to a computer program, an experienced estate planning attorney will help you think through the potential changes and contingencies that could have an impact on your estate plan and design a plan that prevents unintended results that could frustrate your estate planning goals.

DIYers frequently make mistakes in executing the plan. Under the law, there are certain requirements that must be met for wills and other estate planning documents to be legally valid. For example, a will typically requires the signatures of two witnesses, but state law differs regarding what is necessary for a will to be validly witnessed. Some states require not only that the will be signed by the will maker and the witnesses, but also that they all must sign the will in each other’s presence. In other states, witnesses are not required to be in the same room when the will maker signs the will, and they can even sign it later if the will maker tells them his or her signature is valid. Similarly, for a valid power of attorney, some states require only the signature of the principal (the person who is granting the power of attorney) to be notarized, but some states require the signatures of both the principal and the agent (the person who will act on behalf of the principal) to be notarized. In other states, one or more witnesses are required—and these requirements may also differ depending upon the type of power of attorney (financial vs. medical) you are trying to execute. If you seek the help of an estate planning attorney, you can rest assured that all of the “i’s” are dotted and the “t’s” are crossed, and that your intentions will not be defeated because of mistakes made during the execution of your documents.

Assets may be left out of your estate plan. Many people do not realize that a trust is frequently a better estate planning tool than a will because it avoids expensive, time-consuming, and public court proceedings (i.e., the probate process) that would otherwise be necessary to transfer your money and property to your heirs after you pass away. Even if you have created a DIY trust, if you do not fund it, that is, transfer title of your money and property into the name of the trust, it will be ineffective, and your loved ones will still have to endure the probate process to finish what you started. Further, if you do initially transfer title of all your assets to the trust, it is likely you will acquire additional property or financial accounts over the years that must go through probate if title is not transferred to the trust. Regular meetings with an estate planning attorney can help ensure that your plan accomplishes your goals and that your grieving family members are not left with major headaches after you die.

We Can Help
A DIY estate plan can lead to a false sense of security because it may not achieve what you think it does. If your DIY will is not valid, your property and money will go to heirs specified by state law—who may not be the people you would have chosen. An unfunded trust will be ineffective. Banks may not accept a generic power of attorney you found on the internet. Laws affecting your estate plan may change. These are just some of the mistakes or unforeseen issues that could cost your family dearly. An experienced estate planning attorney is aware of any trends in the law that could dramatically affect your estate plan and has the expertise needed to help you design and create a comprehensive plan. Call us today so we can help provide you and your family with the peace of mind that comes from knowing that you have an estate plan that accomplishes your goals and will avoid unnecessary attorneys’ fees, headaches, or conflict for your grieving family when you pass away.

Is Your Estate Plan Incapacity Proof?

For most people, it is perfectly natural to think about estate planning only in terms of planning for death. While planning for your death is very important, if that is all you plan for, your planning can quickly become woefully inadequate. As medical knowledge and technology have improved over the decades, so too has modern medicine’s ability to keep people alive for much longer. It is no accident that in many areas of the country, long-term care facilities such as assisted living centers and nursing homes are being built at record pace.

At first blush, staying alive longer would seem to be a good thing. And for many people, it is. However, simply living longer does not always result in ideal circumstances. Longevity coupled with physical or mental incapacity can be extremely challenging if you fail to make arrangements for someone to assist you during that period of time. On the other hand, with proper incapacity planning, you can rest assured knowing that your affairs are in good hands, out of the public eye, and being handled without the expense of lawyers, courts, and unnecessary complications.

What Is Incapacity?
Before we discuss how to plan for incapacity, it is important to clarify what it means to be incapacitated. Each state has its own method for determining legal incapacity, and most have enacted laws that define what incapacity is. For example, in states that have adopted the Uniform Probate Code, an incapacitated person is typically defined as follows:

“Incapacitated person” means an individual who, for reasons other than being a minor, is unable to receive and evaluate information or make or communicate decisions to such an extent that the individual lacks the ability to meet essential requirements for physical health, safety, or self-care, even with appropriate technological assistance.

Although some states have defined incapacity more broadly or more narrowly, in most states, this is a common definition of legal incapacity. From a purely practical perspective, however, incapacity can be described as an ongoing condition where you simply do not have the mental ability to take care of routine tasks for yourself without assistance from someone else. Such tasks might include paying your bills, cooking your meals, bathing, grooming or dressing yourself, taking your own medications, or being unable to protect yourself from financial or physical exploitation.

Why a Will Alone Will Not Cut It
Almost all estate plans created in this country include a will. A will is a legal document that allows you to memorialize your wishes for what you would like to happen after you have died. For example, a will allows you to

• authorize someone to handle your final affairs after your death (an executor or personal representative);
• name who will receive your accounts and property and in what shares, including successor or backup beneficiaries; and
• designate guardians of your minor children.

Did you notice a theme in the list above? They are all things that must be handled only after you have died. That is an important point. A will only becomes effective once you are dead.

So does a will help you if you become incapacitated? The short answer is no. A will is not any help if you become incapacitated. To provide some level of incapacity planning in your will-based estate plan, you must obtain additional legal documents, including at least a financial power of attorney and an advance directive.

Financial Power of Attorney
A financial power of attorney (POA) is a legal document that you sign before you become incapacitated that allows you to appoint a trusted individual to act as your agent (meaning the appointed individual can act on your behalf). In this document, you spell out what an agent may do: a general POA allows an agent to handle most of your financial affairs whereas a limited POA restricts an agent’s actions to certain things or for a limited amount of time. Legally, your agent must act in your best interests when handling your property and legal affairs. A POA can, and in many cases should, grant the power to take the following actions:

• handle your deposit and banking accounts
• withdraw funds from your retirement accounts
• enter into contracts
• collect your mail
• deal with your various insurance companies
• make investment decisions on your behalf
• sell, mortgage, lease, and manage real property

You can also determine when your agent is allowed to act on your behalf. It can be restricted to only after you have become incapacitated (a springing POA) or take effect as soon as you sign the document (an immediate POA). When planning for your incapacity, it is important that your POA be durable, which means that your incapacity will not affect the validity or effectiveness of the document.

If you have a will-based estate plan and no financial POA (or an invalid one), your loved ones will have to go to court to have someone appointed to take care of these matters for you through a process known as guardianship or conservatorship. This can be a very costly, public, and time-consuming process for your loved ones during a stressful and emotional time.

Advance Directives
An advance directive is a document or set of documents in which you can appoint an individual to act on your behalf regarding medical decisions and, if authorized under your state law, also memorialize some of your medical and end-of-life wishes. Similar to a financial POA, a medical durable POA is one kind of advance directive that allows you to appoint an agent, often referred to as a medical or healthcare agent or proxy, who has the ability to make medical decisions on your behalf when you are unable to communicate your wishes yourself (i.e., if you are unconscious, even temporarily).

Another kind of advance directive is a living will, which is a legal document in which you can specify the kinds of end-of-life decisions that you want your doctors or healthcare agent to make on your behalf. In some states, an advance healthcare directive will contain both a power of attorney and end-of-life instructions; other states require separate legal documents. Regardless of the format, these documents are a critical component of making your estate plan incapacity proof. By naming someone you trust to make healthcare decisions for you, similar to the decisions you would have made if you could still communicate your wishes, you can ensure that you receive the care and medical treatment that is most appropriate for you.

If you do not have an advance healthcare directive, your loved ones will be forced to go to the court and have a judge decide who can make medical decisions for you if you are not able to make or communicate your wishes.

Trust-Based Estate Planning and Incapacity
For those who want to make their estate plans truly incapacity proof, a revocable living trust can be a powerful legal tool. This type of trust has become the foundation of many well-constructed estate plans in this country. A living trust is a legal agreement between a trustmaker (a person with the money and property, sometimes called a trustor, settlor, or grantor) and a trustee (the person charged with managing, investing, and handing out the money and property). For most revocable living trusts, the trustmaker changes the ownership of the trustmaker’s accounts and property from the trustmaker as an individual to the trustee of the revocable living trust, who is often initially the trustmaker himself or herself. The trustee agrees to manage and protect the money and property for the benefit of beneficiaries. In a revocable living trust, the trustmaker is also the beneficiary during the trustmaker’s lifetime. Holding the property in this type of legal structure creates a great deal of flexibility to deal with incapacity issues as they arise.

For example, if you created a revocable living trust, named yourself as trustee, and transferred most of your property into the trust, you could use and enjoy your property just as you do today. But if you suddenly became incapacitated, a successor trustee (named by you beforehand in your trust document) could quickly and seamlessly step into your shoes as trustee to continue managing the trust property for your benefit throughout any period you were incapacitated. All of this could be accomplished outside of the courtroom, maintaining privacy and eliminating burdensome court and attorney fees in the process. Then, when you die, your successor trustee would have the authority to continue to manage the trust property or give it to remaining living beneficiaries (typically, your loved ones that you leave behind). Again, this can be done completely outside of the court system, thereby eliminating significant cost, delay, and invasion of your and your loved ones’ privacy.

Do not forget that this incapacity planning is only as good as the individuals you choose to serve in these roles. If the person or people you named can no longer fulfill their responsibilities, you will need to change your legal documents as soon as possible to ensure that the best possible people are serving in these crucial roles.

Finally, it is important to remember that a trust-based plan should still include a will, financial POA, and advance healthcare directive. Each of these documents has important legal functions designed to address circumstances that a trust alone cannot.

By carefully crafting each of these legal documents with our help, you can feel confident that your loved ones and the property that you have worked your whole life to obtain will be in good hands if incapacity strikes. We are here to help you think through and implement each decision that goes into making your estate planning truly incapacity proof. Give us a call today.

Business Stress Test ™ 

According to a 2014 Forbes article, between 36 and 53 percent of operating businesses in the U.S. are involved in at least one legal or court proceeding in any given year. Many of those businesses are sued by employees, contractors, vendors, clients, customers, and even business partners.

What’s even more concerning than the numbers is the fact that many of these legal issues and disputes could be prevented, or at least minimized, with the proper legal planning and compliance.

Don’t Become a Statistic

A ‘business stress test ™ ’ is like a legal audit for your established business to help you avoid becoming a lawsuit statistic. It’s a thorough review of your operations, procedures, and legal documents to identify any holes or weaknesses that are leaving your business vulnerable to lawsuits and other disputes.

The business stress test begins with a one-hour consultation to develop a personal audit plan for your business based on your specific needs and goals. Then, we’ll thoroughly and systematically audit your business with a hands-on, deep dive into your documents and operations.

What Does a Business Stress Test™  Include?

Every business is different, with unique needs, but your business stress test may include a review of the following:

• Contracts and Agreements – We’ll review your employee, vendor, lease, and sub-contractor contracts to determine if there are any holes or gaps that could lead to liability issues.
• Employee Handbooks – If you have employees, you need an employee handbook. We’ll examine yours to look for consistency, compliance, and thoroughness. If you don’t have one, we’ll help you put one in place.
• Formation Documents – If you want to run a legally compliant business, you must follow the formalities. We’ll review your Articles of Incorporation, Corporate Binders, Operating Agreements, and other formation documents to make sure they’re current and complete.
• Regulatory Compliance – Your business will have to comply with city, county, state, and industry-specific laws, rules, and regulations in order to operate legally. We’ll asses your regulatory needs and work with you to meet these requirements.
• Insurance Policies – Every business needs insurance, no matter how solid your contracts are, how thorough your handbook is, or how meticulous your formation documents are. The truth is, things still come up. We’ll work with you and your insurance agent to determine what, if any, liability exposure your business may face.
• Accounting and Taxes – We are not tax experts, but we will work with your CPA regarding business compliance and legal documentation. Your financial decisions and actions must be documented and reflected in your corporate books.  We believe in a collaborative approach to work with other professionals such as your CPAs to understand the big picture and help to make recommendations that work across your entire business platform.

Post-Audit Recommendations

After the legal audit is complete, our corporate attorney’s will prepare an organized and detailed evaluation that includes our findings and recommendations. Our recommendations may be simple or complex, depending on what we find. At the very least, we may recommend that you send internal memos reminding staff of policies and procedures or holding corporate seminars to educate your employees about issues like sexual harassment or OSHA standards. Sometimes, a business simply needs some reminders or refreshers.

If we find gaps in your compliance or documents, we may recommend something more thorough, like a meeting with your insurance advisor to strengthen your insurance policy, a renegotiation of your vendor contracts, or an update to your official policies and procedures or employee regulations.

Whatever the case, our recommendations will be specific to your business and the audit findings and they’ll be geared towards filling gaps, boosting your protection, and reducing your overall liability.

A Practical Path Forward for Businesses Dealing with COVID-19

The simple fact is we are living through a pandemic – and it’s going to be with us for a while. That’s our new reality. But life must go on, and needs must still be met, so the question is, ‘What are we, as small business owners, going to do to move forward?

We need hope, good news, and some practical advice so that business can continue; maybe not ‘as normal’, but decidedly forward.

County and State Health Requirements 

Admittedly, these have been a bit of a moving target (to say the least), but health requirements are everything right now. If you don’t understand (and abide by) the current health codes, your business may not be allowed to reopen or continue operations.

Every county and state is different, so I can’t cover specifics, but it’s essential that you stay on top of the changes, understand them, and implement them properly.

Employees, Subcontractors, and Training Policies 

It’s vital that you understand all the new policies; but it’s just as important that your employees and subcontractors do, too. As the owner, it’s your responsibility to train them.

Some states are requiring that you make a ‘good faith effort’ to ensure that your employees, clients, and customers are staying healthy while they’re on your watch. Taking the following steps can help you meet that legal requirement:

• Require that your employees and subcontractors sign a form acknowledging that they read and agree to abide by the new health rules
• Hold weekly or periodic meetings to update your staff
• Arrange for professional training
  • OSHA
  • The local health department
• Update your written policies
• Develop hard and fast rules for what to do when an employee gets sick
  • Take temperatures at the beginning of a shift?
  • Do NOT come to work if you’re sick (which should be policy anyway)
  • If they exhibit systems of COVID, require that they get tested
• If possible, modify operations so that some employees can work from home, or alternate and scatter schedules so fewer people are in the workplace at the same time

Contract Review 

A lot of businesses have already experienced an interruption in their supply and work chain. You may be able to perform right now, but it doesn’t mean all your suppliers or subcontractors can. Now is the perfect time to pull out any contracts that are relevant to your business currently and see if/what can/needs to be renegotiated. Through addendums or amendments, you can adjust the following (if needed):

• Add contingency and extension of time clauses
• Review or add indemnity agreements and limited liability causes
• Adjust your insurance
• Termination: some contracts may simply need to be terminated and redrawn

With new contracts, consider including clauses that specifically address COVID-19 (and future pandemic) interruptions. This is a way to be preventative versus reactive moving forward because the reality is, this could happen again.

Insurance Review and Update 

A lot of business owners are finding that their insurance coverage wasn’t designed for a disaster like COVID-19 and claims are being routinely denied. While you may not necessarily be able to fix that, you can update your insurance now so that you’re better covered moving forward. Consider adding:

• Business interruption coverage
• Civil authority coverage
• Contingent property insurance or dependent property insurance

Business Opportunities and Expansion 

On the good news front, we are experiencing a surge of creative entrepreneurship – and it’s inspiring! Business owners everywhere are shifting to expand and create new opportunities so they can continue to serve through the pandemic and beyond. This includes:

• Launching an online business or an online extension of a current business
• Creative supply chain opportunities (think restaurants and delivery services)
• Outsourcing, freelancers, and the gig economy (this is going to be big!)

What’s really exciting is that investors are looking for opportunities outside the stock market! Small business owners can take full advantage of this.

Financial Management 

Pandemic or not, financial management is key to a successful business. Right now, it’s even more critical. Your income may be lower than normal, and everything is still so uncertain. As the heart of our economy and communities, it’s important for you to take advantage of the programs available, like:

• Paycheck Protection Program (PPP)
• Economic Injury Disaster Loan (EIDL)

This is also a perfect time to sit down (or Zoom) with your CPA or accountant to review your:

• Debts
• Savings
• Cashflow

Shareholder and Partnership Agreements 

Most business owners are not thinking about this right now, but you should be. Business as usual will probably never be, so we highly recommend reviewing these contracts for clauses that include hidden risks that may be triggered by the pandemic, or opportunities to improve. Examples include:

• Issuing capital calls
• Buy-sell agreements
• Reorganization and restructuring
• Business valuation

Succession Planning 

Last but not least, let’s talk about succession planning. Much of what we’ve already discussed all leads up to this. What happens to your business, family, assets, and employees if the unthinkable happens to you? Consider reviewing your succession planning for all the following areas:

• Business
  • Who takes over if you pass?
  • Does your partnership agreement cover succession?
• Personal
  • Is your will up to date?
  • Does your trust need to be amended?
• Employees
  • Consider providing success planning for your employees (they’re worried right now, too, and you can give them some peace of mind)

Moving Forward with McDonough Law

Despite all the fear and uncertainty, there are a lot of positive things that businesses can do right now to protect their present and future. There are encouraging opportunities for businesses to move forward and not just survive but thrive during and after the COVID-19 pandemic.

To learn more about your path forward, or for questions about what was covered, give us a call at McDonough Law today! Let’s move business forward together!   

2020 New Privacy Law

The CCPA will change how many businesses do business

Data privacy laws call for businesses to take steps to safeguard customers’ and employees’ personal information and to notify them if a breach occurs have been on the books for years. Recently, however, a new California privacy law—the California Consumer Privacy Act (CCPA)—was enacted ensuring consumers (but not employees–at least for now) the right to know what personal information is being collected and requiring businesses to respond to consumer demands for records showing all the personal information a business has collected about them and any third parties with which it has shared or sold their data, as well as requests to have their data erased and to opt-out of the sale of their personal information.

The new law becomes effective on January 1, 2020, and administration begins on July 1, 2020. Other states, including Hawaii, Maryland, Massachusetts, Mississippi, New Mexico, and Rhode Island, are following California’s lead and considering similar legislation. Because the California law will affect many small businesses, including some located in other states, and because it is likely that other states will adopt similar laws, it is important for small business owners to be aware of the new law and its potential impact on them.

Which Businesses Must Comply?
The CCPA applies to businesses that fall into at least one of the following categories: (1) those that earn $25 million or more in annual revenue; (2) those that buy, receive, or sell the personal data of at least 50,000 consumers or households; or (3) those that obtain at least half of their revenue selling the personal data of California residents. Any business, including those located outside of the state of California, will be subject to the law, if it meets one of the three conditions mentioned above. It has been estimated that more than 500,000 U.S. businesses, including many small businesses, will be impacted. The law does not apply when a business’s commercial conduct “takes place wholly outside of California,” i.e., (1) the business collected information while the consumer was outside of California; (2) no part of a sale of the consumer’s personal information occurred in California; or (3) there was no sale of the personal information collected while the consumer was in California.

What Are Businesses Required to Do?
The CCPA involves businesses, in response to a demand by a consumer, to make certain disclosures, which must be reasonably accessible to consumers and updated at least every 12 months.

Although the CCPA includes many specific requirements, in general, businesses that collect consumer data must:

Inform consumers about the categories of personal information they will collect;
Inform consumers about the purposes for which these categories of personal information will be used;
Provide notice if any new categories of personal information will be collected after the initial disclosure; and
Inform consumers of their right to request the deletion of personal information and the limitations to that right.
Businesses that sell consumer data or disclose it for a business purpose must comply with the requirements listed above and provide the following information:

A list of the categories of personal information they have sold over the preceding 12 months;
A list of the categories of personal information they have disclosed over the preceding 12 months;
A statement disclosing that consumer information may be sold; and
A disclosure of consumers’ right to opt-out of the sale of their personal information.
Businesses must also provide a clear, visible, and easily accessible link on their homepages and privacy policies enabling consumers to opt-out of the sale of their personal information. In addition, the CCPA requires businesses to disclose to consumers their right not to be discriminated against as a result of opting out. For children, there must be an express opt-in for their personal data to be sold. Upon a request by a consumer to delete the consumer’s personal information, the business must delete the information from its records and direct any service providers to delete the consumer’s personal information from their records as well.

Businesses must provide at least two ways for consumers to make requests for information, including, at least, a toll-free number, and if the business has a website, a web address. The business must deliver the information requested within 45 days at no charge to the consumer.

What Happens If My Business Violates the CCPA?
If regulators notify a business of a violation, it has 30 days to comply with the law before any penalty will be imposed. If the business does not resolve the issue within the 30-day deadline, the state of California can impose a hefty fine of up to $7500 per record. In addition, individuals affected by a violation of the CCPA can sue the business individually or as part of a class action for damages.

Give Us a Call
If you need help determining whether the New Privacy Law or a similar law will impact your business and what your business needs to do to comply with the law, we can help. Please call our office at 970-776-3311 to set up a consultation so we can discuss this law or any of your business’s other data privacy and protection obligations.