SLO: (805) 546-8785 | Paso Robles: (805) 226-4148

Posts on Jan 1970

A Pragmatic Approach to the Single Document Rule

The California Automobile Sales Finance Act (AFSA) protects consumers from excessive finance charges and hidden costs by requiring that automobile sales contracts disclose all items of cost. An extremely important provision of the AFSA is the Single Document Rule contained in Civil Code section 2981.9. Under the Single Document Rule ("SDR"), every conditional sales contract "shall contain in a single document all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle."

There has been much confusion over how to interpret the SDR. In a recent opinion, 8 Ops.Cal.Atty.Gen. (2009) (the "Opinion"), the California Attorney General rejected what had been the prevailing interpretation. Under the prevailing interpretation, all agreements need not be contained on a single piece of paper, but any agreement not so contained must be physically attached to and clearly cited on the face of the conditional sales contract form. The Opinion dismissed any requirement that all agreements be contained or referenced

in a single sheet of paper, finding that the SDR is satisfied if the document consists of multiple pages that are attached to each other and integrated such as through inclusive sequential numbering.

Appropriate procedure prior to the Opinion would require evidence of true incorporation by reference and integration of every collateral document into a single document. In order to minimize any SDR risk, the dealer would need to insert a description of the incorporated document followed by the words "attached to and made a part of this agreement." The dealer would then attach the original incorporated document to the original contract and then attach a copy of the document to each copy of the contract, including the customer’s copy, using staples or some other bonding agent. To be extra careful, the dealer would then place a corresponding statement on the first page of the attached document that "this document is attached to and made a part of," followed by the name and date of the contract form being used. The Opinion directs that it is now possible to satisfy the SDR requirement for automobile sales contracts if the document consists of multiple pages that are attached to each other and integrated by means such as inclusive sequential pages numbering (e.g. "1 of 4," "2 of 4," etc.).

While the process of selling an automobile would be greatly simplified if the Opinion were binding authority, there is reason for automobile dealers to proceed with caution in relying on the Opinion’s interpretation. We agree with the Attorney General’s finding that application of the rules of statutory construction and the relevant case law lead to the conclusion that the SDR does not require that all of the agreements of the buyer and seller with respect to the total cost and the terms of payment for the motor vehicle be contained on a single sheet of paper. It is, however, currently far less clear that the SDR does not mandate that all such agreements be referenced on a single sheet of paper. The Attorney General relies merely on the absence of any such articulated requirement coupled with pragmatic considerations to support his rejection of the prevailing interpretation. There is simply insufficient case law to determine with any degree of certainty how a court would rule on this issue. Stay tuned for my analysis of the Opinion for those interested in the legal reasoning

Erica A. Stuckey

Read More
Running for a Good Cause (and Great Scenery and Wine) in Paso Robles

Because I get to post under the title "Postings from Paso" I don't feel my contribution is limited to legal issues but is more about events and issues affecting Paso Robles.  Or at least I'm going to use that as my rationale for writing a non-legal (illegal?) entry.  The subject?  The inaugural Paso Robles Harvest Marathon to be held on October 24, 2010.

The Marathon is hosted by the Paso Robles Rotary Club and net proceeds will benefit charities and local youth.  Long-running Paso Robles Rotary events like the Winemakers Cookoff have been hugely successful in raising funds for important needs including scholarships for Paso Robles High School students.  Almost as importantly, these events have been a lot of fun.  We expect the Marathon to follow in this tradition.

Appropriately for a "harvest" event in Paso (don't call us the New Napa) Robles, the start and finish location for the Marathon will be Sylvester Vineyards & Winery.  From Sylvester, the run will wind its way into the scenic and quiet hills of Paso Robles and San Miguel, passing numerous other vineyards and wineries along the route.  To a non-runner like me, the course seems fairly challenging, with a mix of hills separated by flat sections.

The weather is typically fantastic but can be unpredictable in Paso Robles in late October.  We could be experiencing a late snap of temperatures near 100 degrees or an early storm.  However, we'll cross our fingers for one of those beautiful fall days with crisp morning temperatures and a sunny afternoon with a temperature in the low 70s.

If you're not a runner, please tell your friends who do run that we would love to have them at this inaugural event.  We hope years from now, runners will proudly boast that they ran the first Paso Robles Harvest Marathon.  And please wave if you see me patrolling the course on my bicycle.

Mike McMahon

Read More

How shocking of a revelation would it be to set up an ILIT thinking you have successfully removed life insurance death benefits from your estate, only to find out, upon dying (talk about insult to injury), that because of three little sentences, that entire death benefit is pulled back into your estate and subject to estate tax (it is coming back).

Some generalizations are necessary for understanding. As with anything tax related, all generalizations mask excessively more complex specifics. However, blogging about Treasury Regulation 20.2036-1 and  whether there is, in fact, a difference between a time period not ascertainable without reference to someone's death and a time period which does not in fact end before someone's death, is not really helpful. FYI, there is a difference and only we tax attorneys care.

First generalization: The IRS frowns upon donors gifting property with strings attached. Accordingly, it enacted IRC Sections 2036 – 2038. Essentially, these code sections describe retained "powers" that result in estate tax inclusion of property thought to have been gifted away. In the parlance of our times, the powers retained are referred to as a life estate, reversionary interest, or retained power to revoke.

Today we discuss IRC 2036:

2036 – The most common example is Donor gifts property into a trust but retains the right to recieve the income. Although the donor has no right to the trust principal, the entire date of death value of the trust is included in the estate. Why is this particularly egregious in the ILIT context? As a general matter the date of death value is 30-40 times greater than the value of the original gift into the trust, which likely consisted of the cash surrender value of an existing life insurance policy.

A retained income interest can come in many different shapes and sizes; however, the general pitfalls associated with an ILIT will be the following:

1. Jointly owned second to die policy that provides an income interest to the surviving spouse.

This would result in inclusion in the surviving spouse's estate of 50% of the death benefit.

2. SIngle life policy ILIT on Husband's life that grants an income interest to the surviving spouse.

Must be sure the Surviving Spouse avoids any further gifts to the ILIT (given an ILIT is an irrevocable trust already in existence, and generally provides crummey withdrawal rights, it offers the perfect vehicle for lifetime gifts in trust that qualify for the annual exclusion). Once the spouse gifts to the trust while retaining the income interest she now falls within the grips of IRC 2036, and will be subject to  estate tax.

One very notable exception to IRC 2036 is split gifts from a husband and wife when the non-grantor spouse has an income interest. Letter Rulings have indicated that split gifts by the grantor spouse who does not have a retained income interest will not trigger 2036 for the non-grantor spouse.

The above really only scratches the surface of the 2036 retained interest issues that could be associated with ILITs. It is imparative that an ongoing relationship with an estate planning attorney is maintained, and that any future transactions are vetted through such attorney prior to their completion. The adverse consequences that can result from the simplest of transfers are devastating and should and can be avoided with appropriate planning and ongoing professional oversight.

Our ILIT series will continue with pitfalls associated with other retained interests, and one of the more cunning issues, 2041 general poiwers of appointment. In the meantime, if you have any questions, please do not hesitate to contact our office.

Read More
The Dancing Cash Register

Certain events are seasonal. One annual event I like to recall is the annual publishing of the local telephone book yellow pages. Why? Because every year there would be a tide of complaints followed by a trickle when the new telephone book was opened to the Attorney section and readers would find the full page yellow page ad of the dancing cash register with the 24 hour 1 – 800 telephone number of the attorney looking for personal injury cases. How could the State Bar let this happen? What has the profession been reduced to? What was once a noble profession has been reduced to a garish dollar sign (I think some years, in fact, the garish dollar sign was used instead of the dancing cash register – a sketch of an old fashioned cash register with stick legs and arms and I think a little smiling head with a beret on top). What is the State Bar doing to stop this disgusting, base advertising? Alas, nothing. The Supreme Court had spoken: you can't regulate bad taste. If the advertisement is not false, deceptive or misleading the bar cannot prohibit it. Some say the advent of attorney advertising was the beginning of the end of respectful law practice.

Read More