Fall 2006 Issue
SURFSIDE SUCCESS SPAWNS MOVE
When the Willcox Law Firm opened its Surfside Beach office in May 2003, the facilities seemed ample for the one lawyer and three staff there, but no one anticipated the phenomenal growth in volume that would soon come. Now, the firm has moved its Surfside Beach location three blocks inland on Glenn's Bay Road to accommodate the two lawyers and thirteen staff and so that our hundreds of clients in the area can receive the best possible service in a highly professional state-of-the art environment.
The partner in charge of the firm's coastal operations, Tracy Fisher, managed to identify the new property and supervise the move while seamlessly attending to the needs of our clients: "The key to accomplishing our clients' objectives is speed, accuracy, and removing their anxiety about the major transactions we service every day. The new and additional space will bring improvement in our ability to help clients."
QUESTION 3 ON THE NOVEMBER BALLOT OPENS OPPORTUNITY FOR SOUTH CAROLINA
The South Carolina Retirement System Investment Commission sees a constitutional amendment up for a vote in the November general election as an opportunity to place the state's retirement program in a more competitive position. When the voters endorse the amendment, it will provide a fiscal benefit to all South Carolinians.
The state constitution now limits the Commission's investment practices by prohibiting some international equity and all private equity investments. Consequently, the fund's return on investment is significantly lower than many state plans without such limitations. A major result of this is that the South Carolina Retirement System (SCRS) currently has a $9.1 billion Unfunded Actuarial Liability (UAL). This UAL is the responsibility of South Carolina taxpayers.
The Importance of the Amendment
The Amendment, if passed, will put SCRS on a level playing field with other public retirement funds across the nation because it will reduce the expected risk and increase the expected return of the SCRS investment portfolio. It will not only increase the security of the retirees' benefits but also reduce the taxpayers' burden of paying for these benefits.
"Passage of this Amendment will affect public employees, retirees, and taxpayers alike and will place SCRS on a path to the top rank of the nation's public pension funds," said Chairman Williams in testimony before the Senate.
History of the Fund
The vast majority of state pension funds was formed shortly after World War II; SCRS was organized in 1945. Into the 1960s, public pension assets tended to be invested in the same fashion as state operating funds -- cash and government bonds.
The late 1950s and early 1960s witnessed the birth of Modern Portfolio Theory (MPT), a revolutionary approach to evaluating risk and return and their implications on constructing investment portfolios, for which Harry Markowitz was awarded the Nobel Prize in Economics.
By the late 1980s, most states had significant and growing allocations to equity investments, including international equity and other alternative investment strategies. Many states have experienced a period of excess returns while plans that failed to diversify, such as SCRS, have lagged significantly behind.
Until a constitutional amendment allowing for publicly-traded domestic equities was ratified, the assets of the SCRS portfolio were invested exclusively in fixed income investments managed by the State Treasurer's Office. SCRS began the diversification process in 1999, but even now it significantly trails the diversification and performance of other state pension funds:
Diversification of Public Retirement Plans
| Asset Class: | SCRS | Comparable Funds |
| Fixed Income: | 47.30% | 28.20% |
| U.S. Equity: | 52.70% | 44.10% |
| International Equity: | 0.00 | 15.50% |
| Real Estate: | 0.00 | 5.50% |
| Private Equity: | 0.00 | 5.50% |
| Other: | 0.00 | 1.20% |
Investment Performance (3/31/06)
| 1 Year | 3 Years | 5 Years | 10 Years | |
| SCRS Return: | 9.3% | 10.0% | 6.9% | 7.1% |
| Large Fund Median Return: | 14.2% | 17.1% | 7.7% | 9.0% |
In 2005 South Carolina took a crucial step when it created the Retirement System Investment Commission. The Commission is now responsible for investing and managing all assets of the SCRS and is completely, independently, and fully empowered to make all investment decisions.
The new Commission is made up of six financial experts, including the State Treasurer and a nonvoting retiree-member. The Willcox Law Firm's CEO, Reynolds Williams, is Chairman. The Chief Investment Officer is Robert L. Borden.
Strategy and Goals of the Commission
The Commission is committed to making the SCRS investment performance rank among the best state retirement plans in the nation. A critical phase will be continuing the orderly diversification process to take advantage of significant recent legislative reforms initiated by Williams and Sen. Hugh Leatherman which allow it to structure a portfolio with far more competitive risk and return characteristics.
CLIENT CORNER
Dr. Eddie Floyd has been named by President Bush as a United States delegate to the United Nations.
The Florence management team of Simonds International completed its purchase of that company's industrial products division. The international headquarters of International Knife & Saw, Inc., with other offices in Canada and Mexico, will be in Florence. Jim Ranson is the President of the company and David Graham, Terry Isaacs, and Mike Gray are its other directors.
INADEQUATE NOTICE OF TAX SALE
Gary bought a house that he and his wife lived in for 26 years. When the couple separated, Gary moved out, but he continued to pay the mortgage for another four years until it was paid off in full. The loan was gone, but not the property taxes--they went unpaid when the mortgage company that had previously been paying them was out of the picture.
The state attempted to notify Gary of the delinquency and of his right to redeem the property. It mailed a certified letter to him at the address of the subject property. Since nobody was home to sign for the letter, it was returned to the state marked "unclaimed." Two years later, and only weeks before the property was sold to pay the taxes, the state published a newspaper notice of public sale of the property. A buyer came forward, and the state sent Gary another certified letter stating that his house would be sold if the taxes were not paid. It, too, was returned unclaimed to the state. Only when the new owner served a notice on Gary's daughter at the house did Gary finally learn about the tax sale, but it was after the fact.
Gary sued the state, arguing that the state had sold his property for taxes without first affording him procedural due process, and the United States Supreme Court agreed with him. The Court did not lay down an ironclad rule on what procedures are to be followed in all cases. It did say that, upon the return of a notice as undeliverable, the government must take additional, reasonable steps to attempt to provide notice before it takes the drastic step of extinguishing someone's interest in his or her property.
While the extent of what is required will vary with the particular circumstances, the Court's comments indicate that it hardly expects the government to put a detective on the case of a "missing" property owner. Open-ended requirements, such as searching a telephone book or other government records, are not required of the government. But it is not too much to ask the government to do, in the Court's words, "a bit more." There were some follow-up options that the state should have explored and used. They include such simple measures as sending a notice by regular mail, for which no signature is required, posting the notice on the front door, or addressing the otherwise undeliverable mail to "occupant." Presumably, even a nonowner occupant would alert the owner of such a notice.
The Court drew an analogy to a state official handing notices meant for delinquent taxpayers to a mail carrier, then watching as they were accidentally dropped down a storm drain. One would expect new notices to be prepared and sent again. Just as it would be unreasonable for the official under those circumstances simply to shrug his shoulders and say "I tried," the state in Gary's case owed him more than inaction when the notices meant for him were returned "unclaimed."
NONOWNER CAN BE LIABLE UNDER FHA
Among the kinds of conduct prohibited by the federal Fair Housing Act is the making of any statement with respect to the sale or rental of a dwelling that indicates a preference, limitation, or discrimination based on race, religion, sex, handicap, familial status, or national origin. The most common violators of this law are the actual owners of dwellings or individuals acting as agents for owners. A federal appellate court, however, reinstated a lawsuit brought by the United States against an individual who had spoken neither as an owner nor as an agent for an owner.
The defendant worked as a housing information vendor, compiling information from classifieds and providing assistance to prospective tenants looking for rooms to rent. In the episode that got the attention of the authorities, a deaf man used a relay services operator to call the defendant for assistance. The defendant flatly told the caller that he did not provide assistance to disabled people. When the caller persisted, the defendant responded with profanity and hung up. Similar inquiries from "testers" were met with essentially the same response. In fact, the jury heard "a virtual tsunami of evidence" that the defendant routinely treated disabled people differently from those not disabled, often using profanity to underscore the point.
The court rejected the reasoning that applying the prohibition on discriminatory statements only to owners or their agents would be in keeping with the purposes of the statute. On the contrary, the statute was meant to protect against the "psychic injury" done by discriminatory statements made in connection with the broader housing market, not just statements that directly affect a housing transaction. The limitation argued for by the defendant is not in the statute itself, which broadly refers to "any" discriminatory statement.
As for a First Amendment argument put forward by the defendant, it may be available for some forms of speech, such as a private individual's vocal opposition to having children living on his block. The defendant's speech, however, was commercial in nature, giving it less protection from government regulation.
Federal estate tax law provides a method by which families can reduce the tax consequences of transferring the family home to the younger generation. The device for accomplishing this is called a qualified personal residence trust (QPRT).
An individual may create a QPRT by transferring his or her residence to a trust (usually for the benefit of family members), while retaining for a particular period of time the right to live in the residence for free. The tax laws treat the transaction as a gift of the remainder interest in the trust, rather than as an outright gift of the residence itself. There is a tax on that gift, but there is no later tax on the value of the whole residence at the time of the grantor's death, as there otherwise could be but for the use of the QPRT. As a rule, the more that a home can be expected to appreciate over the term of a trust, the more beneficial is the use of a QPRT.
A QPRT results in tax savings only if the grantor outlives the period of the retained interest. Even if the grantor does not survive the period established for the trust, the worst that could happen is that the full value of the residence would be taxed. The result is the same as if there had been no QPRT in the first place.
The QPRT has two generally recognized drawbacks. While the grantor, usually a father or mother of a family, can continue to occupy the residence after the period of retained interest has run, he or she must pay rent to avoid inclusion of the residence in his or her estate. Some individuals may not like the prospect of being their children's rent-paying tenants. Second, the QPRT does not provide a "step-up" in the cost basis of the residence as there normally would be if a residence is inherited. If a QPRT is used, the gain on the sale of the residence is measured against the price that the grantor paid for the property originally, rather than against the value of the residence at the time of the grantor's death. The result could be higher income tax liability when the residence is sold.
As with most estate planning issues, the advice and guidance of a qualified professional is recommended before .
QUALIFIED PERSONAL RESIDENCE TRUST
Federal estate tax law provides a method by which families can reduce the tax consequences of transferring the family home to the younger generation. The device for accomplishing this is called a qualified personal residence trust (QPRT).
An individual may create a QPRT by transferring his or her residence to a trust (usually for the benefit of family members), while retaining for a particular period of time the right to live in the residence for free. The tax laws treat the transaction as a gift of the remainder interest in the trust, rather than as an outright gift of the residence itself. There is a tax on that gift, but there is no later tax on the value of the whole residence at the time of the grantor's death, as there otherwise could be but for the use of the QPRT. As a rule, the more that a home can be expected to appreciate over the term of a trust, the more beneficial is the use of a QPRT.
A QPRT results in tax savings only if the grantor outlives the period of the retained interest. Even if the grantor does not survive the period established for the trust, the worst that could happen is that the full value of the residence would be taxed. The result is the same as if there had been no QPRT in the first place.
The QPRT has two generally recognized drawbacks. While the grantor, usually a father or mother of a family, can continue to occupy the residence after the period of retained interest has run, he or she must pay rent to avoid inclusion of the residence in his or her estate. Some individuals may not like the prospect of being their children's rent-paying tenants. Second, the QPRT does not provide a "step-up" in the cost basis of the residence as there normally would be if a residence is inherited. If a QPRT is used, the gain on the sale of the residence is measured against the price that the grantor paid for the property originally, rather than against the value of the residence at the time of the grantor's death. The result could be higher income tax liability when the residence is sold.
As with most estate planning issues, the advice and guidance of a qualified professional is recommended before establishing a QPRT.
FINANCIAL PLANNING FOR A DISASTER
When a natural or man-made disaster strikes, be it a hurricane affecting an entire region or a gas leak affecting one house, it is only natural and appropriate to think first of the very basics of life: safety, shelter, food, and water. But it also makes sense, in the quiet of normal daily living, to make plans for money matters in the immediate aftermath of a disaster. As the saying goes, the best time to fix a leaky roof is on a sunny day. If you have only minutes to leave your home, advance planning for keeping your head above water financially can pay big dividends.
Here are a few pointers:
- Keep the following items in a place that is easily available to you in an emergency, but not so apparent as to invite theft: forms of identification, such as driver's licenses, insurance cards, Social Security cards, passports, and birth certificates; enough checks and deposit slips to last a month, or at least a checking account number; ATM cards, debit cards, and credit cards; telephone numbers and account numbers for providers of financial services; the key to your safe-deposit box; and some cash.
- Make copies of your most important documents, ideally on disks, and keep the copies well outside of your home area.
- Use a safe-deposit box for items that you are not likely to need in a hurry, such as birth certificates and originals of contracts. Other items can go in a sturdy safe at home.
- In the same waterproof, portable "evacuation bag" in which you can keep medications, first-aid kits, flashlights, and so forth, keep some of the up-to-date financial papers mentioned above. But secure it well, lest you inadvertently provide a treasure trove of your financial information to a thief.
- Choose automated services over dependency on writing and mailing checks and trips to your bank. You can weather a storm financially more easily with direct deposit, automatic bill payments, and Internet banking services.
- Choose automated services over dependency on writing and mailing checks and trips to your bank. You can weather a storm financially more easily with direct deposit, automatic bill payments, and Internet banking services.
- Choose automated services over dependency on writing and mailing checks and trips to your bank. You can weather a storm financially more easily with direct deposit, automatic bill payments, and Internet banking services.
SPORTS INJURIES
Practically since our national pastime was in its infancy, operators of baseball stadiums have benefited from a more limited duty to spectators than that which generally applies to businesses that invite the public to come onto their property. Alone among spectator sports, baseball has fans who actively try to catch errant balls, sometimes even risking life and limb to get one. Even if fans would just as soon avoid the batted or thrown balls, the law has assumed that they are aware of the risks from these balls when they take their seats in the stands. The limited duty favoring fans generally is met if seats with protective screening are provided for as many people as normally would want them.
But what of the unsuspecting fan who is clobbered by a foul ball when he has left the sanctuary of his screen-protected seat to get a beer from a vendor? That was the misfortune of a fan who overcame the limited-duty rule when he sued a minor league baseball team for his injuries. A state supreme court ruled that his lawsuit could proceed under ordinary negligence principles.
The limited-duty rule for baseball fans loses its rationale when an injury from a flying ball occurs somewhere other than in the stands. In other areas of a stadium, it is foreseeable and predictable that fans will let down their guard. They may not even be paying attention to the game at such times and places, nor should they have to for their own safety. In the case at hand, when he was struck by the ball, the fan was chatting with other people in the line for concessions, and he could not have seen the batter hit the ball even if he had tried.
The court's concern for fans was heightened by some changes in baseball as a spectator sport. Today's players hit baseballs harder and farther. Ballparks today present what one observer has called "a sensory overload of distractions." As the court observed, "the beauty of common law is the ability to adapt to the times."
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