On May 23, 2013, Governor Dayton signed the Omnibus Tax Bill (“Tax Bill”) into law.  The Tax Bill made significant changes to the Minnesota estate and gift tax laws.  The following is a brief summary of a few of the most relevant changes that will have an impact upon some of our clients.

New Minnesota Gift Tax
The Tax Bill imposes a new 10% Minnesota gift tax on lifetime gifts in excess of $1 million (this is significantly less than the $5.25 million Federal gift tax exemption in 2013).  Minnesota residents are subject to the gift tax for gifts of any type of property once they exceed $1 million of gifts.  Non-Minnesota residents are subject to the tax for gifts of real property and tangible personal property located in Minnesota.  The Tax Bill adopts the Federal rules with respect to “annual exclusion” gifts, where you may give up to $14,000 (for 2013) per recipient without triggering the gift tax.  Gifts to an individual’s spouse and gifts to charity are also exempt from the tax.  The Minnesota gift tax applies to gifts made after June 30, 2013.

Changes to the Minnesota Estate Tax
The Tax Bill also makes changes to the Minnesota estate tax.  Taxable gifts made within three years of death are now considered when determining if an estate tax return must be filed, and such gifts may have an impact on an individual’s Minnesota estate tax due upon death.  The scope of the Minnesota estate tax has also been expanded to reach non-Minnesota residents who own real property located in Minnesota, whether held individually or held in pass-through entities such as S-corporations, limited liability companies, partnerships and some trusts.  The Minnesota estate tax changes were made retroactive for deaths occurring on or after January 1, 2013.

Family Farms
There were also technical corrections made to the estate tax law for family farms, to clarify the law that was passed two years ago.  This law exempts some family farms from Minnesota estate tax for a value of up to $5 million per person in specific situations.

How do these tax laws impact me?
Not all individuals will be impacted by the Tax Bill.  If you fall into one of these situations, we encourage you to call us as soon as possible.  If you are interested in making gifts, these need to be completed before July 1, 2013.

• You are a Minnesota resident and intend to make lifetime gifts of $1 million or more in the near future.
• You are a Minnesota resident and your net worth is between $1 million and $5.25 million ($2 million and $10.5 million if you are married), and you are planning to make substantial lifetime or “end-of-life” gifts in order to avoid Minnesota estate tax at your death.
• You are a non-Minnesota resident and own real property or tangible personal property located in Minnesota.
• You are a non-Minnesota resident and you have created a pass-through entity, such as an LLC, partnership or Sub-S corporation, to own real estate or tangible personal property located in Minnesota.
• You are a Minnesota resident who owns a family farm, and you are not intending to gift any of the farm or business at this time, then you should call as soon as possible to discuss updates to your estate plan, but this does not have a deadline of July 1, 2013.  If you are interested in making gifts, then the July 1, 2013 deadline is important.

For more information, or if you have any questions, please feel free to contact your Estate Planning attorney at Winthrop & Weinstine.

On May 14, 2013, Governor Dayton signed into law legislation revising the definition of “marriage” in Minnesota to include same-sex marriage. The law becomes effective August 1, 2013.

This landmark decision for the state has wide-reaching implications for Minnesota, including individuals, businesses and employers. The legal impact of the revision to the definition of marriage in the state will be felt in Premarital and Estate Planning, Real Estate law, as well as the Employment and Benefits areas. Especially in the areas of Employment and Employee Benefits, the new law will substantially affect employers and small businesses. In this Alert, we discuss some of the changes to look out for as a result of the Act, and provide guidance on how to prepare for the changes coming later this summer.

In addition, it is important for Minnesota residents and companies to consider the Defense of Marriage Act (“DOMA”), which continues to limit the definition of marriage to between a man and a woman for federal law purposes. Because of this, there may be instances in which Minnesota’s law would be superseded by federal law and the marriage would not be recognized. The U.S. Supreme Court has heard arguments in two cases, one of which challenges the constitutionality of DOMA, and the Court is expected to decide both of these cases in late June. Depending on the outcome, additional issues may need to be considered.

Premarital Agreements and Estate Planning
For same sex couples who choose to marry in Minnesota after August 1, 2013, we recommend that they consider whether a Premarital Agreement is appropriate prior to marriage.

After marriage, each couple should review and update their estate plan. There will likely be estate and other tax savings as a result of the marriage, which ought to be incorporated into the estate plan.

For any same-sex couple who has already married in a state that legally recognizes same-sex marriage, some updates to estate planning documents may be appropriate after August 1, 2013.

Again, depending on the result of the U.S. Supreme Court’s decision in the DOMA case in June, additional estate planning changes may result for same sex couples.

Real Estate
In Minnesota, marriage triggers certain rights and responsibilities in relation to real estate, even if the property were acquired prior to the marriage. If real property is titled in the name of only one spouse, upon marriage the other spouse may acquire certain rights that vest upon divorce or upon the death of the titled spouse. Because of this, after marriage, real property generally cannot be sold without the signatures of both spouses. Similarly, it will require both spouses to amend the terms of an existing mortgage or property-related document.

Existing co-tenancy or similar agreements between current domestic partners may also be affected and should be revisited if those partners are considering marriage. The upcoming decisions by the U.S. Supreme Court may also impact the taxation of real estate.

Employment Practices and Employee Benefits
Minnesota employers, businesses and individuals will need to consider the impact that the new law will have on their employment practices and employee benefits. Employers should also determine whether they will need to begin offering some or all of their benefits to same-sex spouses as of August 1, 2013. This decision will need to be based both on the specific federal or state law that governs each benefit and the definitions used in each separate plan document.

Employment Practices
The civil marriage law impacts state discrimination protections under the Minnesota Human Rights Act (“MHRA”) and could impact leave policies as well. For example, same-sex spouses will be protected from marital status discrimination under the MHRA. With respect to leave policies, any impact on leaves of absence governed by federal law, such as the Family and Medical Leave Act, will depend on the U.S. Supreme Court’s decision in late June on the constitutionality of DOMA, as set forth above. However, we recommend that employers and businesses immediately evaluate their current leave and non-discrimination policies in light of state laws to ensure the policies are consistent and non-discriminatory.

Retirement Benefits
Most employer-provided retirement benefits, through employee stock ownership plans, 401(k) plans and pension plans, are governed by federal law, including the Employee Retirement Income Security Act (“ERISA”), which generally preempts state laws. Therefore, we do not expect that Minnesota’s same-sex marriage law will apply to most retirement plans. However, if the U.S. Supreme Court decision regarding DOMA addresses the constitutionality question, it is possible that the federal definition of marriage might change as well, and then Minnesota’s new law will likely impact retirement plans.

Some retirement benefits, such as governmental plans and non-electing church plans, are not governed by ERISA. We recommend reviewing these plans to determine how they will be impacted by Minnesota’s new law.

Self-Funded Benefits
Welfare benefits (such as medical, dental, disability and life) usually are provided either from the employer’s general funds (“self-funded”) or through insurance. Most “self-funded” welfare benefits are governed by ERISA, which preempts state law, so that Minnesota’s law will not have an effect upon these plans. Several other employer plans, including Section 125 “cafeteria” plans and medical expense reimbursement plans, are largely designed to provide pre-tax benefits under federal tax law. Since federal law under DOMA currently does not recognize same-sex marriage, the new Minnesota law should not require these plans to recognize same-sex spouses.

Other employer programs, such as stock options or appreciation rights, stock purchase plans, and employment-provided fringe benefits, generally are not governed by ERISA. For these programs, any regular or survivor benefits need to be extended to same-sex spouses. If you have these plans, we recommend that they be reviewed.

Benefits Provided Through Insurance
Although ERISA and other federal laws generally preempt state laws, states are permitted to regulate insurance. Therefore, it is likely that Minnesota’s insurance laws will require that any insurance-provided benefits for spouses be extended to same-sex spouses. This would include health, dental, disability and life insurance. We anticipate that Minnesota will be issuing guidance concerning whether this change must occur when Minnesota’s same-sex marriage law goes into effect on August 1, 2013, or at a later date, such as the start of the next policy year. Please check back with us as August 1 approaches so that we can keep you informed.

Domestic Partner Coverage
Some employers currently extend benefits, especially health benefits, to same-sex domestic partners. For most, the purpose has been to provide benefits to same-sex partners who could not have a marriage recognized under state or federal law. Now that Minnesota recognizes same-sex marriage, employers will need to decide whether they will continue to provide domestic partner coverage, or whether same-sex partners will need to marry in order to qualify for these benefits.

Tax Impact of Providing Same-Sex Spouse Benefits
Currently, neither Minnesota nor federal law permits pre-tax or tax-free benefits for same-sex partners unless the partner qualifies as a “dependent” for federal tax purposes. Although Minnesota’s same-sex marriage law will not change the federal income tax treatment of these benefits, it seems likely that these benefits will no longer be subject to Minnesota income tax once the law goes into effect.

Definitions of Spouse Used in Plans
Regardless of whether or not an employer’s benefit plans will be required to provide coverage for same-sex spouses, employers should review the definitions of “spouse” used in their plans to determine whether the definitions will continue to reflect the employers’ intent once Minnesota begins to recognize same-sex marriage. For example, a plan definition of “spouse” that refers to Minnesota Statute Section 517.01 will automatically expand to cover same-sex marriage once the new Minnesota law goes into effect.

If you have any questions about any topics in this Alert, or any other concerns that arise as a result of the new law, please do not hesitate to contact us. We will be closely monitoring the implications of the law, in addition to the U.S. Supreme Court decisions.

Whistleblower Protections Expanded New Securities and Exchange Commission (SEC) Rules Effective August 12, 2011

SEC whistleblower rules added under the Dodd-Frank Act now in effect will have a significant impact on private and public companies. Companies should become familiar with the new rules and train their management and employees to prevent any unintentional violations of the rules.   Background On May 25, 2011, the SEC adopted whistleblower rules – contained in Regulation 21F – to implement Section 21F of the Securities Exchange Act of 1934 (Exchange Act).  Regulation 21F, which became effective on August 12, 2011, applies to both private and public companies and establishes a process for whistleblower reporting that could award whistleblowers up to 30 percent of the government’s recovery if the total recovery exceeds $1 million.

New whistleblower provisions under the Dodd-Frank Act:  What you need to know
Section 21F and Regulation 21F generally provide that the SEC is required to pay whistleblowers awards equal to 10 to 30 percent of the aggregate monetary recoveries obtained by the SEC, the U.S. Department of Justice and certain other authorities in a judicial or administrative action. This could happen where one or more whistleblowers voluntarily provide original information regarding a violation or possible violation of the federal securities laws and the information leads to one or more enforcement actions that result in monetary sanctions exceeding $1 million. Section 21F and Regulation 21F also expand anti-retaliation employment protections and remedies for whistleblowers.

General recommendations
Companies should have policies and procedures that encourage employees and others to first report their concerns about possible securities law violations to the company. Because of the potential for large awards for whistleblowers, which encourage employees to bypass a company’s internal reporting system, companies should redouble their efforts to encourage employees to report violations and possible violations internally. In this regard, companies may wish to consider the following:

• Adopt a comprehensive whistleblower policy which clearly states that there will be no retaliation for reporting.
• Provide several ways to report a violation, including by email, a toll-free hotline and a confidential/anonymous disclosure system.
• Offer periodic training on the company’s whistleblower policy and assure employees that their complaints will be handled appropriately and seriously.
• Review employee confidentiality agreements, employee handbooks, and other employee materials that may limit employees’ dissemination of information outside the company to assure that nothing might be construed as prohibiting protected whistleblowing.
• Obtain confirmation from employees in exit interviews or separation agreements that the employee is not aware of any possible violations.
• Take immediate action upon receipt of a whistleblower complaint. The SEC has emphasized that the promptness with which a company self reports misconduct is an important factor in considering whether to grant leniency for cooperating in the SEC’s investigations and enforcement efforts.
• Review and potentially expand the scope of the company’s directors and officers insurance policy to ensure adequate coverage in the event of an SEC investigation, as the new whistleblower rules are likely to result in additional SEC investigations. It is important to review your policies and ensure it is protecting what you wish.

Additional information regarding
Section 21F and Regulation 21F
Neither Section 21F nor Regulation 21F requires the whistleblower to first report the violation or possible violation to the company. This makes it particularly important for companies to increase their efforts to create internal policies and procedures to encourage employees to report any suspected violations internally through implementation of an effective whistleblower policy. If an employee reports to the SEC first, the company may be placed in the unfortunate position of learning about the possible violation from the SEC.

• Although internal reporting is not required, the SEC has attempted to counterbalance the potential disincentives for internal reporting by providing some reward for whistleblowers to go through internal channels first. A whistleblower’s cooperation in the company’s internal compliance program can be used by the SEC as a factor to increase the award. In addition, a whistleblower’s unreasonable delay in reporting or interference with the company’s internal compliance program can reduce the size of the award.
• Whistleblowers who first report internally may delay reporting to the SEC for up to 120 days and still receive an award. Whistleblowers may also receive awards even if the company reports the information to the SEC that ultimately results in a successful award action.
• The definition of a whistleblower includes not only employees of the issuer or its consolidated subsidiaries. The definition is broad enough to include an employee of a competitor, an angry ex-spouse, or even an unaffiliated academic.
• Violations of the securities laws include violations of the Foreign Corrupt Practices Act (FCPA). The anti-bribery provisions of the FCPA apply to both private and public companies. Thus, the new whistleblower provisions raise the specter of enhanced enforcement of FCPA provisions against both public and private companies.
• In addition to the whistleblower bounty provisions, Section 21F and Rule 21F create additional anti-retaliation provisions which both supplement and expand upon those protections already provided under Sarbanes-Oxley Act of 2002 (SOX). Many employees are now covered by both SOX and Section 21F/Regulation 21F.
• The statute of limitations for retaliation claims under Section 21F is six years or more, which is much longer than the ninety days originally provided for in the anti-retaliation provisions of SOX.
• The anti-retaliation protections provide not only for reinstatement and attorneys’ fees but also double back pay plus interest. Under SOX, the anti-retaliation remedies consist of one times back pay plus interest and attorneys’ fees. Coupled with the longer statute of limitations, this raises the possibility of significantly larger awards to whistleblowers for retaliation claims.
• The anti-retaliation provisions apply even if the whistleblower does not qualify for an award and even if the information provided does not relate to an actual violation of law. The only requirement is that the whistleblower has a reasonable belief that there was a violation of securities laws.

The SEC estimates that it will receive 30,000 tips, complaints and referrals annually through its new whistleblower system and that there will be approximately 150 SEC actions resulting in monetary sanctions of greater than $1 million. As a result, the plaintiff’s bar now is actively recruiting potential whistleblowers, so employers need to be prepared.

Additional Information
If you have any questions on adopting a new whistleblower policy or in implementing changes to an existing policy in light of the changes described in this alert, please contact shareholders Michele D. Vaillancourt or Laura A. Pfeiffer.

Michele D. Vaillancourt
(612) 604-6681
[email protected]

Laura A. Pfeiffer
(612) 604-6685
[email protected]

NOTICE:
This client alert is a periodic publication of Winthrop & Weinstine, P.A., and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your legal counsel concerning your situation and any specific legal questions you may have. This may be considered Advertising Material.