Ellen Williamson – Farrow-Gillespie Heath Witter LLP

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Lifetime Giving: Another Tool in Your Estate Planning Toolkit

September 9, 2021/in Estate Planning/by Ellen Williamson

When a client comes in for an “estate plan,” they are usually thinking of a will or trust. These legal documents form the centerpiece of a comprehensive estate plan, but there’s another important tool in the estate planning toolkit that many people overlook: lifetime giving.

Lifetime Giving

Do you know you can give money up to a certain amount, called the annual gift tax exclusion amount, every year, to as many people as you’d like? For 2021, this exclusion amount is $15,000, so you can give up to $15,000/person to an unlimited number of people in 2021 without owing any federal gift tax or having to file a gift tax return. If you’re married, your spouse can do the same, so combined, the two of you can give up to $30,000 per person each year.

For example, Jose and Sarah have an adult child, Chris, who is married to Bob. If Jose and Sarah want to maximize their gifts to Chris’ family, they can give a combined total of $60,000: $15,000 each to both Chris and Bob. If Chris and Bob have children, Jose and Sarah can each make gifts to the grandkids as well.

The Benefits

Lifetime giving has several benefits. First, lifetime giving can be as simple as writing a check. An attorney can help you plan out a lifetime giving strategy and incorporate it into your overall goals, but legal assistance is not required to make lifetime gifts. Second, lifetime giving allows you as the giver to decide exactly who gets what and to apply any preconditions you may wish. Also, you have the satisfaction of seeing the recipients enjoy your generosity and they have an opportunity to express their appreciation. In addition, lifetime gifting enables you to act when it is most needed, for example, to help a grandchild go to college, buy a house, or start a business.

Finally, gifts that do not exceed the annual gift tax exclusion amount don’t count toward your lifetime combined estate/gift tax exemption, which is another benefit. That said, the estate/gift tax exemption amounts are so high (currently $11.7 million/individual and $23.4 million/couple) that estate tax avoidance is not a relevant consideration for most of us.

The Risks

On the flip side, lifetime gifting does come with a few risks. The biggest risk is that the money you give away today may be money you later need for yourself. Second, while you can revise a will or trust to change distribution plans as your circumstances or wishes change, lifetime gifting can’t be undone in the same way. Once the toothpaste is out of the tube, so to speak, it can’t easily be put back. For some people, these considerations may limit the practical value of the gift tax exclusion.

And for clients who may need long-term care in the foreseeable future, it’s important to know that Medicaid has a five-year lookback rule. If you make gifts today and apply for Medicaid within the next five years, your eligibility will be affected.

Conclusion

Many people may already be doing lifetime gifting in an informal way, such as small checks on birthdays. For some clients, greater lifetime gifting isn’t appropriate at this stage of life. For others, however, planned lifetime giving using the gift tax exclusion can be an easy, efficient, and satisfying way to distribute a significant amount of property.

Ellen Daniel Williamson | Farrow-Gillespie Heath Witter LLP

Ellen Williamson is of counsel at Farrow-Gillespie Heath Witter LLP. She has more than fifteen years of experience as an attorney, and practices probate, estate planning, and guardianship law. She was selected as one of “DVAP’s Finest” for her pro bono volunteer efforts through the Dallas Volunteer Attorney Program; she is a member of the Dallas Bar Association Probate, Trusts, & Estates section; a member of the estates manual committee; and a former co-chair of DAYL Elder Law Committee. Ms. Williamson assists with the creation and delivery of many continuing legal education programs for attorneys and enjoys speaking about estate planning and probate topics for senior groups and others. She earned her J.D. from SMU Dedman School of Law.

How to Apply for Guardianship in Dallas County

April 26, 2021/in Guardianship/by Ellen Williamson

This article was originally published by UNT Dallas College of Law on January 1, 2020.

The process to apply for permanent guardianship in Dallas County can often be a complicated process.The process for applying in Dallas County is as follows:

1. The applicant files an application for appointment of permanent guardianship with the certificate of medical examination (“CME”) as a separate document. The CME contains sensitive details about the proposed ward and is not available on the public court records website.¹

2. A file-stamped copy of the application must be personally served on the proposed ward and served by certified mail on certain other family members. If applicable, the administrator of the facility where the ward resides must also be served by certified mail.² Further, the applicant must file a certificate confirming that all interested parties were properly noticed.³

3. The applicant must post a $400 deposit with the Clerk for the attorney ad litem’s fee, unless an affidavit of inability to pay costs is on file.

4. The proposed guardian(s) (usually the applicant(s)) must register with the Texas Judicial Branch Certification Commission (“JBCC”) to undergo a criminal background check and complete an online training module.⁴

The JBCC forwards the background check results to the court in which the guardianship application is pending. The results must be on file at least 10 days before the hearing on the application can take place.
The proposed guardian must also file the certificate of completion of the training module with the court.

5. The court appoints a Court Investigator who meets with the proposed ward and applicant, then prepares and files a report.⁵ The Court Investigator acts as the eyes and ears of the court.

6. The court appoints an attorney ad litem to represent the proposed ward’s legal interests.

7. The attorney ad litem investigates, interviews the proposed ward, and files an answer on behalf of the proposed ward.⁶

8. If appropriate, the attorney ad litem may make a Motion for Appointment of a Guardian Ad Litem to speak to the proposed ward’s best interests, which may not coincide with the proposed ward’s legal interests.⁷

9. The court holds a hearing on the guardianship application.

10. If the application is granted, the Judge signs an order appointing the guardian.⁸

11. Upon appointment, the guardian takes an oath and posts a bond. Bonds for guardians of the person are typically $100-$500, depending on the Court. Bonds for guardians of the estate must be corporate surety bonds with the amount based on the estate size.⁹

Upon qualification, the guardian may then receive Letters of Guardianship (i.e., their “badge”) to show that they have authority to act on the ward’s behalf.¹⁰

For a general overview of guardianship, please visit: https://fghwlaw.com/overview-of-guardianship/.

Sources

¹Tex. Est. Code Ann. § 1101.001; Tex. Est. Code Ann. § 1101.103.
²Tex. Est. Code Ann. § 1051.101-203.
³Tex. Est. Code Ann. § 1051.104(b)
⁴Tex. Govt. Code § 155.151; Tex. Est. Code Ann. § 1104.404; Tex. Est. Code Ann. § 1104.003
⁵Tex. Est. Code Ann. § 1054.151-153.
⁶Tex. Est. Code Ann. § 1054.004.
⁷Tex. Est. Code Ann. § 1054.151; Tex. Est. Code Ann. § 1054.154.
⁸Tex. Est. Code Ann. § 1151.151-152.
⁹Tex. Est. Code Ann. § 1105.001-002.
¹⁰Tex. Est. Code Ann. § 1106.001.

Overview of Guardianship | Ellen Williamson

An Overview of Guardianship

March 19, 2021/in Guardianship/by Ellen Williamson

This article was originally published by UNT Dallas College of Law on January 1, 2020.

Guardianships can be granted by a court when an individual requires assistance handling their personal or financial affairs.

What is a guardian?

A guardian is a person appointed by a court to manage the person, estate, or both, of an incapacitated person, called a ward.¹

What are the different types of guardianship?

A guardian of the person is someone who makes medical, educational, residential, employment, marriage, and similar decisions for a ward. A guardian of the estate is someone who manages property on behalf of a ward. The general powers and duties of a guardian of the person are outlined in Chapter 1151 of the Texas Estates Code (available here).

A ward may need a guardian of the person, a guardian of the estate, or both, depending on the circumstances. For example, a young adult with an intellectual disability whose parents seek to become her guardian as she reaches adulthood may not have an estate to manage. However, a senior with dementia or an adult who suffers a traumatic brain injury may need assistance with both personal and financial decisions.

Permanent guardianship may be granted when the need is expected to continue indefinitely. If there is both immediate and ongoing need, the court may grant a temporary guardianship pending a hearing on the permanent application.

Temporary guardianship may be granted when a court finds that there is: (1) a substantial likelihood that the proposed ward is incapacitated; and (2) probable cause to believe that there is imminent danger to the proposed ward’s physical health, safety, and estate.² Temporary guardianships are initially granted for 60 days but may be extended.³

Temporary guardianships are similar to permanent guardianships in many respects. One key difference, however, is that the Estates Code identifies the full powers granted to a permanent guardian of the person or estate, but does not grant any default temporary guardian powers. For that matter, the Estates Code does not refer to a “temporary guardian of the person” or “temporary guardian of the estate,” but only a “temporary guardian.” Particular care must be taken in drafting the application for temporary guardianship and the proposed order appointing the temporary guardian to ensure that the relief requested is appropriate to the need.⁴

Another key difference is that due to the time-sensitive nature of the need, the burden of proof is lower for temporary guardianship. Accordingly, this means that a person for whom a temporary guardian is appointed is not necessarily presumed to be incapacitated.⁵

When is guardianship needed?

Guardianship is the most restrictive legal status short of incarceration. A person under guardianship is stripped of his right to make his own decisions and manage his own estate. Before a court can appoint a guardian, it must find that the person is incapacitated and the proposed guardian suitable, but also that there are no other alternatives.⁶ In other words, the court must find, by clear and convincing evidence, that the person is incapacitated and that only guardianship can meet the person’s needs and protect his interests.⁷

A partially incapacitated person may need assistance with some tasks while retaining the ability to do others. Consistent with the goal of restricting a person’s rights only to the extent necessary to protect him, the Court may create a limited guardianship in which the ward retains some rights, and the guardian is granted only limited powers.⁸

When considering guardianship, it is important to determine whether a less restrictive alternative may be available. For example, if the person has previously executed powers of attorney or has capacity to do so, guardianship may be avoided. If the allegedly incapacitated person is married and has no separate property, the spouse may act as community administrator of the entire community estate as a less restrictive alternative to the more costly and difficult guardianship of the estate. If the alleged incapacitated person is a young adult with no property except Supplemental Security Income (“SSI”), the person who serves as guardian of the person may also apply to be the representative payee for SSI. Such alternatives can save money and time and, more importantly, allow the incapacitated person to retain as many rights as possible.

Who represents the proposed ward in a guardianship?

The court appoints an attorney ad litem to represent the legal interests of the proposed ward.⁹ Such representation may include contesting the application on the merits, challenging the allegation of incapacity, or arguing that someone other than the proposed guardian is a more appropriate person to serve. However, even when there is no genuine dispute of the medical evidence or the proposed guardian’s suitability to serve, the attorney ad litem should continue to investigate and evaluate the availability of less restrictive alternatives.

The attorney ad litem role is similar to that of a public defender in a criminal case. Just as a criminal defense attorney should not confess judgment on their client’s behalf by saying that their client is guilty, an attorney ad litem should not admit their client’s incapacity.

Who can represent an applicant or serve as attorney ad litem for a proposed ward in a guardianship matter?

The applicant’s attorney and attorney ad litem for the proposed ward must be certified by the State Bar of Texas to participate in a guardianship proceeding.¹⁰ An attorney is initially certified for two years, and after being certified for two consecutive two-year terms, is then recertified for four years.

To earn such certification, the attorney must complete a four-hour course about guardianship law and procedure sponsored by the State Bar of Texas. One hour of this course focuses on alternatives to guardianship and supports and services available to proposed wards.

Who might need a guardian?

There are three broad categories of people who may need a legal guardian:

A minor;
A person who must have a guardian to receive money from a governmental source; or
An adult who, because of physical or mental condition, is substantially unable to provide for their basic needs of food, clothing, and shelter, care for their physical health, or manage their finances.¹¹

The majority of guardianship proceedings involve the third category, adults who, because of incapacity, are unable to care for themselves or manage their property. More specifically, adult persons under guardianship generally fall into one of these three groups:

1. People with an intellectual disability or other special needs

Members of this group typically have never had, or may not be expected to ever have, capacity. During their childhood, their parents, as their natural guardians, were able to make decisions for them. If they still require assistance once they reach adulthood, one or more parents are often the guardians. Because such wards often have no property and no income other than Supplemental Security Income (SSI), there may be no estate to manage.

Such guardianships may be created as soon as the ward turns 18, and the application for guardianship may be filed up to 6 months before the proposed ward’s 18^th birthday. However, guardianship cannot take effect until the ward reaches adulthood.

2. People who have suffered a traumatic brain injury

Members of this group have reached adulthood and may have had full capacity until a traumatic brain injury left them unable to care for themselves or their property. Some members of this group may have the possibility of recovering partial or full capacity in the future.

3. People with aging brain issues

Members of this group include seniors with dementia and similar conditions in which memory and cognitive function decline, leaving the person increasingly unable to manage his care or property. Due to the progressive nature of such degenerative conditions, guardianships created for wards with aging brain issues are generally permanent without expectation of restoration.

A significant difference between the first group and the latter two groups is that members of the latter groups had capacity before their incapacity arose. Thus, they may have signed powers of attorney or otherwise planned for future incapacity such that guardianship may not be necessary or may be limited in scope. However, these last two groups are also much more likely to have an estate to manage. This estate may need to be preserved and invested or, alternatively, spent down in a managed way to enable the ward to qualify for Medicaid. In other words, persons who do not become incapacitated until later in life may be less likely to need a guardian once incapacity arises. But if guardianship is needed, it is typically a more complicated and expensive process than a guardianship for a person who has never had capacity.

What does a permanent guardian need to do once appointed?

The role of the guardian of the person includes taking possession of, caring for, supervising, and protecting the ward.¹² This includes making medical decisions, choosing an appropriate residence, and making decisions about employment, education, and marriage. The guardian of the person is not required to be represented by an attorney after the hearing.¹³

The role of the guardian of the estate, on the other hand, is significantly more involved. In fact, the guardian must be represented by an attorney for the duration of the guardianship. The guardian of the estate immediately takes possession of the ward’s property and records.¹⁴ The guardian must file an inventory listing all the ward’s property within 30 days after qualification¹⁵ and, as appropriate, apply for a monthly allowance¹⁶ and file an investment plan.¹⁷ The guardian must notify the Internal Revenue Service (IRS) of the fiduciary relationship and give appropriate notices to creditors.¹⁸

Guardianship is inherently a dependent administration—that is, like a game of “Mother may I?” The guardian must obtain Court permission for nearly all acts, such as expending the ward’s funds, accepting creditor claims, and selling or leasing estate property.¹⁹

Letters of Guardianship expire annually. To renew them, a guardian of the person must file an annual report updating the Court on the ward’s condition.²⁰

The guardian of the estate must file an annual account detailing all receipts, expenditures, transfers between accounts, and changes in the value of the property.²¹ The surety bond must also be renewed.

Once the annual report or account has been approved, the court signs an Order approving such filing and authorizing the Clerk to issue new Letters of Guardianship.

How can a guardianship be modified?

The ward or any interested person may petition the court for an order to modify the guardianship to either expand or limit the guardian’s powers.²² If the guardian was initially granted only limited powers, and the ward’s condition declines, the court may grant additional powers. On the other hand, if the ward regains abilities, the court may partially or fully restore the ward’s rights.

When restoration of rights is sought because the ward is believed to have regained full or partial capacity, a physician’s certificate of medical examination specific to restoration cases is required.²³ If the guardian dies or resigns, the court will appoint a successor.²⁴ Guardians can also be removed for failure to file an annual report or account or otherwise failing to remain in compliance with requirements.²⁵

How and when is a guardianship terminated?

Permanent guardianships are terminated once the guardianship is no longer needed, such as if the ward dies or regains capacity. A guardianship of the estate may also be terminated if the estate is exhausted or the ward’s only remaining assets are being managed by other means.

When a guardianship of the person is terminated, the guardian files a final report.²⁶

When a guardianship of the estate is terminated, the guardian files a final account.²⁷ Upon Court approval of the final account and delivery of the ward’s estate, if any, to the person entitled to such possession, the Court discharges the guardian and releases the guardian’s surety from its bond.²⁸

For steps on how to apply for guardianship in Dallas County, please visit: https://fghwlaw.com/how-to-apply-for-guardianship-in-dallas/.

Ellen Williamson is of counsel at Farrow-Gillespie Heath Witter LLP. She has more than fifteen years of experience as an attorney, and has practiced probate, estate planning, and guardianship law since 2013. She was selected as one of “DVAP’s Finest” for her pro bono volunteer efforts through the Dallas Volunteer Attorney Program, she is a member of the Dallas Bar Association Probate, Trusts, & Estates section, a member of the estates manual committee, and a former co-chair of DAYL Elder Law Committee. Ms. Williamson assists with the creation and delivery of many continuing legal education programs for attorneys and enjoys speaking about estate planning and probate topics for senior groups and others. She earned a J.D. from SMU Dedman School of Law.

Sources

¹Tex. Est. Code Ann. § 1002.012.
² Tex. Est. Code Ann. § 1251.001.
³ Tex. Est. Code Ann. § 1251.151.
⁴Tex. Est. Code Ann. § 1251.010.
⁵Tex. Est. Code Ann. § 1251.002.
⁶Tex. Est. Code Ann. § 1002.0015; Tex. Est. Code Ann. § 1002.031.
⁷Tex. Est. Code Ann. § 1101.101.
⁸Tex. Est. Code Ann. § 1101.152.
⁹Tex. Est. Code Ann. § 1054.001-004.
¹⁰Tex. Est. Code Ann. § 1054.201.
¹¹Tex. Est. Code Ann. § 1002.017.
¹²Tex. Est. Code Ann. § 1151.051-056.
¹³Tex. Est. Code Ann. § 1163.105.
¹⁴Tex. Est. Code Ann. § 1151.101-152.
¹⁵Tex. Est. Code Ann. § 1154.051-053.
¹⁶Tex. Est. Code Ann. § 1156.051.
¹⁷Tex. Est. Code Ann. § 1161.051.
¹⁸Tex. Est. Code Ann. § 1153.001-005.
¹⁹Tex. Est. Code Ann. § 1151.102-1151.103, Tex. Est. Code Ann. § 1158.
²⁰Tex. Est. Code Ann. § 1163.101-1163.102.
²¹Tex. Est. Code Ann. § 1163.001-002; Tex. Est. Code Ann. § 1163.051.
²²Tex. Est. Code Ann. § 1202.
²³Tex. Est. Code Ann. § 1202.152.
²⁴Tex. Est. Code Ann. § 1203.102.
²⁵Tex. Est. Code Ann. § 1203.
²⁶Tex. Est. Code Ann. § 1163.103.
²⁷Tex. Est. Code Ann. § 1204.101.
²⁸Tex. Est. Code Ann. § 1204.152.

PPP Loan Program and Certification Guidance

PPP Loan Program: Am I in Trouble? What the New Certification Guidance Means for You Update 5/06/2020

May 4, 2020/in Corporate Law/by Ellen Williamson

Information regarding PPP loans are constantly changing. New updates are highlighted in red.

Last week, an additional $310 billion in funding was approved for the Paycheck Protection Program. Given that the initial $349 billion was used within weeks, it’s likely the second tranche will go quickly as well.

Meanwhile, though SBA updates its Frequently Asked Questions nearly daily and periodically releases additional interim rules, we still await more detailed guidance on loan forgiveness.

A few recent updates to the FAQ about the borrower certification has drawn a lot of attention:

31. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.

Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 14, 2020*. will be deemed by SBA to have made the required certification in good faith.”

Then, a few days later, with #37, SBA stated that businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations are also covered by the guidance in #31.

And then the next day came #39:

39. Question: Will SBA review individual PPP loan files?

Answer: Yes. In FAQ #31, SBA reminded all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Additional guidance implementing this procedure will be forthcoming. The outcome of SBA’s review of loan files will not affect SBA’s guarantee of any loan for which the lender complied with the lender obligations set forth in paragraphs III.3.b(i)-(iii) of the Paycheck Protection Program Rule (April 2, 2020) and further explained in FAQ #1.

Why did we get this new guidance?

Well, you might think of this as the “Ruth’s Chris” rule. When the initial tranche of loan funds ran out, many small businesses were left on the outside looking in. That frustration led to anger once stories broke about the large loans received by Ruth’s Chris Steak House and other publicly traded companies. In response to the backlash, Ruth’s Chris and many other companies returned their loan funds and SBA added this additional guidance about the borrower certification on the loan application.

While this guidance is given to all borrowers it’s written with a fairly narrow target audience in mind: big companies, both public and private, with other options, and particularly those taking large loan amounts. You know those emails that go out to the whole office about not burning popcorn in the microwave when it’s just one person who does it? It’s kind of like that. If you’re not the monster who assaults your colleagues’ olfactory senses, it’s not really directed at you.

What does it mean?

I’ve had several clients ask me what to make of this new guidance. What does it mean for the loan request to be necessary? Must you be at the point where you’d be forced to close your doors tomorrow to qualify for a loan? Does this mean that a borrower who reasonably believed their business would be impacted by the pandemic, took a loan, and then doesn’t suffer the business impact they feared is now in trouble?

I don’t believe that this new guidance is intended to suggest that SBA is going to second-guess a small business who applied in good faith but whose business conditions look better today than when they applied, or that businesses must be at the brink of ruin to be eligible. Rather, it’s intended to remind potential borrowers that this is a taxpayer-funded program of limited resources intended to help businesses in need. PPP isn’t meant to support big companies with ample funding options but rather a lifeline for businesses that might otherwise be seriously impacted by COVID-19.

The key sentences in the FAQ are here:

“Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant. Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.”

Let’s look at that certification language again, this time broken out into subparts:

Borrowers must [certify] that current economic uncertainty makes this loan request necessary to support [ongoing operations]

in good faith, taking into account
- their current business activity and
- their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

So, you might think of this certification as a two-pronged “good faith” test. The first prong refers to current business activity; that is, how is the borrower’s business as of the date of application? Has business declined compared to a typical month? Has the business had to lay off employees or reduce hours? Is it reasonably likely that the decline may continue? A business that, as of date of application, has seen a decrease in sales and/or had to reduce staff can likely meet that prong of the good faith test.

The second prong mentions the ability to access other sources of liquidity in a manner not significantly detrimental to the business’s ongoing operations. What does that mean? Notably, while other SBA loans apply a Credit Elsewhere test, PPP does not.

But, going back to the Ruth’s Chris example, if your business is sitting on piles of cash or has ready access to capital on favorable terms, it may be hard to show the good faith needed for a PPP loan. If, however, your only other options are to burn through your limited capital reserves or to take a loan elsewhere on unduly onerous terms, you can likely meet this second prong. After all, supporting ongoing operations means taking prudent steps today that will enable your business to ride out the crisis and remain in operation once this is over.

If you are still unsure if your application is in good faith, consider this: Imagine the local paper ran a story announcing you’d gotten an SBA loan. What would your reaction be? Would you be worried about a PR disaster, or proud to share that you’re doing all you can to keep your business going and your employees paid?

What should you do?

This new guidance reminds borrowers to keep good documentation not only of how loan proceeds are used but also of the circumstances that gave rise to the loan request in the first place. My advice to SBA borrower clients is to gather such documentation so that if the need arises to explain why you applied, you’re not relying on your memory to recreate the record after time has passed.

For example, records showing that your business activity had declined significantly, or that you’d had to lay off employees, or been declined for credit elsewhere, would be strong evidence that the application was made in good faith. In other words, I think it’s important for borrowers to have evidence that they carefully considered their options.

While SBA has expressly stated it will review loans over $2 million, borrowers of any amount should be prepared to provide documentation. In general, I believe, the larger the loan amount and/or the borrowing company, the more likely it is to be reviewed.

Should my business give back its loan funds in light of this guidance?

The FAQ offers a “safe harbor” to borrowers who return their loan funds by May 14. If you give the loan back right away, SBA will deem you to be in compliance, no questions asked. This has led some borrowers to wonder if they should pay their loans back now out of an abundance of caution.

For some eligible borrowers, it may be worth the peace of mind to repay now, and those with loans of $2 million or more should evaluate this option knowing that their loans will be reviewed if they keep them. But if you’re a small business owner who applied in good faith and have the appropriate documentation, this warning is not directed at you. And, these warnings do not mean that a business which received a large loan should automatically give it back, only that you should carefully consider your options.

If you’re a bigger business, public or private, with ample reserves or credit options, though, this certification should make you think twice about applying or prompt you to consider returning loan funds you’ve already received. Those are the proverbial popcorn-burners that the all-office email is meant for.

After all, the guidance says, “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.” To me, that’s a pretty clear warning that if you’re nominally an eligible borrower but don’t need the loan, you should think carefully about proceeding.

No one wants to be the popcorn-burner.

*The repayment date has been extended from May 7, 2020 to May 14, 2020.

For more information regarding SBA loans and the PPP program, please visit: https://fghwlaw.com/covid-19-sba-loan-update-04-15-2020/

Ellen Williamson is of counsel at Farrow-Gillespie Heath Witter LLP. She has more than fifteen years of experience as an attorney, and has practiced probate, estate planning, and guardianship law since 2013. She spent much of her early career with the Small Business Administration Office of Disaster Assistance as liaison with federal law enforcement in the investigation and prosecution of disaster loan fraud. She earned a J.D. from SMU Dedman School of Law.

COVID-19? There’s an SBA loan for that UPDATE 04/15/2020

April 15, 2020/in Corporate Law/by Ellen Williamson

IMPORTANT UPDATE 04/15/2020

On April 3, the Paycheck Protection Program launched with much fanfare and some speed bumps as lenders struggled to adapt to new Interim Final Rule which had been released late the night before. Many applicants reported that their banks were not taking applications or were only taking from customers who had existing loans, and some bank websites couldn’t handle the heavy traffic. Meanwhile, the Interim Final Rule was short on detail on many important aspects, creating confusion as lenders and businesses struggled to get up to speed.

But as we get closer to the 2 week mark, with every passing day we get a little more guidance about the PPP loans. The Treasury Department has a Frequently Asked Questions page which is updated daily or nearly so with new questions added at the end. I would imagine that at some point, the questions will be reorganized topically rather than sequentially in the order answered. The SBA has also indicated intention to give more details about the loan forgiveness aspect of the program and the process of applying for it.

As the initial $349 billion in funding provided by the CARES Act gets closer to being fully obligated, negotiations continue between the House and Senate on providing additional funding and related measures. It’s also possible that the program may be amended to provide for more than 8 weeks of funding and to continue beyond the current June 30 end date.

Meanwhile, the EIDL program has had speed bumps of its own. While loan eligibility was for up to $2 billion and a $10,000 emergency grant was to be given to applicants within 3 days of applying, this program too is in need of further funds. Borrowers report that loans are being capped at $15,000 for now and that, rather than $10,000 per business, grants are being given for only $1,000 per employee up to $10,000. SBA has not stated as much officially, but borrowers have reported this response.

I’m reminded of an occasion in my time at SBA Disaster Assistance when we were awaiting new funding to be available before we could approve more loans and obligate the funds. That morning, loan officers had reviewed the loans and recommended them for approval and the attorneys reviewed them and, if approvable, worked them right up to the point of obligation. Then, once word came that the funds were available, we obligated a slew of loans. I wonder if something similar may be happening now, where loans are ready to obligate for higher amounts once the funding is there. If that’s the case, I would expect the loans to be increased relatively quickly once more funding is available.

If this seems like a lot to understand, it is! In the past few weeks I’ve listened to two webinars, read the CARES Act, the Interim Final Rule, and supporting documents, plus dozens of articles. I’ll continue to update this page as new information comes in.

In the wake of the COVID-19 pandemic, there’s been a lot of discussion of two different types of loans offered by the Small Business Administration (SBA) to help affected businesses.

The first, economic injury disaster (EIDL) loans, are offered through the SBA Office of Disaster Assistance and were made available through disaster declarations relating to COVID-19. The second, Paycheck Protection Program (PPP) loans, are offered through the traditional SBA 7(a) loan program and were authorized within the CARES Act recently passed by Congress and signed into law.

These two programs share the same broad goal of helping small businesses get through the coronavirus pandemic but differ in several important respects. While each is an SBA loan in name, they are different products, administered in different ways in different offices. It’s as if Ford Motor Company sold cars at some dealerships and motorcycles at others. While both are modes of personal transportation bearing the Ford name, they serve different needs.

Here’s a quick overview of these programs and how they work:

What’s the purpose of this loan?

EIDL: To provide working capital to help businesses cover financial obligations and operating expenses it would have been able to meet during the disaster period had the COVID-19 disaster not occurred.

PPP: To help small businesses meet payroll and other short-term operating expenses, such as rent, utilities, mortgage interest (not principal), and interest on debt existing before 2/15/2020.

Who’s eligible to apply?

EIDL: Certain small businesses, generally defined as having fewer than 500 employees and less than $35 million in revenue, private nonprofits, and Native American tribal small businesses. Some organizations, including lending or investment concerns, multilevel marketing (MLM) concerns, casinos, and religious organizations are not eligible.

PPP: Small businesses, nonprofits, and veterans’ organizations, generally defined as those which employ no more than the greater of 500 employees or the size standard established by the SBA for certain industries.

What’s the maximum loan amount?

EIDL: $2 million

PPP: $10 million. The PPP loan program was funded with $349 billion in the CARES Act.

What are the loan terms?

EIDL: Up to 30 years at 2.75% (nonprofits) or 3.75% (small businesses). Repayment deferred 6 months with interest accruing. As with all SBA disaster loans, COVID-19 EIDL loans have no fees or closing costs.

PPP: 2 years at 1% (Note: CARES Act had authorized up to 10 years at 4%, but Treasury has set terms at 2 years and 1% as of late April 2). 6-month deferral with interest accruing. No SBA fees, but lenders may have processing fees.

Is collateral required?

EIDL: Yes, general security interest in business assets will be used as collateral. Loans under $25,000 need not be secured. Note: this is an exception to SBA Disaster loan typical practice to require real estate as collateral.

PPP: No.

Must the owner(s) personally guarantee the loan?

EIDL: Yes, owners of >20% must guarantee the loan, for loans over $200,000.

PPP: No. But per Treasury guidelines: “***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***”

Can the loan be forgiven?

EIDL: No. But, you can get the first $10,000 as an emergency advance grant, which does not need to be repaid.

PPP: Yes, amount of forgiveness is calculated based on the amount spent on payroll costs, interest payments on mortgages, and payment of rent and utilities. It’s expected that to qualify for forgiveness, no more than 25% of proceeds should be used for uses other than payroll costs. Note that if you received a $10,000 EIDL emergency advance grant, the $10,000 grant will be subtracted from the forgiveness amount.

How can I apply? How is the loan administered?

EIDL: EIDLs are direct loans of US Treasury funds. Apply with the SBA Office of Disaster Assistance, not through a bank. The application form is online.

PPP: You can apply through an SBA-approved lender. These are SBA-guaranteed loans administered through banks and other lenders. Some banks are limiting PPP loan availability to only existing customers, while others will allow new customers.

Can I apply now? How long does the loan application process take?

EIDL: Yes. This program is already up and running. Applications are typically taking 2-3 weeks on loan processing to approval decision, plus another 5 or so for funding. Emergency grants are to be issued within 3 days of application to eligible applicants.

PPP: The CARES Act was signed into law on Friday, March 27. PPP loans are available from participating lenders as early as Friday, April 3, for small businesses and sole proprietorships and Friday, April 10, for independent contractors and self-employed individuals.

Some lenders are planning with a goal to approve, close, and fund loans on the spot, though mileage may vary on that. However, as Treasury did not release the final interim guidance on PPP loans until late on April 2, there are reports that some lenders are having issues with the roll-out on April 3, so some borrowers may find they cannot get applications in until next week.

Can I get both EIDL and PPP loans?

Yes. If you took out an EIDL between February 15, 2020-June 30, 2020, you can refinance it into a PPP loan and add the outstanding loan amount to the “payroll” portion of the PPP loan. Also, as noted above, if you accept the $10,000 EIDL emergency grant and then secure a PPP loan, the $10,000 grant will be subtracted from the forgiveness amount (with result that the EIDL grant was then, in effect, an advance on the PPP loan.)

It’s important to note that disaster loans, in general, must not duplicate benefits received from another source, and the PPP also does not allow for duplication of benefits.

What should I do?

Given SBA rules about duplication of benefits, if a business has already borrowed under PPP, some or all of that business’s EIDL eligibility may be reduced by the amount of the PPP loan, to the extent that the PPP loan covered losses the EIDL would otherwise cover. So, getting PPP first may obviate need or eligibility for EIDL.

However, you need not delay applying for EIDL. You generally have 60 days from loan approval to decide to accept an EIDL and can get extensions to give more time to consider. If you later qualify for a PPP loan you may be able to refinance that EIDL loan, which isn’t forgivable, into a forgivable PPP loan. So, to the extent your EIDL loan covered items which would be PPP-eligible, it appears your PPP loan would replace the EIDL loan.

Given that PPP loans can be for up to $10 million and EIDLs max out at $2 million, it’s possible that even if you get the max EIDL loan, you may still be able to get PPP funds. Likewise, you may have a need that isn’t eligible for PPP funds but for which you could get an EIDL. Put another way, if you created a Venn diagram of EIDL eligibility and PPP eligibility, there would be a great deal of overlap but not necessarily 100%.

Thus, it may be helpful to think about loan funding in several tiers. First, loan funds that need not be repaid. This includes the first $10,000 of EIDL funding and any portion of a PPP loan that is forgivable. Businesses should plan carefully to maximize this tier.

Second is loan funds that are not eligible for forgiveness. Under PPP, these loan funds incur 1% interest and have a 2 year repayment term. For needs that don’t fit within the PPP loan’s relatively narrow definitions, EIDL funds may serve as a backstop, with repayment terms of 2.75% (nonprofits) or 3.75% (businesses) of up to 30 years.

Some organizations may be eligible for one type but not the other. Religious organizations, for example, may apply for PPP but not EIDL. And some loan uses may be covered under EIDL but not PPP.

For more information on how to determine if you are eligible for the Paycheck Protection program, click here for the useful infographic prepared by the U.S. Chamber of Commerce.

Ellen Williamson is of counsel at Farrow-Gillespie Heath Witter LLP. She has more than fifteen years of experience as an attorney, and has practiced probate, estate planning, and guardianship law since 2013. She spent much of her early career with the Small Business Administration Office of Disaster Assistance as liaison with federal law enforcement in the investigation and prosecution of disaster loan fraud. She earned a J.D. from SMU Dedman School of Law.

New Guardianship Requirements

January 25, 2019/in Guardianship/by Ellen Williamson

This article was originally printed in Dallas Bar Association Headnotes, December 2018

On June 1, 2018, new statewide guardianship requirements took effect for those seeking to be appointed as a guardian. These new requirements are administered through the Judicial Branch Certification Commission (JBCC), the state agency tasked with overseeing guardians and guardianship programs.

The new requirements regarding registration, criminal background check, and training arise from a statewide audit of guardianship cases that revealed a high percentage of cases out of compliance and follow the trend in recent years toward increasing requirements for guardianships.

While implementation of the new guidelines may vary by Court and may evolve over time, current guidelines for Dallas County Probate Courts are as follows:

Registration

Prior to any hearing on a guardianship application, a proposed guardian must register with JBCC either online or by paper form. The registration form requests information about:

the proposed guardian, including name variations;
the proposed ward;
the proposed guardian’s attorney;
the guardianship case and Court in which it is pending;
the type of guardianship; and
the liquid assets held by the estate.

The form also asks questions relating to the proposed guardian’s character and any disqualifying history.

Criminal Background Check

Upon receipt and review of the registration form, JBCC determines which type of criminal background check is required. If both 1) the proposed guardian is a Texas resident and 2) the proposed ward’s liquid assets do not exceed $50,000, a name-based criminal history is sufficient. If, however, either the liquid estate exceeds $50,000 and/or the proposed guardian resides out of Texas or out of country, a fingerprint-based criminal history is required. When a fingerprint check is required, JBCC sends information to the proposed guardian about obtaining digital fingerprinting through the Texas Department of Public Safety (DPS). The DPS fingerprint results are sent to JBCC.

JBCC submits the background check results to the clerk of the county where the guardianship application is pending. The background check must be delivered to the Court at least 10 days before the hearing on the application for guardianship. Given JBCC’s high volume of registrations and background checks to process, the applicant’s attorney is advised to submit the registration forms and, as appropriate, obtain digital fingerprints, with sufficient lead time to ensure that proof of compliance is received timely by the Court.

The new JBCC criminal background check takes the place of the background checks which had previously been handled in Dallas County by the Probate Court Investigator’s Office. However, currently the Court Investigator’s office is still processing background checks on temporary guardianships.

Training

The third new requirement imposed upon proposed guardians and guardians is completion of the guardianship training module on the JBCC website. The training module covers topics including reasons why guardianship may be necessary, alternatives, types of guardianship, procedure to establish, duties and reporting requirements of guardians, and modifying, terminating, or closing a guardianship. After completion of the training, the proposed guardian receives a certificate which must be filed with the Court.

Section 1104.003 of the Texas Estates Code states that a Court may not appoint a proposed guardian who has not completed the training unless waived by the Court. Presently the training is only available online and in English, though JBCC anticipates making it available in other forms and languages. Until alternatives are available, waivers may be granted to applicants who lack internet access or do not speak English. Some Courts may allow the hearing but delay signing the Order until the training certificate is filed.

For new permanent guardianships, the training must be completed prior to appointment. For new temporary guardianships, the training must be done within 60 days of appointment.

Existing Guardianships

For guardianships granted prior to June 1, 2018, the registration and training must be completed prior to renewal of Letters of Guardianship.

Integration into Your Practice

At the initial consultation, you may wish to provide the following to your client:

a letter detailing the steps for registration, training and the background check;
the paper JBCC guardianship registration form;
a copy of the Bill of Rights for Wards;
the Minimum Standards for Guardianship Services;
the Dallas County Guardianship Case Information Sheet;
the Dallas County Guardianship Questionnaire; and
a list of links to resources and guides for serving as a guardian.

Once the Application for Appointment of a Guardian of the Person and/or Estate is filed, ensure your client promptly registers, obtains the background check, and completes the Court Investigator’s forms. These steps must be completed before the Court Investigator will visit the proposed ward and file their report.

Guardianship attorneys should familiarize themselves with these new requirements and advise clients about them early in the guardianship application process. By doing so, attorneys can avoid delays in their clients’ applications and ensure that clients are well-informed about their responsibilities as guardians.

Ellen Williamson is of counsel at Farrow-Gillespie Heath Witter LLP. She practices probate law, guardianship law, and estate planning. Ms. Williamson assists with the creation and delivery of many continuing legal education programs for attorneys and enjoys speaking about estate planning and probate topics for senior groups and others. She earned a J.D. from SMU Dedman School of Law.

Brian D. Hill practices at Law Offices of Brian Hill, PLLC. Ellen and Brian prepared this article for the Dallas Bar Association’s Headnotes publication after delivering a presentation about the new guardianship requirements to the September meeting of the DBA Probate, Trusts, & Estates Section. For more information on attorney Brian Hill, please visit https://www.brianhillattorney.com/.