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Monthly Archives: July 2015

What Do You Do When You Cannot Get the Changes You Need?

In a perfect world, a construction project is designed and constructed on time, within budget, and all concerned get what they bargained for. The owner gets the project it desired, and the designers and construction firms and suppliers receive the compensation agreed to, and the satisfaction of practicing their professions and skilled trades. To make this perfect result happen, the various parties make deals. Written contracts will usually spell out the basis for the performance promised and expected by the parties.

Negotiations set the tone of the project and can be frustrating when one party abuses its leverage. Tracy Kidder’s 1985 book House tells the story of the construction of a residential project from pre-design to completion, from the perspectives of the architect, the owners, and the general contractors. Among the many lessons to be learned from this classic book is the warning that winning an aggressive negotiation can mean losing. The owners beat the contractor down on many nickel and dime issues, conveying a lack of trust, and in the process they damaged the spirit of collaboration that is essential to project success. When problems came up later, the contractor was inflexible, and gave only what he had to. Many of the extras in workmanship and finish that might have been thrown in out of good will, didn’t happen.

The lesson is that a party with perceived leverage should not use that leverage to extract unrealistic and oppressive contract terms. What do you do when the other side acts like it never learned that lesson? It is a red flag when the other side will not negotiate—will not even discuss– important terms.

So what do you do? Walk away? Or take a calculated risk?

Walking away, if done well, can be the best decision. A respectful letter to the other side, addressed to a decision maker, thanking him or her for the opportunity to discuss the project, and explaining in a non-whining way the reasons why you needed certain concessions, and your decision not to risk default, will leave the door open for next time. Someone else will get the work, and probably not succeed. You will be remembered as having the integrity and the acumen not to proceed.

Taking a calculated risk cannot be absolutely ruled out, however. It may make sense if you have had experience with the other party and understand how they operate. If the benefit is great, and the risks can be managed with special attention, and the project is within your core-expertise, it is not unreasonable to take a risk even if the contract is not perfect. But be wary of the “planning fallacy.” We tend to be overly optimistic about our plans. We underestimate the time necessary to complete tasks, and we discount unknown factors. When the planning fallacy kicks in, we rationalize that we do not need fair provisions in the contract because there will not be problems.

In the end it may be wise to discipline yourself not to take certain risks—ever. If the other side will not address those issues with you, look for another opportunity.

The Benefits of Marriage in Texas

With the U.S. Supreme Court ruling in Obergefell v. Hodges, some changes are in store for the Texas Family Code. The Texas Family Code’s prohibition against the issuance of a marriage license for persons of the same sex in 2.001 (b) has been declared unconstitutional. The prohibition of the recognition of same-sex marriage or civil unions found in 6.204 (b) would also be unconstitutional. On the other hand, Title 1 “the Marriage Relationship” of the Family Code is replete with the gender neutral term “spouse”. Regardless of your political or moral stance on the issue, the practical consequence of same-sex marriage will have a significant effect on the practice of family law throughout the country. Certainly the ruling has been a blessing for those who want to express the depth of their commitment through the institution of marriage. However, some of the benefits of marriage may not be intended. Some of the benefits might include:

  • Acquire Community Property and have non-exempt community property subject to liabilities incurred by the other spouse before or during marriage. Texas Family Code 3.202(c) All community property is subject to tortious liability of either spouse incurred during the marriage. Texas Family Code 3.202 (d)
  • Incur liabilities for debts of necessities merely because you are married. Texas Family Code 3.201(a)(2).
  • File jointly for bankruptcy – talk to a Bankruptcy Attorney for the advantages for this benefit.
  • If you or your spouse commit a crime, you are protected under spousal testimonial privilege (one spouse can’t be forced to testify against the other in court)
  • File joint tax returns and be jointly and severally liable for the tax debts of your spouse. Talk with your tax advisor about this one.
  • Adopt Children, Get divorced, Pay Child Support, and see your children every other weekend (visitation may need to be supervised)
  • Prosecute or Defend Child Support Obligations. Spend time in jail for not supporting your child.
  • Pay Spousal Support and Deduct alimony payments from federal income tax.
  • Engage in contested litigation involving Temporary Restraining Orders, Fraud on the Community Estate, Reimbursement, and Determinations of separate vs. community property, Tracing, Commingling and other expensive proceedings.
  • Request the Court to make a Just and Right Division of your Pension, 401k, IRA’s or any other community assets.

Marriage carries with it privileges and responsibilities.  If you are contemplating affirming your commitment to another person, agreements can be prepared to address some of the responsibilities listed above.   Let us know if we can advise you in this process.

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Gordon&Sykes Benefits of Marriage in Texas


Federal Estate Tax & Gift Tax Laws Update

New changes in the law could mean updates in your will.

Substantial changes have occurred to the federal estate tax and gift tax laws. There has been a substantial increase in the estate and gift tax exemption and a reduction in estate tax rates. The current estate and gift tax exemption is now $5,430,000 and this is a very good thing for taxpayers.

Previously the federal exemption was smaller and the rates for estate taxes were higher than income tax rates. To minimize federal estate and gift taxes a bypass trust was used, family limited partnerships or LLC’s were set up and making gifts of interests to family members were made to save taxes. Now these devices could have adverse income tax consequences in estates worth less than the federal exemption amount.

In addition to the increased federal exemption, Congress enacted legislation allowing a surviving spouse to apply any unused exemption from the estate of the first spouse to die against the estate of the second spouse to die. This new concept is called portability and could eliminate the need for a bypass trust.

In marital estates worth less than the federal exemption amount, a married couple can have an estate plan that leaves all of the property to the surviving spouse, either outright or in trust. The marital estate is not taxed when the first spouse dies because all property would qualify for the unlimited marital deduction. When the surviving spouse dies, the entire estate receives a new basis for federal income taxes. When the beneficiaries sell the property, they will owe less income tax because the basis for calculating gain has increased. The benefit of receiving a step up in basis does not apply to assets left in a bypass trust.

For all but the very largest estates it may be desirable to change your plan and eliminate the bypass trust in order to achieve the step up in basis for income tax purposes and rethink the use of family limited partnerships. By increasing the value of the estate we can obtain a higher basis for income tax purposes in cases where increasing the value of the estate does not incur estate taxes.

Bypass trusts may still be useful with estate valued at less than the federal exemption. A bypass trust could allow distributions to beneficiaries other than the surviving spouse. A bypass trust can be beneficial for Medicaid planning to qualify a surviving spouse for governmental benefits for long term care and also lock in the use of the federal exemption of the first spouse to die.

The new changes have created new opportunities to save income taxes and have given taxpayers more choices which means an even greater need to review and update existing estate plans.

You may also have experienced changes on account of the birth or death of a family member, changes in the marital status of you or a family member, or changes in the financial condition of you or a family member. All of these changes make it prudent for you to review your will and contact us for consultation.

Please review your wills in light of your current circumstances to be sure that they still reflect your wishes and desires. If you would like to make changes or discuss any questions regarding changes in the federal estate and gift tax laws, please do not hesitate to call me.

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Gordon&Sykes Power of Attorney Policy Update


Power Of Attorney Policy Update

At Gordon & Sykes, LLP, we are committed to keeping our clients up to date on policy changes that might affect them.

For example, several years ago we prepared a power of attorney for a client giving their designated agent the authority to act on their behalf. Since the document was prepared, many financial institutions have instituted new policies requiring powers of attorney to have been executed in the last three to five years. Also, the legislature has made revisions to the statutory forms for power of attorney. Although the law is clear that older powers of attorney are valid, there is no requirement that a person accept your power of attorney.

In addition, circumstances may have changed regarding the person you named as
your agent and it may be necessary to change your agent.

For these reasons, it is prudent that you update your power of attorney.

Click image below to view full update in PDF format.
Gordon&Sykes Power of Attorney Policy Update


Disputes in Construction Law

Disputes are resolved by a decision maker— a judge, arbitrator, or senior manager— who reviews the history of the dispute, the claims of the parties, and the damages that are requested. The parties before the decision maker must present the history of a dispute to the decision maker in the form of a story, and all stories have a structure: the beginning, middle and end.

A party’s participation in a dispute resolution process also has the three phases of a story. The beginning phase is the investigation and analysis performed by a party alone, or with parties aligned with it, to understand what happened and to articulate claims and defenses for presentation to the decision maker for an award or settlement. Construction disputes are almost always complex. It’s obvious that disputes arise because something went wrong, and there is disagreement about who is at fault (and blame may be shared, when multiple causes converge to produce a problem), or how the problem can be cured, or the extent of damages, measured in money. Investigating a dispute is complex because of the multiple parties, shared responsibilities, and technical circumstances of each unique story. The investigation may be challenging because of a lack of records, or too many, unorganized records. Each dispute is truly unique.

The beginning phase includes planning. The party must identify the unknown information that might be obtained from adverse parties, and cost-effective ways to obtain it from them or generate the information from independent sources.

The middle phase is selection of a decision maker and the forum for resolution of the dispute, the formal statement of claims and defenses, and the orderly and effective discovery of the unknown facts and admissible evidence. The middle phase usually includes the crucial process of mediating the dispute.

The end phase is the presentation of the story of the dispute to the decision maker. Effective presentation is based on clarity and credibility. The claims and supporting evidence must be organized to support the party’s narrative of what went wrong, why, who is responsible, and what were the consequences and costs of remedying the problems. This presentation will almost always rely on experts and demonstrative evidence, as well as testimony, to give weight to a party’s claims.

Dispute resolution is costly, but ineffective resolution is even more costly. For that reason, preventing a dispute should always be a priority. Experience in resolving disputes yields valuable lessons learned that can be used to perform dispute prevention, starting in the project planning process. Good record keeping, effective scheduling and coordination, and frequent project meetings can prevent problems, or at least greatly aid the investigation after they occur.

Avoiding Confrontation

During a construction project, having a clear and concise contract is the best way to prevent any confusion from occurring. However, situations can arise where further guidance is needed. In order to prevent impediments to the project or creating the possibility for a confrontation or dispute to occur later, a few steps can be taken:

  1. Good Management

Proactive planning and managing future work can set a project on the path to success. Keeping track of the schedule and knowing the boundaries of a project will allow teams to raise early concerns without confrontation.

  1. Clear Contract Documentation

Some issues can be resolved be reviewing the documentation of the contract again. Ambiguous documentation can lead to confusion and mistakes; detailed, descriptive documentation can set clear guidelines and further reduce the chance of a dispute.

  1. Partnering

Partnering is a broad term relating to practices used to increase collaboration. These practices can be used to create an optimal environment for cooperation with the project team. Excellent cooperation can lead to a constant flow of information that allows issues to be prevented or dealt with quickly.

Deals and Disputes

Lawyers for clients in the construction industry need skills on two fronts. They are called on to represent clients in making and interpreting contracts—the “deal.” And they also represent their clients when disagreements arise—before and during lawsuits and arbitrations—the “disputes.” Having “deal” skills and “dispute” skills facilitates both areas of practice. For example, in negotiating a deal, drafting a contract and assisting in administrating a project, the attorney draws on knowledge about dispute resolution processes as a backstop to the deal formation and interpretation function.

The deal is a legally enforceable agreement between parties. In the construction industry, deals are not always as explicit as in other commercial transactions. Projects often start before a formal contract is signed, which can cause problems in identifying scope and timing of performance, not to mention the terms of compensation. This predictably leads to disputes.

In representing a party in a dispute, counsel must understand the deal as expressed in the contract and customary practices in the industry. He or she must be able to explain to judges, lay people on juries, mediators and arbitrators what the deal was, correctly identify what went wrong, who is responsible, and what the damages are.

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