Law Bulletin | January 8, 2021


As you may be aware, Proposition 19 passed by a slim margin in November’s election and has, at least in part, significant ramifications for use of the parent-child exclusion from property tax reassessment on transfers of real estate between parents and children. This component of the new law takes effect on February 16, 2021.

California property tax laws require a reassessment of the value of property for tax purposes whenever real property changes ownership. The property value for purposes of determining the property tax due becomes the fair market value of the real property transferred unless an exception applies. Before Prop 19 becomes effective, a parent may transfer his or her principal residence to a child by gift, sale, or as a result of death, and the property’s assessed value — and property taxes due — will remain unchanged. Additionally, before Prop 19 becomes effective, a parent may exclude from reassessment transfers to a child or children of real property other than a principal residence, such as a vacation home, family farm, or commercial property.  This exclusion is limited to $1 million of the assessed value of the transferred real property. Similar though more limited exceptions apply to grandparent to grandchild transfers.

Prop 19, effective February 16, 2021, changes this by:

  1. Requiring that the child or children occupy the parent’s principal residence as their own principal residence. If they do not, the property will be reassessed to its fair market value upon transfer.  Furthermore, even if the child occupies the residence as his or her primary residence, the exclusion from reassessment is limited, the calculation of which depends on the property’s current fair market value and the property’s assessed value. Other limitations apply as well.
  2. Providing that certain family farms may also claim a limited exclusion from reassessment similar to the exclusion applicable to transfers of a principal residence.
  3. Requiring that all real property other than a principal residence, such as vacation homes, rentals, commercial property, and the like, be reassessed to current fair market value upon transfer from parent to child. There are no exceptions.

By way of examples*:

Transfer Old Law New Law
Mom transfers $2 million principal residence to son at death.  Son lives out of the area and wants to rent out the house. The assessed value of the principal residence is $500,000 and Mom’s property taxes are $5,000/year. Exempt from reassessment. Son pays $5,000/year in property taxes. Property is reassessed at Fair Market Value (FMV). Son pays $20,000/year in property taxes.
Mom transfers $2 million principal residence to son at death. Son moves in and claims the home as his principal residence.  The assessed value of the principal residence is $500,000 and Mom’s property taxes are $5,000/year. Exempt from reassessment. Son pays $5,000/year in property taxes. Property is partially reassessed. Son pays $10,000/year in property taxes.  Under Prop 19 formula, new tax base is $1,000,000.
Mom transfers $1.4 million principal residence to son at death. Son lives out of the area and wants to rent out the house. The assessed value of the principal residence is $500,000 and Mom’s property taxes are $5,000/year. Exempt from reassessment. Son pays $5,000/year in property taxes. Property is reassessed at FMV. Son pays $14,000/year in property taxes.
Mom transfers $1.4 million principal residence to son at death. Son moves in and claims the home as his principal residence.  The assessed value of the principal residence is $500,000 and Mom’s property taxes are $5,000/year. Exempt from reassessment. Son pays $5,000/year in property taxes. Exempt from reassessment. Son pays $5,000/year in property taxes.
Mom transfers $3 million commercial property to son at death. The assessed value of the property is $900,000 and Mom’s property taxes are $9,000/year. Exempt from reassessment. Son pays $9,000/year in property taxes. Property is reassessed at FMV. Son pays $30,000/year in property taxes.

*These examples are for illustration purposes only. Other factors not included here are additional assessments (bonds, parcel tax measures), and routine annual assessed value increases.

As a result of this law change, many clients are reaching out to discuss strategies to utilize the parent-child exclusion from reassessment now, prior to the February 16, 2021 change in the law. If you wish to explore your options, please contact your attorney as soon as possible to allow adequate time to complete any transactions ahead of the February 16, 2021 deadline.

From the Estate Planning Team:

Barbara Gallagher, Albert Handelman, Katherine Jeffrey, Kevin McCullough, Mark Miller, Candice L. Raposo, and Carmen Sinigiani.

Spaulding McCullough & Tansil LLP

Zoom Shareholder Meetings? | October 23, 2020

Zoom Shareholder Meetings?

Many of us probably have a bit of Zoom fatigue.  At least I do, even when there are no Zoom bombs and everyone knows how to mute/unmute themselves.  But with the year end approaching, we recommend that annual shareholder meetings be held via Zoom or other electronic means.

Such virtual meetings must meet certain statutory requirements, some of which were simplified by an executive order issued last month by Governor Newsom.  This Law Bulletin discusses the requirements for California corporations, though Delaware corporations have similar requirements.  Instructions on how to mute/unmute are not included.

The initial step is to determine whether the corporation’s bylaws or articles prohibit such virtual meetings.  Once those organizational documents have been reviewed (and amended if necessary), the other legal requirements can be addressed.

The next steps are based on sections 20, 21, 600(a), 600(e) and 601 of the California Corporations Code (the “Code”), some of which were suspended by Executive Order N-80-20, para. 3 issued by Governor Newsom on September 23, 2020 (the “Order”).  These next steps are listed below.

  1. Board Action.  The board authorizes such a meeting, consistent with Code section 600(a).  The board can also adopt guidelines and procedures to be used during such meeting.  These board decisions should be memorialized by a formal resolution.
  2. Opportunity to Participate.  The corporation implements “reasonable measures to provide shareholders a reasonable opportunity to participate,” consistent with Code section 600(e).  This requirement was clarified by the Order, which provided that “the corporation shall afford a “reasonable opportunity to participate in the meeting” under Corporations Code section 600, subd. (e), by:
    1. Not imposing unreasonable obligations on shareholders seeking to participate in the shareholder meeting; and
    2. Providing shareholders, as closely as reasonably possible, an opportunity to participate equivalent to the ability of in-person attendees at the corporation’s last in-person meeting, including any ability to vote, ask questions, be heard by other shareholders, or advance proposals. In addition, if such a meeting considers any significant business transaction, controversial proposal, counter-solicitation, or other matter of a sort not considered at the last in-person meeting, the corporation shall provide as closely as reasonably possible an equivalent ability to participate as in-person attendees at the last in-person meeting to consider such a matter.”
  3. Maintain Record.  The corporation maintains a record of any vote or action taken at such meeting, consistent with Code section 600(e).
  4. Notice of Meeting.  The notice of shareholder meeting must include the “means of electronic transmission” for the meeting, consistent with Code section 601.  (As discussed below, the Order suspended the need for shareholder consent to a virtual meeting but not the need for shareholder consent to receive notices by email.)

If the Order was not in effect, the corporation would also need to request and obtain shareholder consent to such a meeting.  These requirements are often the most difficult to meet.  The request would need to meet these requirements, consistent with Code sections 20 and 600(e), respectively:

  • “[T]he consent to the transmission has been preceded by or includes a clear written statement to the recipient as to (a) any right of the recipient to have the record provided or made available on paper or in nonelectronic form, (b) whether the consent applies only to that transmission, to specified categories of communications, or to all communications from the corporation, and (c) the procedures the recipient must use to withdraw consent.”
  • “Any request by a corporation to a shareholder pursuant to clause (b) of Section 20 for consent to conduct a meeting of shareholders by electronic transmission by and to the corporation shall include a notice that, absent consent of the shareholder pursuant to clause (b) of Section 20, the meeting shall be held at a physical location in accordance with subdivision (a).”

The Order facilitates virtual meetings by allowing a corporation to skip both the logistics of sending the request that meets these requirements, as well as the sometimes bigger challenge of obtaining each shareholder’s consent.  As mentioned above, the Order does not change the requirement to request and obtain shareholder consent for other electronic transmissions (like notice of meetings), so the logistics and challenges described above remain for other matters.  Now might be a good opportunity to address those additional requirements to more fully facilitate electronic communication with your shareholders beyond the annual meeting.  Regardless, now is the time to take steps to facilitate virtual annual meetings.  Zoom fatigue notwithstanding.

DJ Drennan

Spaulding McCullough & Tansil LLP

Corporate Team, Business Law Group

Douglas J. (DJ) Drennan | Keenan J. McCullough | Kevin J. McCullough | Donald L. Winkle

Law Bulletin | June 8, 2020

Paycheck Protection Program Flexibility Act

On June 5, 2020, the President signed into law the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act), which makes a number of changes to the Paycheck Protection Program (“PPP”) as follows:

Extended Deadline for Using Loan Proceeds for Forgiveness
The Flexibility Act extends the loan forgiveness period (the period during which the borrower can incur and pay costs that count toward forgiveness of loan principal) from 8 weeks to 24 weeks, although the covered period cannot extend beyond December 31, 2020.  Borrowers that already have a PPP loan may elect to use an 8 week period instead of the 24 week period if they prefer.

Decrease in Percentage of Loan Proceeds Used for Payroll
Borrowers are only required to use 60% of the loan proceeds for eligible payroll costs, as opposed to the previous requirement of 75%.  As currently drafted, the Flexibility Act provides that if the borrower does not meet the 60% threshold, the borrower would not be eligible for any forgiveness whatsoever.  This appears to be an error in drafting, and Senator Rubio and other lawmakers have indicated that corrections will be made (presumably, through further regulations) so the current “sliding scale,” whereby the nonpayroll portion of forgiveness amount is reduced if the payroll portion does not meet the required minimum percentage – will remain in effect.

Extended Loan Maturity Date
The term for a loan to repay any amount not forgiven has been extended from 2 years to 5 years.  It appears that this provision only applies to borrowers whose PPP loans are disbursed after the June 5, 2020 enactment of the Flexibility Act.  With respect to already existing PPP loans, the Flexibility Act allows lenders and borrowers to extend or otherwise modify the loan maturity date if they agree to do so.

Extended Deferral of Loan Payments
The Flexibility Act extends the deferral period for payments of principal, interest and fees (previously a minimum of 6 months, up to a maximum of 1 year) to the date on which the amount of loan forgiveness is remitted to the lender by the SBA.  Borrowers that do not apply for forgiveness have 10 months from the last day of their applicable covered period before principal, interest and fee payments commence.

Payroll Tax Deferral
The Flexibility Act removes the ban on borrowers whose loans were partially or completely forgiven from deferring payment of payroll taxes.  The payroll tax deferral is now open to all PPP borrowers.

Safe Harbor for Rehiring Workers
Loan forgiveness under the PPP remains subject to a reduction proportionate to any reduction in the borrowers full-time equivalent employee (“FTE”) level, as compared to the FTE level during a specified earlier reference period.  However, the Flexibility Act extends the existing safe harbor deadline to December 31, 2020; borrowers who furloughed or laid-off workers will not be subject to a loan forgiveness reduction due to a reduced FTE level if the borrower restores its FTE level by December 31, 2020.

New Exemptions From Loan Forgiveness Reduction Penalties
The forgiveness amount will not be reduced due to a reduced FTE count if the borrower, in good faith, can document that:

  1. The borrower attempted but was unable to rehire individuals who had been employees on February 15, 2020, and the borrower was unable to hire “similarly qualified employees” before December 31, 2020; or
  2. The borrower was unable to return to the “same level of business activity” as prior to February 15, 2020, due to sanitation, social distancing, and worker or customer safety requirements.

If you have questions about the Paycheck Protection Program or the Flexibility Act, contact our attorneys through our website at or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | May 26, 2020

PPP Loan Forgiveness – What Happens If My Employee Turns Down My Offer To Return To Active Employment?

Many employers who laid off employees due to loss of business caused by the COVID-19 pandemic have since received a Paycheck Protection Program (“PPP”) loan.  One of the very attractive elements of this loan program is the potential for forgiveness from repayment of some or all of the loan proceeds if the employer brings its workforce back to pre-COVID-19 levels and spends 75% of the proceeds on payroll during the eight week period following the loan origination.  The problem?  Some employees are refusing the offers of reemployment.

On May 22, 2020, the Small Business Administration (“SBA”) and the Treasury Department issued an Interim Final Rule addressing this issue.  The regulations provide that employees who refuse an employer’s offer of reemployment may be excluded from the loan forgiveness reduction calculation if certain requirements are met.

In calculating the loan forgiveness amount, a borrower may exclude any reduction in full- time equivalent employee headcount that is attributable to an individual employee if:

  • the borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
  • the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
  • the offer was rejected by such employee;
  • the borrower has maintained records documenting the offer and its rejection; and
  • the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.*

*A footnote in the regulations states “Further information regarding how borrowers will report information concerning rejected rehire offers to state unemployment insurance offices will be provided on SBA’s website.”

To avoid any ambiguity in case the employee fails to respond to the rehire letter, we recommend that the written offer advise the employee of the last day to respond, and that failure to respond will be treated as a refusal to return to work.  The offer should also include a statement that the employer is required to report a refusal to return to work to the Employment Development Department which may result in the individual being ineligible for continued unemployment benefits.

If you need help rehiring your employees or additional information about PPP Loan Forgiveness, contact our attorneys through our website at or call (707) 524-1900.  We are here to help.

Lisa Ann Hilario
Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | May 19, 2020

PPP Loan Forgiveness Application Issued

On May 15, 2020, the Small Business Administration and Treasury Department released the Loan Forgiveness Application (“Application”) borrowers must complete in order to have their Paycheck Protection Program (“PPP”) loans forgiven.  The Application includes information about the costs that are eligible for forgiveness and instructions for calculating those costs, using the following forms:

  • PPP Loan Forgiveness Calculation Form (“Calculation Form”) and instruction sheet;
  • PPP Schedule A (“Schedule A”) and instruction sheet;
  • PPP Schedule A Worksheet (“Worksheet”) and instruction sheet;
  • Documents Each Borrower Must Submit with its PPP Loan Forgiveness Application; and
  • Optional PPP Borrower Demographic Information Form.

The Worksheet is used to collect the information needed to perform the calculations in Schedule A, and the information on Schedule A is used to complete the Calculation Form.  Accordingly, setting aside the optional demographic information sheet, the Application is best prepared in reverse.

The Application includes a number of new features, and provides clarification of some PPP provisions.

New Features

Alternative Covered Period
The covered period dictates the time frame for expenses that qualify for forgiveness.  The CARES Act and related regulations provided only one covered period, that being the eight week period beginning on the date of the first loan disbursement (the “Covered Period”).  The Application gives borrowers with a weekly or biweekly payroll schedule the option to calculate eligible payroll costs using an alternate eight week period that begins on the first day of the borrower’s first pay period following loan disbursement (the “Alternative Covered Period”).  This option applies only to payroll costs; eligible nonpayroll costs must be paid or incurred during the Covered Period.

Non-Cash Compensation for Owners Excluded
Non-cash compensation included in the CARES Act’s definition of payroll costs includes payments for health insurance, retirement benefits and employer-paid state and local taxes assessed on employee compensation.  The Application makes a distinction between the treatment of non-cash compensation to employees that is paid for by an employer, and non-cash compensation for business owners who operate as S-Corporations, partnerships, or self-employed individuals.  Pursuant to Schedule A, such non-cash compensation for employees is included in the calculation of an employer’s payroll costs.  However, payroll costs for business owners consists only of the “total amount paid to owner-employees/self-employed individual/general partners.”

Limitation on Owner’s Compensation
The amount paid to owner-employees, self-employed individuals and general partners is capped at the lower of $15,385 (the eight week equivalent of $100,000 per year), or the eight week equivalent of their 2019 compensation.


Eligible Nonpayroll Expenses
The Application confirms that eligible payments for rent include business rent or lease payments for personal property, as well as real property.  The Application also provides more detail regarding eligible utility payments, which are identified as “business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.”

Forgiveness of Expenses Paid or Incurred During the Covered Period
Since the inception of the PPP, it has been unclear if forgiveness is available only for payroll and eligible nonpayroll expenses that were paid by the borrower during the eight week forgiveness period, or if forgiveness is also available for costs that were incurred during the eight week period, but not paid during that time.  The Application allows borrowers to request forgiveness for both.  However, expenses that were incurred but not paid during the eight week period, will be forgiven only if those expenses are paid by the next regular payroll or billing date.

Forgiveness Reductions
The Application provides instructions for determining if the loan forgiveness amount will be reduced based on a reduction in the size of the borrower’s workforce as measured by the borrower’s “full-time equivalency” (“FTE”); if the borrower qualifies for the FTE Reduction Safe Harbor; and if the loan forgiveness amount will be reduced based on reductions in employees’ salaries or hourly wages.

Calculation of FTE
The Application clarifies that in calculating the borrower’s FTE, a “full time” employee is one who is paid for a 40 hour week.  The Application also explains that a borrower’s FTE is based on the FTEs of its individual employees, and an employee’s FTE is calculated by (1) determining the average number of hours paid per week to that employee; (2) dividing that number by 40; and then (3) rounding to the nearest tenth, with the maximum FTE capped at 1.0.  Borrowers may opt for a more simplified calculation under which all employees who are paid 40 hours or more per week have an FTE of 1.0, and employees who are paid less than 40 hours per week have an FTE of 0.5.  The method chosen must be used consistently throughout the application.

In a press release announcing the publication of the application, the SBA noted that it will soon issue regulations and additional guidance for borrowers on completing the forgiveness form, as well as guidance for lenders regarding their responsibilities with respect to forgiveness.

If you need additional information about PPP Loan Forgiveness, contact our attorneys through our website at or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | May 13, 2020

New Guidance for PPP Loan Holders Concerned About the Certification of Necessity

In our May 1, 2020 Bulletin, we reported on the Small Business Administration’s increased scrutiny of Paycheck Protection Program (“PPP”) borrowers’ certifications that their PPP loans were “necessary,” and Treasury Secretary Mnuchin’s announcement that the SBA will audit every loan over $2 million.  With this news, many businesses became concerned about their ability to demonstrate the necessity of their loans, and in turn, are considering whether they should keep the loans or return them pursuant to the safe harbor provision included in FAQ 31, which allows borrowers to return their loans by May 14 (an extension of the original May 7 deadline).

This morning, the SBA/Treasury issued updated Frequently Asked Questions for Lenders and Borrowers (“FAQs”), adding much needed guidance regarding the certification of loan necessity.  In a move that will greatly relieve the many PPP borrowers who have been trying to decide if they should return their loans before the May 14, 2020 deadline, FAQ 46 provides a new safe harbor for all loans with a principal amount of less than $2 million.  Pursuant to FAQ 46, borrowers with loans of less than $2 million will be deemed to have made the certification concerning the necessity of their loan request in good faith.  Accordingly, when they apply for forgiveness of their loans, borrowers with PPP loans of less than $2 million will not be required to explain or document their need for the loan.

FAQ 46 explains that the SBA determined that this safe harbor is appropriate because borrowers with loans of less than $2 million are less likely to have access to alternate, adequate sources of funds.  More tellingly, perhaps, FAQ 46 notes that given the large volume of PPP loans, this new safe harbor will allow the SBA “to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.”

FAQ 46 also has good news (albeit not quite as good) for borrowers with loans greater than $2 million, providing that although such loans will be subject to SBA review, borrowers may still have an adequate basis for making the required good-faith certification, regardless of the amount of the loan.  Also, if the SBA determines that a borrower lacked an adequate basis for the required certification, the SBA will seek repayment of the outstanding PPP loan balance and the loan will not be forgiven, but as long as the borrower repays the loan, the SBA will not seek civil penalties or pursue criminal charges against the borrower.

In sum, pursuant to FAQ 46: (1) borrowers with loans of less than $2 million will be deemed to have made the required certification regarding the necessity of the loan in good faith; and (2) borrowers with loans greater than $2 million will have their loans reviewed, but if the SBA concludes that such a borrower did not have a sufficient basis for making the certification of necessity, the SBA will not seek civil penalties or pursue criminal charges as long as the borrower repays the loan.

If you need additional information about the FAQs or help determining appropriate documentation to support your certification and respond to potential SBA requests for relevant information and documents, contact our attorneys through our website at or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | May 11, 2020

Has COVID-19 Made Your Contract Unenforceable?

Contracts and written agreements between people or entities are a common part of everyday life.  What happens when an unforeseeable event, commonly referred to as “force majeure” or “an act of God” occurs and makes it either difficult or impossible for you to do what you agreed to do?  Or, what do you do if the party you have a contract with comes to you asking to be relieved from their contractual obligations? This can play out in many different scenarios, including contracts involving goods in the supply chain, or leases where a tenant whose business has closed due to Shelter-in Place (“SIP”) orders has asked to be relieved of paying rent.

As we approach the eighth week since California first issued its SIP Order, we are seeing more and more cases where a party is arguing that COVID-19 and the related SIP order constitutes a “force majeure” event, which should relieve them from their contractual obligations.

Generally, courts have viewed triggering events that qualify as a force majeure event narrowly, and whether or not a force majeure defense will be successful typically boils down to the express language in the contract.  Some contracts include a force majeure clause, and others do not.  Even if a contract does include a force majeure clause, not all clauses are created equal and the vast majority fail to list a pandemic, like COVID-19, as a force majeure event.  The more specific the force majeure clause, the stronger the force majeure defense.  If the force majeure clause does not list a pandemic as a triggering event, it is unlikely that a court would find that COVID-19 relieves a party of their contractual obligations under a force majeure defense theory.

Even if the contract contains a force majeure clause that expressly lists a pandemic like COVID-10, as a triggering event, that party must still be able to show that COVID-19 has made their ability to perform their obligations under a contract truly impossible or impracticable.  It is not enough to argue that COVID-19 made it more difficult or costly to perform one’s contractual obligations.

Ultimately, whether a force majeure defense is viable depends on the express language of the contract, and whether COVID-19 has caused it to be impossible or impracticable for a party to perform their contractual obligations.  If you find yourself in a dispute regarding whether or not COVID-19 excuses performance under a contract, contact Pamela Stevens or another SMT attorney through our website at or at (707) 524-1900. We are here to help.

Pamela Stevens

Spaulding McCullough & Tansil LLP

Law Bulletin | May 1, 2020

New Guidance Issued:  Required Support for Borrower “Certifications of Necessity” for Paycheck Protection Program Loans

Applicants for Paycheck Protection Program (“PPP”) loans are required to make a good faith certification that “current economic uncertainty makes this loan necessary to support the ongoing operations of the Applicant.”  Following several high-profile media stories about how large publicly traded companies were able to obtain PPP loans, on April 23, the Small Business Administration (“SBA”) and the Treasury issued updated FAQs with additional guidance regarding this certification of necessity.

FAQ 31 states that borrowers must make the certification of necessity 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.”  FAQ 31 also provides a limited “safe harbor” for borrowers who are uncertain about their ability to make or support a certification of necessity by providing that, “any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020, will be deemed by the SBA to have made the required certification in good faith.”

On April 24, the Treasury issued new Interim Final Rules (“IFRs”) that formalized FAQ 31, including the safe harbor provision.  On April 28, 2020, Treasury Secretary Steven Mnuchin announced that the government will be performing a “full audit” of every loan over $2 million, prior to forgiveness.  As of April 16, 2020, there were at least 25,000 loans of that size.

Although FAQ 31 and the IFRs were apparently issued in response to negative publicity regarding PPP loans made to large public companies, FAQ 31, the IFRs and the audit plan announced by Secretary Mnuchin are not limited to large or publicly traded companies.  In light of the heightened scrutiny on borrowers’ certifications regarding the necessity of their loans, it is advisable for borrowers – especially those with loans in excess of $2 million that are subject to audit – to review their circumstances and assess whether loans are “necessary” under the guidelines provided by FAQ 31, or whether the borrower should consider returning the PPP proceeds before the expiration of the “safe harbor” period on May 7.

If a borrower decides to keep the loan proceeds, the borrower must be prepared to explain why current economic conditions make a PPP loan necessary to support the borrower’s ongoing operations, after taking into account the borrower’s current business activities and whether the borrower has access to other sources of liquidity that are both sufficient to support ongoing operations, and not significantly detrimental to the business.  The borrower should also be prepared to present documentation to support its explanation.  That documentation can be in the form of an internal memorandum, a report to its Board of Directors or an attachment to the application for forgiveness, but in each case, supporting records should be included.

If you need additional information about FAQ 31 or help determining appropriate documentation to support your certification and respond to potential SBA requests for relevant information and documents, contact our attorneys through our website at or call (707) 524-1900.  We are here to help.

Terry Sterling

Spaulding McCullough & Tansil LLP

Law Bulletin | April 30, 2020

Business Interruption Insurance – Does It Cover Losses Associated with COVID-19?

As California’s shelter-in-place order is likely to extend past May, many businesses are beginning to explore whether their insurance policies include “business income” or “business interruption” coverage.  Such coverage is a feature of commercial property insurance policies and is designed to protect against the loss of business income as the result of a “covered loss.”

Generally, for coverage to apply, a business must show a suspension of operations, as well as a direct physical loss of or damage to property which was caused by a “covered loss.”  We are seeing that insurance companies are initially attempting to deny coverage on the grounds that most businesses did not suffer physical loss or damage to their properties.  Instead, the business losses are tied to the State’s shelter-in-place orders.  Further, many basic policies do not identify viruses as a “covered loss” and may even specifically exclude coverage for viruses.  Despite these challenges, businesses across the country are already starting to push back against coverage denials and lawsuits have been filed in many jurisdictions.

Ultimately, whether coverage applies depends not only on the exact terms of the policy and individual circumstances, but how these issues will be interpreted by courts.  Due to the extensive losses incurred by so many business nationwide, this will be a closely watched, and likely heavily litigated, issue.

If you believe you may have business interruption coverage, it is important to act quickly.  If you need help or additional information regarding business interruption coverage relating to the COVID-19 pandemic, you may email us through our website at or contact us at (707) 524-1900.  We are here to help.

Stephanie Rothberg

Spaulding McCullough & Tansil LLP

Estate Planning in a Challenging Time | April 2, 2020

Estate Planning in a Challenging Time

To our Clients and Friends:

It is not uncommon for estate planners to be contacted by near-frantic clients hoping to quickly update their estate plans as they prepare to leave home for a vacation.  But we are not used to clients contacting us in a similarly panicked state because they have to stay at home.  Yes, these are different times, and we hope that you and your loved ones are healthy, safe and comfortable.

If you find that the current world health crisis has you wondering if your estate plan is up to date (or simply wondering if you have a properly-documented estate plan at all!), here are some of the things we think you should be taking into consideration

  • Do I have all of the appropriate documents in place?  For example:
    • Will
    • Trust
    • Advance Health Care Directive
    • Financial Power of Attorney
  • Have I selected the right people or institutions to serve as executor, trustee, health care agent and attorney-in-fact?
  • Are the beneficiaries currently named in my plan, and the shares they are to receive, reflective of my current desires?
  • Have I made provisions for the charities that I intend to benefit under my plan?

This is also a good time to make sure that your estate plan is designed to take into account changes in the tax laws that have occurred over the last several years, including substantial increases in the effective exemption from gift and estate tax and the availability of “portability” to allow spouses to, in essence, share their combined gift and estate tax exclusion amounts.  The combination of these two changes alone has allowed many clients to greatly simplify their estate plans while simultaneously providing greater capital gains tax protections for their beneficiaries.

You should also bear in mind that the recently-enacted SECURE Act changes the way in which most “inherited” retirement accounts must be withdrawn by the beneficiaries – usually much faster than under prior law, thus accelerating the imposition of income tax on those funds.  If you were counting on a slow timetable under which your beneficiaries would be required to take funds from those retirement accounts (that is, if you were relying on so-called “stretch-out” planning), you may need to rethink your expectations.  This is particularly true if you planned to leave the retirement plan funds to your beneficiaries through trusts – the accelerated withdrawal requirements may necessitate changing the structure of the trusts which would be the designated beneficiaries of retirement plan accounts.  That also makes this a good time to review and consider all of the beneficiary designations you have made as to retirement plans, annuities, insurance policies and similar assets.

It is also worth noting that we are currently in a record-setting low interest rate environment.  Low interest rates (and the low asset values they may reflect) lend themselves to implementation of certain estate planning approaches, including:

  • Gifts of interests in assets with currently low values (and particularly fractional interests in such assets), especially if there is a reasonable expectation of significant value increases in the future, thus reducing the taxable value of transferred assets
  • Sales of the same types of interests to so-called “intentionally defective grantor trusts” (IDGTs); this works well with interests in closely held businesses or real property which may be sold within ten years or so, again reducing transfer tax costs
  • Gifts to grantor retained annuity trusts (GRATs) under which the creator of the trust retains a right to collect fixed payments from the trust for a specific period of time, after which the remainder will pass to his or her chosen beneficiaries, a strategy which can minimize or eliminate gift tax
  • Loans to family members, as long as there is a reasonable expectation that the borrower can invest at a rate of return in excess of the current very low interest rate required to be called for on such a loan

While our physical office is currently closed, we remain available for telephone and video conferences, and we have full capabilities to prepare any type of estate plan document for you.

Again, we hope you and your families remain safe and well – and we are here to help whenever you need us.

Spaulding McCullough & Tansil LLP
Trusts & Estates Team

Kevin J. McCullough | Carmen D. Sinigiani | Albert G. Handelman | Mark A. Miller
Barbara D. Gallagher | Katherine L. Jeffrey | Candice L. Raposo