The last few weeks are always a flurry of activity, but amid the hustle and hustle of wrapping up the state legislative session, we must remain focused on what matters — middle-class tax relief, supporting education, and strengthening ethics.

 

There is no doubt that New York’s families are strapped. Every dollar counts for hardworking residents of this state, but the high cost of living and the highest tax burden in the nation aren’t making things any easier. I am encouraging my Assembly colleagues to make the property-tax cap permanent, coupled with needed mandate relief to assist New York homeowners.

 

Another concern on the minds of my constituents is the state of education in the Empire State. Recently, we passed reforms to the governor’s teacher-evaluation agenda — his plan did nothing to help our children or the people educating them. Fortunately, my Assembly Republican colleagues and I listened to stakeholders like parents, educators, and school administrators. We have developed the Achieving Pupil Preparedness and Launching Excellence (APPLE) Plan, an education-reform plan based on the experiences of those who best understand public education. With the time we have left in this year’s session, we must adopt more of the legislative solutions in the APPLE Plan to ensure our children have the best and most comprehensive education possible.

 

Finally, so many of us have been discouraged by headline after headline about politicians breaking the public trust. Business in Albany was sidetracked not once, but twice, by the arrest of legislative leaders and their refusal to transition power so the work of the people could continue. Not only is trust broken, but it also negatively impacts the effectiveness of the legislature.

 

We must take immediate action to restore the people’s confidence. We have bills that would take the toughest stance on ethics and corruption in the nation and we must pass them now. The Public Officers Accountability Act would create new laws related to corruption and strengthen punishments for lawbreakers. Additionally, it would set term limits for legislative leaders and committee chairs — ending a tradition in Albany where power is concentrated in the hands of just a few. Lastly, I support stripping publicly funded pensions from politicians convicted of felonies. If you break the people’s trust, you will not and should not be rewarded for it.        

 

Marc W. Butler (R,C,I–Newport) is a New York State Assemblyman for the 118th District, which encompasses parts of Oneida, Herkimer, and St. Lawrence counties, as well as all of Hamilton and Fulton counties. Contact him at butlerm@assembly.state.ny.us

 

 

A common complaint about the trust or will of a deceased ancestor is that the terms of the trust or will are not responsive to changed circumstances and events not contemplated at the time the instrument was signed. Trust beneficiaries may become disabled or improvident. Family members may develop conflicts. Tax laws may have radically changed. Unfortunately, upon the death of the ancestor, the trust and will become irrevocable. Notwithstanding that, answers to some of these post-death problems do exist.

 

Sibling or family conflict following the death of a parent or ancestor is, unfortunately, all too common. The conflict often takes shape in a will contest that seeks to alter the deceased’s intentions. Whether or not a will contest is a good thing depends on which side of the contest you support. As estate planners working with a parent or other ancestor, we strive to ensure that our clients’ wishes are not altered by such post-death litigation.

 

We often add a no-contest (also called “in-terrorem”) clause to a will to address the possibility that someone may challenge its validity. A no-contest clause says, in substance, that if anyone contests the validity of the will, then they shall receive nothing under the will. Do such clauses actually work? Generally they do, but there are limitations. In some states, including Florida, such clauses are unenforceable. Other states have limitations on their enforceability.

 

New York state law does enforce no-contest clauses except in circumstances such as:

– Where the will contest is brought by an incompetent or infant.

– Where the contest seeks to establish the will as a forgery or that it was revoked by a prior will and there is probable cause (a “good reason”) for such assertions.

– Where the proceeding is limited to a preliminary examination of the witnesses to the will, the nominated executors, or the party seeking to submit the will to probate.

– Proceeding asking the court to interpret the provisions of the will.

 

It is important that every estate plan include a thoughtful discussion of the probability of family conflict and the use and effectiveness of a no-contest clause.

 

In other cases, the trust or will is written assuming one set of circumstances (such as the sequence of death, the state of a beneficiary’s residence, the competency of a beneficiary or the tax law) and, over time, a very different set of facts unfolds. Tools that can ameliorate problems caused by changed circumstances include the exercise of a power of appointment or an amendment to the trust document.

 

Many trusts grant someone (generally a beneficiary) power to act regarding trust property. Such powers, called “powers of appointment,” generally allow the power holder to redirect trust property among a group of people. For example, a parent may give a child the power to appoint trust property at the child’s death among the child’s issue. If such power is not exercised by the child, the trust is divided equally among the children of the deceased child. In this example the power of appointment could be very helpful to disinherit or limit the share of a grandchild at any time and for any reason as determined by the power holder exercising the power of appointment.

 

If the trust does not include such a power of appointment, a change in the language of the trust may be possible by amending the document. This is an exception to the doctrine that a trust is either irrevocable as provided in the instrument or becomes irrevocable upon the death of the person who set up the trust (the “grantor”). New York law allows for amendment or revocation of a trust under certain specific circumstances. Under one statute, if the grantor is living, he or she can revoke a trust with the consent of those who have a beneficial interest in the trust. If the grantor is deceased, the trustee can amend a trust if the requirements of the statute are met. The permitted amendment may be a simple administrative change or a substantial change, essentially replacing the existing trust with a new trust.

 

When an irrevocable trust no longer serves the purpose for which it was originally intended, an examination of the trust document and New York state law may reveal effective tools to change trust provisions in changed circumstances not originally contemplated at the time of drafting.

 

Elizabeth A. Hartnett, Esq., CPA, is a partner at the Syracuse law firm, Mackenzie Hughes LLP. Her areas of expertise include family business entities, business tax and succession planning, pre-nuptial and post-nuptial agreements, fiduciary compliance, investment counsel, estate planning, fiduciary services and estate settlement, as well as private foundations, charitable giving, and specialty trusts for the private client. This viewpoint is drawn from the law firm’s Plain Talk blog.

 

“I don’t think there’s a company, a management, an audit committee that hasn’t gone back and re-looked at what they’re doing … People are really scrutinizing and (want to) really make sure their houses are in order and clean.”  — William Esrey, Sprint CEO

 

July 1, 2014, was the effective date of New York’s Non-Profit Revitalization Act (NPRA) of 2013. However, as most nonprofits know, the state passed this legislation, signed by Gov. Cuomo in December 2013, without issuing implementing regulations. The failure to issue detailed regulations and guidance created a fair amount of confusion and difficulty for nonprofits to comply fully with the requirements of the act. 

 

As a result, the majority of nonprofit organizations have done the best job they can, based on guidance provided to date, in complying with NPRA requirements. Fortunately, the state attorney general and its Charities Bureau recognize that further interpretive guidance was required to further allow organizations to achieve full compliance. 

 

The 73 pages of legislation had nothing to do with revitalization. The primary focus was on the following areas:

– Conflicts of interest

– Related party transactions

– Executive compensation

– Internal controls and accountability

 

In the past five months, the attorney general has fortunately responded to questions and inquiries from tax-exempt organizations, their lawyers, and accountants. In fact, five separate administrative memorandums have been issued providing further guidance in the following areas:

– Audit Committees and the Nonprofit Revitalization Act of 2013 (Feb. 24, 2015)

– Procedures for Forming and Changing a New York Not-for-Profit Corporation (Feb. 24, 2015)

– Internal Controls and Financial Accountability for Not-for-Profit Boards (April 13, 2015)

– Conflicts of Interest Policies Under the Nonprofit Revitalization Act of 2013 (April 13, 2015)

– Whistleblower Policies Under the Nonprofit Revitalization Act of 2013 (April 13, 2015)

 

For these and further updates, you can visit the website: http://www.charitiesnys.com/nonprofit_rev_act_guidance.jsp

 

One of the key focus areas of the NPRA was increasing the responsibilities and requirements for audit committees of tax-exempt organizations comprised of “independent” board members. 

 

This column focuses on one of the many specific requirements assigned to the audit committee. Specifically, the audit committee is now responsible for evaluating and documenting the performance of the audit firm on an annual basis. This requirement is difficult to accomplish without some guidance from an auditor. That auditor would be me. I am hopeful that you agree with the guidance that follows.

 

My colleagues and I have developed an electronic template that provides specific guidance to audit committees in fulfilling their fiduciary role related to auditor performance evaluation.

 

Evaluation of auditors from a board volunteer perspective is inherently difficult. Therefore, the following questions should be answered by the committee. We also recommend that senior management, particularly the CEO and CFO, should complete this questionnaire as well. Any “no” answer requires follow-up and, preferably, direct conversation with the audit partner. 

 

1. To the independent audit firm and the personnel assigned to the audit have significant background and experience in the industry / service sector of our organization?

 

2. Does senior management, particularly the CEO, CFO, and compliance officer, believe that the independent auditors have been sufficiently thorough in their audit scope, approach, and testing?

 

3. Do board / audit committee members believe that the independent auditors have been sufficiently thorough in their audit scope, approach, and testing?

 

4. Do the board / audit committee members believe that the independent auditor has and continues to maintain a transparent and candid relationship with board leadership, particularly with respect to the value and clarity associated with independent auditor presentations to the full board and audit committee?

 

5. Has the audit committee inquired of the independent auditor and obtained a copy of the most recent Peer Review letter together with any findings?

 

6. Has the audit committee ensured that the audit firm peer-review letter is dated within the last three years?

 

7. Has the audit committee verified that the auditor is independent from the organization by evaluating the amount of consulting / advisory fees in relation to the audit fee arrangement?

 

8. Were the audited financial statements presented in a timely basis and issued by the auditor in an appropriate timeframe following the audit-committee presentation? 

 

9. Was the auditor’s presentation of the audit results clear, informative, and understandable to audit-committee members?

 

10. On an overall basis, do the board / audit committee / management team members believe that the independent audit firm provides a thorough and technically correct set of report deliverables, while at the same time providing value-added observations and recommendations at a fair and reasonable cost?

 

These questions should be answered after the audit presentation and the required executive session between the “independent” audit committee members and documented as an addendum to the audit-committee minutes. 

 

The world of nonprofit auditing and financial reporting has steadily increased in complexity over my 35-year career. An audit committee must understand that simply being a CPA firm does not necessarily qualify you as a capable auditor of tax-exempt organizations. For this reason, I, and hopefully my competitors, welcome the required scrutiny of an audit-committee evaluation of auditor performance on an annual basis. 

 

The auditor performance-evaluation requirement is just one of many NPRA requirements that have been assigned to the audit committee. The primary additional requirements include, but are not limited to, the following:

– Oversight and review of conflict-of-interest policy and related disclosure statements

– Review and recommendation related to specific conflict-of-interest transactions

– Review and recommendation regarding each related-party transaction

– Evaluate the performance of the auditors

– Ensure compensation-committee compliance

– Determination of “independent” vs. “non-independent” directors

 

It is considered to be a best practice for the audit committee minutes to document that the above responsibilities have been completed with the following attestation documented in the minutes: “The audit committee hereby documents that it has fulfilled its responsibilities related to review, oversight, and approval of the areas listed above during the fiscal year ended xx/yy/zzzz.

 

If your organization is not yet fully compliant with the NPRA, don’t despair. Both the attorney general’s office and the Charities Bureau have acknowledged that tax-exempt organizations will need to continue to address and modify policies and procedures as additional interpretive guidance is issued by their offices. Having said that, every nonprofit organization should have a goal of substantially complete compliance with the NPRA no later than Dec. 31, 2015. 

 

If you would like a copy of our electronic template, please email me at the address below.                       

 

Gerald J. Archibald, CPA, is a partner in charge of the management advisory services at The Bonadio Group. Contact him at garchibald@bonadio.com