Posts in: March

What’s the Difference Between a Copyright and a Trademark, and Why Does It Matter?

March 29, 2016 Business planning, Corporations, Small Business Comments Off on What’s the Difference Between a Copyright and a Trademark, and Why Does It Matter?

At least once a month, I get a phone call or email from a client who says: “Jarom, my business is absolutely blowing up!  I need a copyright to protect my name and logo so some copycat doesn’t rip me off!”  These clients are absolutely right about needing protection.  What they are wrong about is what kind of protection they need.  If you file for a copyright to protect your company, product or brand identity, you will end up gravely disappointed about the protection you actually get.

This sort of confusion seems to be fairly rampant and understandable, given the relative complexity of the concepts involved.  This article will attempt to demystify the subject – at least a bit.  Copyrights and trademarks are certainly similar.  They are legal mechanisms designed to protect intellectual property.  However, they cover very different types of property in very different ways.

Let’s start with copyrights.  Copyrights protect “works of authorship” that have been tangibly expressed in a physical form.  We’re talking about things like books, songs, movies, and television programs (i.e. This telecast is copyrighted by the NFL for the private use of our audience. Any other use of this telecast or any pictures, descriptions, or accounts of the game without the NFL’s consent is prohibited.).

Staying with the example of an NFL broadcast, the copyright allows the NFL to control how the broadcast of a game, such as the Super Bowl, is reproduced, distributed and presented publicly.  A federally registered copyright also allows the NFL to sue infringers in federal court and prevent the importation of goods that infringe the copyright.  Copyrights typically last for the lifetime of the author, plus 70 years for individuals, and 95 years from the date of publication or 120 years from the date of creation, whichever is shorter, for works created for hire or under a pseudonym.

So, if the actual radio and television broadcasts of the Super Bowl are protected by copyrights, the term “Super Bowl” itself, as well as the Super Bowl logo and the NFL shield logo are protected by trademarks.  A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods or services of one party from those of others.  Technically, a “trademark” identifies and distinguishes the source of goods, while a “service mark” identifies and distinguishes the source of services.  However, the term “trademark” is often used to refer to marks for goods as well as services.

The “Super Bowl” trademark allows the NFL to prevent others from using that term in connection with live football games and television broadcasts, as well as things like stuffed animals, golf balls, and belt buckles.  Trademark protection can last forever, so long as the trademark owner continues to use the mark in interstate commerce and files the correct renewal forms when they come due.

While the example of the NFL and the Super Bowl is useful in explaining the differences between copyrights and trademarks, it is important to point out that you don’t need to generate billions in revenue in order for a copyright or trademark to be useful.  Large and small businesses (and even just people with a great idea for the next big thing) are granted registered copyrights and trademarks every day.  So, when should you get serious about filing a copyright or trademark application?  The guide below should help:

When Does Registering a Copyright Make Sense?

  1. You have created a “work of authorship expressed in a fixed in a tangible form” that you believe has value. Maybe you have written the great American novel, taken what will become the iconic photograph of this generation, or written the song no one will be able to get out of their head this summer.  If so, then a copyright will allow you to protect that work from being copied, stolen, or subject to other unauthorized use.
  2. Basic copyright protection exists from the moment your work is created. However, federal registration of your copyright has the following advantages:
  •  The copyright becomes public record and you receive a certificate of registration.
  •  You become eligible for statutory damages and attorney’s fees in successful litigation.

When Does Registering a Trademark Make Sense?

  1. You are using a particular name, logo, and/or slogan to market your goods and/or services, and you believe that name/logo/slogan is key to the success of your business. Building a brand is useless if a competitor can take that brand and use it to their advantage. Registering a trademark is a huge step in protecting the brand you have worked so hard to build.
  2. You are offering your goods or services on the internet, or beyond the borders of your local market. Common law trademark rights are limited in geographic scope.  When you register a trademark, you are protected nationwide.
  3. You are concerned about a potential competitor coming in and using your name and/or logo in your local market. Registering your trademark can be a powerful deterrent to possible competition.
  4. You haven’t quite started offering your goods or services yet, but your name and/or logo is so good, you’re afraid someone you have shown it to (or maybe someone else) might beat you to the punch. In the U.S., the first person/entity to use a trademark in commerce has the rights to that trademark.  However, before you actually use the trademark, you can file an “Intent to Use” trademark application that will give you roughly 12 months (including extensions) to use the mark in commerce.  If you can show the USPTO such a use within that time, your priority date for using the mark will be the date you filed your “Intent to Use” application. You will therefore be able to claim priority over anyone who began to use the mark in the interim.

Trademarks and copyrights can be powerful tools to grow and maintain the health of your business.  Please contact me to discuss what makes sense in your individual situation. For now, just keep in mind, that the reproduction of this article can only be used with the expressed written consent of its author, Jarom J. Bergeson.

Two More Reasons to Consider an IRA LLC (and Critical Mistakes to Avoid)

March 22, 2016 Asset Protection, Business planning, Law, Retirement Planning, Small Business Comments Off on Two More Reasons to Consider an IRA LLC (and Critical Mistakes to Avoid)

Typically, the most common reason why a self-directed IRA owner considers forming an IRA LLC is for convenience in terms of directing and maintaining the IRA’s investments. This convenience arises from the IRA owner serving as the LLC manager. Although this is an important reason to consider forming an IRA LLC, there are at least two other reasons to consider forming an IRA LLC. Ironically, outside of the self-directed IRA context, these are most common reasons to form an LLC, but for some reason, they take a “back seat” in the self-directed IRA context.

An IRA LLC Can Provide Limited Liability Protection.

Aside from convenience, another reason to consider forming an IRA LLC is to provide limitation of liability for the LLC owner/member. This might be the most important reason to form an IRA LLC, particularly if your self-directed IRA investment consists of investing directly into real estate. Often times, an IRA owner is aware that generally, an IRA is exempt from creditors. There are many caveats to this statement, including what state the IRA owner resides in and under what circumstances the IRA owner is the debtor, e.g., bankruptcy versus non-bankruptcy proceedings. Regardless of those factors, the general statement that an IRA is exempt from creditors is referring to personal creditors. If a self-directed IRA takes title to a rental property and a liability or lawsuit arises from the rental property, the IRA will not protect the other assets of the IRA or the personal assets of the IRA owner. The reason for this outcome is because an IRA is not an entity that provides limited liability protection to the IRA owner. In this sense, a self-directed IRA that owns a rental property would be treated in the same manner as a family revocable living trust that owns a rental property, which is that the family revocable living trust would not protect the other assets of the family trust or the personal assets of the family trust owners/grantors from a lawsuit or liability arising from the rental property.

An IRA LLC Can Provide a Measure of Privacy.

Another reason to consider forming an IRA LLC is for privacy. Outside of the self-directed IRA context, this is a common reason to form an LLC. To the extent that privacy is a priority to an IRA owner, taking title to real estate or other asset as: “ABC Custodian FBO [IRA Owner Name] IRA”, is less than ideal. By having the LLC as the party, whether it is a purchase contract, rental agreement, private placement, etc., this can provide a certain amount of privacy. Even though the IRA owner would presumably sign the contract as the LLC manager, a measure of privacy is still provided by having the LLC take title to the investment rather than the self-directed IRA. However, as is the situation with any LLC, depending on the state, the owner/member and/or manager of the IRA LLC would be listed on the business records of the state, so to the extent that privacy is one of the main reasons for setting up an IRA LLC, the IRA owner might want to form it in a state that does not list that information on the state’s business records.

Although there are other less common reasons to consider forming an IRA LLC, a typical analysis of whether an IRA LLC is appropriate should not be limited to solely whether the situation requires convenience. To recap, this article provides three common reasons to consider forming an IRA LLC:

  • Limited Liability Protection
  • Convenience
  • Privacy

Although an IRA LLC is not always necessary, to the extent that any or all of these factors are important to the IRA owner as it concerns the self-directed IRA investment(s), an IRA LLC can help to accomplish these objectives.

Making Sure the IRA LLC is Properly Formed and Administered (Critical Mistakes to Avoid)

The IRA LLC has been recognized by the Courts and is a legitimate and legal structure. But an IRA owner can make critical mistakes if they do not form the IRA LLC correctly or if they improperly administer the IRA LLC. It is for these reasons that we discourage setting up an IRA LLC from a website or doing it on your own. Issues with the formation or administration of the IRA LLC can arise in a number of different ways, including:

  1. If the operating agreement is not properly drafted.
  2. If the IRS EIN is not properly obtained.
  3. If the LLC manager allows the IRA LLC to enter into a prohibited transaction with a disqualified party.
  4. If the LLC manager or other disqualified person improperly benefits from a transaction made by the IRA LLC.
  5. If the 1099 or K-1 that results from the investment is not properly completed.
  6. If funds within the IRA LLC bank account are mishandled.

These are just a few of the critical mistakes that can arise if the IRA LLC is not properly formed or administered. Our office can advise you on how to avoid these and other critical mistakes.

In sum, an IRA LLC provides limited liability protection, convenience, and privacy. If properly formed and administered, an IRA LLC is an effective way to make self-directed IRA investments. If you have a self-directed IRA or are considering setting up a self-directed IRA, please contact our office to discuss whether an IRA LLC is necessary to accomplish your intended objectives.

Kevin Kennedy is an associate attorney with Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) in its Phoenix, Arizona office and has extensive experience in helping client register their trademark and protecting their brand identity. He can be reached at or by phone at (888) 801-0010.

It’s 11:00 p.m. – Do You Know Who Your Account Beneficiaries Are?

March 15, 2016 Asset Protection, Estate Planning, Law, Retirement Planning Comments Off on It’s 11:00 p.m. – Do You Know Who Your Account Beneficiaries Are?

As an attorney who practices in the area of Trusts and Estates, one of the most important pieces of advice I give to clients is to establish a revocable living trust to own real estate, small business interests, and other assets in order to effectuate the transfer of these assets without their heirs being required to file a probate action (or possibly multiple probate actions) upon their deaths. However, while real estate and small business ownership are certainly the most common triggers for probate, it is not the only way folks can get caught in that trap.

Most of us have life insurance policies, 401(k)’s, IRA’s or other accounts that require us to designate at least one beneficiary to receive the proceeds of those accounts when we pass away. Failing to keep these beneficiary designations updated is another easy way to unintentionally force your heirs into the time, cost and headache of probate at your death.

I am actually dealing with this for a client. Changing the names to protect the innocent, let’s call my client Jeff. Jeff’s and his wife are the parents of three children and Jeff’s wife named him as the sole beneficiary of her life insurance policy when the policy was issued in 2001. In 2004, Jeff and his wife divorced. However, the beneficiary designation on the life insurance policy was never changed. Jeff’s wife remarried in 2006, but she still didn’t change the beneficiary designation forms. She had another child with her new husband (her fourth child) in 2008, but no changes were made to the beneficiary forms for the life insurance policy.

Last year, Jeff’s ex-wife died suddenly at the age of 43. When her new husband went to collect the life insurance proceeds, he was told that Jeff, not him, was named as the beneficiary. When he told the insurance company that Jeff is the deceased’s ex-husband, they replied that he needed to file a probate action to get the life insurance proceeds delivered where they were supposed to go. This is because Utah (and most other states) have laws that automatically revoke the beneficiary designation of a spouse when a divorce occurs. However, Utah law (and the laws of most other states) don’t automatically substitute someone else in as a beneficiary for the divorced spouse. The beneficiary becomes the person who is named as the residuary beneficiary of the estate under the deceased person’s will, or who is designated as the beneficiary under the intestacy laws of the state where the deceased person resided at the time of his or her death.

In Jeff’s case, his ex-wife left no will, which means that under Utah’s intestacy laws, her new husband and his three children are supposed to share in the proceeds of the life insurance policy in varying percentages. However, Jeff (on behalf of his three children) and his ex-wife’s new husband have been required to pay an attorney (yours truly) to file a court case and walk through the formalities of the probate process in order to effectuate what Jeff’s ex-wife could have accomplished by changing her beneficiary designations in a timely manner.

Ok, so when should you at least think about whether you need to change your beneficiary designations? Well, it sort of reads like a list of the biggest days of your life (both good and bad):

  1. You get married.
  2. You get divorced.
  3. You have a child.
  4. Your spouse passes away.
  5. Your child gets married, divorced or has a child.
  6. Your child passes away.

Keeping your beneficiary designations current will keep your heirs out of probate, and more importantly, will make sure that the assets in your life insurance policies, retirement accounts, and other accounts go where you actually want them to go. Keep in mind that the strategy of naming your spouse as a primary beneficiary and your revocable living trust as the secondary beneficiary is a great way to keep on top of this. That way, you only need to change your beneficiary forms if you get a divorce. Any other changes can be dealt with directly in the trust.

Jarom Bergeson is an associate attorney with Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) in its Cedar City, Utah office and has extensive experience in helping client register their trademark and protecting their brand identity. He can be reached at or by phone at (888) 801-0010.

How to Bulletproof Your Lease Agreements

March 14, 2016 Asset Protection, Business planning, Law, Small Business Comments Off on How to Bulletproof Your Lease Agreements

You lease agreement can be your best protection against a lawsuit or liability on your rental property. It can also mean the different between collecting from your tenant or from paying your tenant.  The goal in having a strong rental agreement is to make it as easy and obvious as possible for a court presiding over the dispute to rule in your favor, or better yet, to include terms in your agreement that deter or prevent disputes in the first place.  The following are suggestions that you can incorporate into your lease agreements to maximize your protection.

1. Make the tenant responsible for reporting dangerous conditions relating to the property. In legal terms, a landlord has a duty to exercise reasonable care to eliminate conditions that could foreseeably cause injury to others.  However, a landlord should only be liable if the landlord knows or has reason to know that a foreseeable risk exists.  Since tenants are the landlord’s “eyes & ears” on the property, they should have the specific responsibility to inform the landlord of potentially dangerous activities or conditions so that the landlord can take reasonable corrective action.  Early detection and reporting of dangerous conditions not only affords the landlord the opportunity to fix the problem before it ever becomes an issue, but if the agreement states that the tenant has a duty to report, and fails to do so, landlord can defend the claim by contending he/she was never notified, and therefore, had no knowledge of the dangerous condition.   Agreements should further state that the tenant is solely responsible for any occupants or guests coming onto the property and should be clear as to the Landlord’s expectations with respect to noise, pets, or other potential nuisances or illegal activities.

2. Tenant should be responsible for immediately reporting defects or repairs, or else be responsible for any additional damages caused by failing to timely report the issue. We have seen cases where delay in reporting leaks then necessitated walls to be torn out and mold re-mediated, or delay in reporting wood rot resulted in a subsequently collapsed structure, all of which could have been avoided had the tenant raised the issue when it first became apparent. By imposing this obligation on tenants to immediately report repair items, landlord reserves a defense against all or some of the subsequent liability by shifting fault onto the tenant for additional damages caused by failing to timely report the condition.  Furthermore, upon moving in, tenant should be required to affirm that he/she has examined the property and that everything is in good working order and clean, with the exception of items that the landlord and tenant specifically agree was defective.  Tenant should also be required to obtain the landlord’s express consent to make any alterations or attachments to the property.  Finally, tenant should be responsible for any and all defects or damages caused by their own use or actions with respect to the property (for example, broken windows or clogged drains caused by the tenant).   With these affirmations along with a detailed “move in-move out condition checklist,” landlord then has written evidence that any subsequent damage or defects should be tenant’s responsibility (absent ordinary wear and tear).   Shifting this burden to the tenant could very well put the tenant on the defensive later on down the line when the tenant tries to squirm out of paying for damage that was their responsibility.

3. Keep current on mandatory disclosure items. In general, federal law requires a lead based paint disclosure for all residential property built before 1978.  Some states also have mandatory disclosures, for example, for registered sex offenders, smoke detectors, etc.  These mandatory disclosures can be easily found by consulting with a local landlord trade association, realtor, or attorney, and can be helpful to mitigate against subsequent claims of injuries that arose from those disclosure items.

4. Collections. As with virtually any contract, an attorneys’ fee clause stating that in the event of any lawsuit or proceeding, the prevailing party shall be entitled to recover their attorneys’ fees and collection costs is highly recommended as it often provides powerful leverage against an opposing party who has or intends to break the contract.   An equal or perhaps even more powerful leverage would be a notice of landlord’s right to make a negative credit report for any monetary default under the agreement.   Check with the laws of your jurisdiction to determine any specific requirements to report negative history to credit reporting agencies.

Keep in mind that making your contracts stronger is not a license to act like a slumlord and our experience is that being a conscientious landlord and creating conditions that keep your tenant happy in the unit is also very effective in deterring disputes and litigation.  Nevertheless, every landlord who has been around the block will inevitably experience some dispute in one form or another and our philosophy is always, hope for the best, but prepare for the worst.

Delaware Statutory Trusts and Other Creations of State Law

March 1, 2016 Asset Protection, Business planning, Estate Planning, Small Business Comments Off on Delaware Statutory Trusts and Other Creations of State Law

More than ever before, clients have asked about forming a Delaware Statutory Trust, sometimes known as a Delaware Business Trust.  They might be a real estate investor in California, or a small business owner in Arizona.  But how will California treat a Delaware Statutory Trust?  What about your state?  This is an essential question that should be answered before forming such an entity.

When used appropriately, the Delaware Statutory Trust is an effective entity for its flexibility and liability protection.  It has many benefits as provided by state statute under the Delaware Statutory Trust Act of 2002, which superseded the Delaware Business Trust Act of 1988.  A few of the benefits are:

  1. Liability Protection. It offers beneficial owners of the trust the same liability protections that Delaware law provides to stockholders of a Delaware corporation.
  1. Asset Protection. It also limits the creditors of the beneficial owners of the trust in the same way a limited partnership or other charging order protection entity prevents personal creditors from liquidating or obtaining the trust assets.
  1. Contractual Flexibility. The Delaware Statutory Trust Act, which created the Delaware Statutory Trust, provides maximum freedom of contract. This means that in the trust agreement, the parties are able to agree as between themselves on management rights, economic rights, liability/indemnification, etc.
  1. Ease of Formation and Maintenance. The process and fees in forming and maintaining the Delaware Statutory Trust are reasonable. A certificate of trust is filed with the Office of the Secretary of State of Delaware. A trust agreement must be drafted but it is not required to be filed with the State of Delaware. There are no annual fees in Delaware for such a trust. It is not subject to Delaware’s franchise tax.
  1. In Delaware, it offers privacy to the beneficial owners of the trust.
  1. Trust Series. Delaware law permits the trust agreement to establish separate series of the trust, which may each have its own objective, beneficial interests, trustees, managers, assets, and liabilities.
  1. Flexible Tax Treatment. A Delaware Statutory Trust can be taxed as a corporation, a partnership, or a trust.

However, it requires a Delaware Trustee. It is also important to note the distinction between a business trust created at common law (by the courts), sometimes referred to as a Massachusetts Business Trust, and a statutorily created trust. The Delaware Statutory Trust falls in the latter category because it is a creature of statute, so even if your state recognizes business trusts at common law, this does not automatically suggest that a court in your state is going to recognize a Delaware Statutory Trust with all of its benefits described above. Although a Delaware Statutory Trust is a powerful business structure and may be appropriate for structured finance transactions and other financial transactions, this might only true in Delaware or another state that has adopted it own statutes which create a statutory trust, e.g., Kentucky. This is similar to other states which, in order to attract businesses, or for other reasons that are specific to their state, have passed laws that create unique types of business entity structures or that create incentives to do business in that state.  Here are a few examples:

  • Tennessee and Nevada are among about thirteen states that passed laws which allow for the creation of Series LLC’s. But unless you plan to own rental(s) or do business in a state that recognizes the Series LLC, it is not productive to form a Series LLC.
  • Illinois, Florida, and a few other states have laws that allow for the creation of land trusts. Although a land trust, where used appropriately, can provide a measure of privacy and ease of transferability, it could be unproductive to form or use a land trust in a state that does not have laws that recognize such a trust.
  • Some states do not assess corporate income tax, as is the situation in Florida, Texas, Nevada, and a few other states. But unless you are actually doing business in Nevada, Nevada’s zero corporate income tax will not help you.

Even if a state recognizes another state’s common law or statutory business trusts, the process to register it into that state can be time consuming and costly.  For instance, Arizona will recognize another state’s business trust; however, in order to register a business trust in Arizona the trust must be: registered with the Arizona Corporation Commission, recorded in each County where real property is located (if the trust owns real estate), and receive approval from the State Banking Department.

Delaware Statutory Trusts in 1031 Exchanges

Even if your state will recognize a Delaware Statutory Trust, if your intent is to use the trust in connection with a 1031 exchange, as this is a common use for such a trust, be sure it meets the requirements of Rev. Rul. 2004-86 to be considered a trust and not a business entity type. Otherwise, the beneficial interests of the trust are treated as interest in a partnership or corporation and would not constitute valid like-kind Replacement Property under IRC §1031.

Delaware Statutory Trusts in California

Business trusts are generally recognized under common law in California, but this does not mean a California court will accept a Delaware Statutory Trust with all of its statutorily created benefits – it could disregard some of those features that are not common to other business trusts in California.

As it concerns taxes and California’s franchise tax, under California law, Section 23038(b)(2)(A) of the Revenue and Taxation Code, California appears to define “corporation” to include business trusts for tax purposes. Any business trust doing business in California is treated as a corporation under California law, and thus presumably subject to California’s franchise tax, unless, under federal law, it has elected to be taxed as a partnership. If a trust is considered a non-business trust, it is probably not subject to California’s franchise tax. Under California’s definition of a business trust in Section 23038, a non-business trust is a trust arrangement established for the mere purpose of the conservation of assets, to collect and disburse fixed, periodic income, or to secure an obligation. While having your trust characterized as a non-business trust might avoid California’s franchise tax, such a characterization might not be favorable in terms of limiting liability of the trust parties, as explained below.

On the issue of limiting liability in California, if a California court decides to recognize the Delaware Statutory Trust and all of the liability protections established by Delaware statutes, the Delaware Statutory Trust will be a powerful entity to utilize in California because of the benefits outlined above. It is unclear under what circumstances, if any, a California court would do that. Until that happens, a California court would likely construe such a trust as either: (a) a common law business trust, in which some liability protection could be provided, but not to the extent of a Delaware Statutory Trust; or (b) a non-business trust, e.g., a probate trust, in which no liability protection or asset protection will be afforded to any of the parties to the trust, other than through a spendthrift clause. There are many bankruptcy court cases in California in which the judge has to decide, based on the facts, whether a trust is a business trust or a non-business trust. Each situation requires an analysis by a competent attorney of these complex issues.

Therefore, before you rush to form a Delaware Statutory Trust, so as to avoid a state’s fees, for example, California, be sure to understand: (1) whether your state will recognize such a trust/business entity with all of its benefits created under a foreign state’s statutes, and (2) the tax and liability ramifications of such a trust.
