Contra Costa Lawyer March 2013

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Contra Costa

LAWYER Volume 26, Number 2 | March 2013

Tax Law / Fiscal Cliff

The California Cliff

by Mark Ericsson

Is Congressional Budget Gridlock Here to Stay? by Thomas Del Beccaro



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MARCH 2013

Contra Costa  2013 BOARD OF DIRECTORS Jay Chafetz President Stephen Steinberg President-Elect Candice Stoddard Secretary Nick Casper Treasurer Audrey Gee Ex Officio Richard Alexander Philip Andersen Dean Barbieri Amanda Bevins Oliver Bray Denae Hildebrand Budde

Mary Carey Alison Chandler Elva Harding Peter Hass Reneé Livingston James Wu

LAWYER Volume 26 Number 2 | March 2013

The official publication of the

B   A   R        A   S   S   O   C   I   A   T   I   O   N




CCCBA   EXECUTIVE   DIRECTOR Lisa Reep | 925.288.2555 | CCCBA main office 925.686.6900 |













by Mark Ericsson

Jennifer Comages Theresa Hurley

Membership Coordinator Associate Executive Director

Emily Day Barbara Arsedo

Systems Administrator and LRIS Coordinator Fee Arbitration Coordinator

by G. Scott Haislet

Dawnell Blaylock

Communications Coordinator

CONTRA COSTA LAWYER CO-EDITORS EDITORIAL BOARD Harvey Sohnen Mark Ericsson 925.258.9300 925.930.6000

by Warren Peterson

Nicole Mills Matthew  Guichard

925.351.3171 925.459.8440 Harding BOARD LIAISON Elva 925.215.4577 Candice Stoddard 925.942.5100 Patricia Kelly 925.258.9300 COURT LIAISON Craig Nevin Kiri Torre 925.930.6016 925.957.5607 David Pearson PRINTING 925.287.0051 Steven’s Printing Stephen Steinberg 925.681.1774 925.385.0644 PHOTOGRAPHER Marlene Weinstein Moya Fotografx 925.942.5100 510.847.8523 James Wu 925.658.0300

by Ralph L. Jacobson

by Perry A. Novak

DEPARTMENTS The Contra Costa Lawyer (ISSN 1063-4444) is published 12 times a year - 6 times online-only - by the Contra Costa County Bar Association (CCCBA), 2300 Clayton Road, Suite 520, Concord, CA 94520. Annual subscription of $25 is included in the membership dues. Periodical postage paid at Concord, CA. POSTMASTER: send address change to the Contra Costa Lawyer, 2300 Clayton Road, Suite 520, Concord, CA 94520. The Lawyer welcomes and encourages articles and letters from readers. Please send them to The CCCBA reserves the right to edit articles and letters sent in for publication. All editorial material, including editorial comment, appearing herein represents the views of the respective authors and does not necessarily carry the endorsement of the CCCBA or the Board of Directors. Likewise, the publication of any advertisement is not to be construed as an endorsement of the product or service offered unless it is specifically stated in the ad that there is such approval or endorsement.


INSIDE | by Mark Ericsson



19 CENTER | Annual Officer Installation Introducing Judge Judy Johnson and Commissioner Anita Santos Judicial Demeanor Training | Women’s Section Powerlunch Meet Your Local Judges, Family and Juvenile 30 COFFEE TALK How do you fix the congressional process? 32

INNS OF COURT | by Matthew Talbot






y dad always said, “Spare me exciting times.” By April first, the country will or will not have survived four near-death experiences. We have already survived the fiscal cliff with last minute legislation entitled the American Taxpayer Relief Act of 2012 (ATRA). Both parties grumble that the other side won. The Democrats got higher taxes on the rich while holding the Bush cuts on the not so rich. The Republicans did not lose their pressure points – the coming battles over the debt ceiling, sequestration and the budget. The rest of the Americas grumbled over the unmitigated gall of Congress to call the act “The American...” First, Congress will take up an increase in the debt ceiling. This week, the House passed a three-month extension. It was anticipated that the ceiling would have to be raised sometime in February. Now it looks like it may be sometime in May. The President has said he won’t negotiate over the debt ceiling. He argues that Congress passed the spending bills and it is up to them to increase the debt ceiling. In so doing, he has rejected the idea of coining a platinum one-trillion-dollar coin or raising the ceiling by fiat under the 14th Amendment, theories that would skirt the debt ceiling issue. The Republicans say they won’t raise the debt ceiling until they get spending cuts sufficient to cover the debt increase. Experts claim that a failure to raise the debt ceiling would end the world as we know it and would certainly change the way the world views us. Please spare me these exciting times. Second up is the fight over the sequester, a result of a Congress that could not come to a compromise on the debt ceiling increase last time around. To resolve the gridlock, Congress passed spending cuts in 2011 so onerous to both parties that a compromise seemed guaranteed before the January 31, 2013, effective date. A gridlocked Congress could not reach a compromise before 2013 and the ATRA extended the effective date to March first, expecting that they can still reach a compromise. Einstein defined insanity as doing the same thing over and over again and expecting a different result. Enough said. Finally we face congressional confirmation of a budget. Don’t forget that Newt Gingrich shut down the government by blocking the passage of a budget. Just this week the House passed an act mandating that senators and representatives must pass a budget by April 15th to get paid. The Senate has been unwilling to pass a budget these last three years. Maybe this is the impetus needed.


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Mark Ericsson Guest Editor In this issue, we looked around for someone that could answer the question “How do we fix the congressional process?” and posed the question to the chair of the California Republican Party, soon to publish a book on the subject. We also asked Perry Novak to scare us with facts about the upcoming demographic changes in our society. In our feature article, Scott Haislet explains the American Taxpayer Relief Act in detail. In a companion piece, we look at the impact when you combine the effects of ATRA with California tax rates. George Cabot reviews the corporate landscape and the debate over lowering our internationally high tax rates. Ralph Jacobson brings us up to date on the rights of domestic partners under insurance policies. Warren Peterson warns us that tax preparers no longer must be registered with the IRS. I’m afraid to say that these are going to be very exciting times. My father must be turning over in his grave. One last thought: Is it a coincidence that there is no ethics credits being given in this issue? s Mark Ericsson is a partner in the tax and business firm of Youngman & Ericsson, has served as the 2006 president of the Bar Association and is currently the chair of the Taxation Section. He has written over 30 articles on tax and business issues.

president’s message CCCBA - It’s Your Organization


y the time this reaches print, our organization will already have had its Installation Luncheon, where the new officers, directors and section leaders of the Contra Costa County Bar Association are installed in their positions. I know that I will have seen only a few of you there. I regret that this year especially, because those of you who did not attend missed a fascinating interview with our most recent appointee to the California Supreme Court, Goodwin Liu. Happily, that interview was videotaped and is available for viewing on our website. It is well worth watching. The Installation Luncheon is regularly attended by judges, CCCBA presidents, officers, and past presidents, CCCBA directors, and CCCBA section leaders. I often feel that after we have given recognition to all of these luminaries, there is no one left in the audience whose name has not been mentioned. We are an organization of 1,700 members. About 125 of them usually attend the Installation Luncheon. Times have changed for our Bar Association. Before the early 1990s, when the State Bar first adopted mandatory continuing legal education, our Bar Association largely interacted with its members through a few well-attended bar-wide functions each year. After this change, our sections began to offer education credits at their programs and over the years most members of the Bar Association now have contact with the Association mainly through the sections. The Conservatorship, Guardianship, Probate & Trust Section has over 200 members. They had their annual luncheon a week after that

of the Bar Association as a whole, and had even greater attendance than we had at the Installation Luncheon—and the people attending each function were largely different. The Family Law Section is also a large and active one with regular monthly programs, also very well attended. CCCBA is the umbrella organization that sponsors these sections, helps them advertise their programs, provides administrative and accounting support, and supplies the nonprofit corporation that lets them furnish their valuable networking and educational services to our members. So the mother organization is vitally important to all of our members even though many of them never attend anything more than events sponsored by the sections. We are the heart and lungs that let the body get where it’s going. Your board of directors has tried to be responsive to these changed times. Over the last several years, we have made changes that reflect our perception of the different things that you, our members, want and need from us. We dropped a second annual event called the State of the Court Address when attendance began to fall off. The event, in the current tough economic times for our state, ended up being just a depressing yearly recap of all the bad news about the budget cuts to the court system. We continually brainstorm about new programs that we might offer you or about possible changes to streamline and make more relevant the programs that we already offer. Unfortunately, we have little data to guide us. We do not have organization-wide elections to become officers of the CCCBA. The information we get about your likes

Jay Chafetz CCCBA Board President and dislikes is fragmentary and anecdotal at best. So as I go about my duties this year, I want to make sure that each of you knows I have an open door policy. If there is a concern that you have about our organization or an idea you want to propose about how to make it better, please feel free to email or call me. Later this month, we are going to send you a survey. We will do our best to make it easy and quick to complete. Please participate in it. We want to serve you, and we can only know how to serve you if you tell us what you want. This is your organization, not mine or that of the other members of the board of directors. Do not think of it as something apart from you or, as it is tempting to think about government, something you have no control over and cannot change. I and the other directors are here to serve the organization, but even more importantly, to serve you. Take control of your organization. Tell us what you want it to be. And be sure to let us know how we are doing. s



The United States national debt is higher at $16.5 trillion than the overall size of the U.S. economy. In 2012, America faced a so-called “fiscal cliff” that wasn’t resolved so much as it was put off to another day. We also know that the U.S. Senate has not passed a budget in four years. Is this the new normal for America? Or is there some solution to this political budgetary gridlock? In plain truth, while lack of leadership in congress is a problem, so much of America is either dependent on the federal government or doing business with the federal government, that the divisions in congress and America we see today are likely here to stay. As I detail in my upcoming book, The Divided Era, the partisanship

Is Congressional Budget Gridlock Here to Stay? by Thomas Del Beccaro Chairman, California Republican Party


he United States national debt is higher at $16.5 trillion than the overall size of the U.S. economy. In 2012, America faced a so-called “fiscal cliff” that wasn’t resolved so much as it was put off to another day. We also know that the U.S. Senate has not passed a budget in four years. Is this the new normal for America? Or is there some solution to this political budgetary gridlock? While lack of leadership in Congress is a problem, so much of America is either dependent on the federal government or doing business with the federal government, that the divisions in Congress and America we see today are likely here to stay. As I detail in my upcoming book, “The Divided Era,” the partisanship of today is different than at any time in our history. In the past, we have had very partisan eras featuring very difficult issues. The most divisive era in our history, the Civil War and Reconstruction Period, saw us decide issues with guns more than ballots. You cannot get more partisan than that. The adoption of the Constitution saw a political party do battle with its anti-party: Federalists versus Anti-Federalists. Imagine today if the two parties were called Democrats and Anti-Democrats or Republicans and Anti-Republicans. Now, however, we face a poten-


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tially more intractable problem. While the Civil War was a larger and more deadly issue, and while the adoption of the Constitution proved to be more than just a philosophical political fight for the ages, they both involved what I describe as closed-end issues. We adopted the Constitution, and while Hamilton and Jefferson fought about its meaning, just as some do today, the issue was resolved. We have a Constitution and we don’t have Articles of Confederation. That issue was capable of being decided once and for all. Similarly, we fought a Civil War and we are now one nation. Today, we face a different problem. When the Civil War ended, and even up to the year 1900, total government expenditures were less than 7 percent of the U.S. economy. Today, total government expenditures, from local government all the way to the federal government, are a staggering 33 percent. First, that means our governments are spending a lot more money. Predictably, we have the usual fights over the proper scope of government. Today, however, the number and fervor of those fights is growing right along with the size of the federal budget, which has grown over 300 percent in the last 30 years. While this fight is not new, it is a growing problem. Second, our growing deficits, tax burdens and troubled economy are fostering an unprecedented competition between those seeking funding for current government op-

erations and those concerned with government pensions. Closely related to that are also: (1) the growing competition between public employee unions and taxpayers, and (2) the fights for taxes and funding between the states and the federal government over federal programs like ObamaCare. Third, and this is a critical point, the fact that our governments now represent one-third of the economy also means that our governments are doing more things than they

new, “my piece of the pie partisanship” is people less driven by ideology and more driven by self-interest. Further, we see greater divisions among Americans and greater pressure to deliver the goods on the focal point of all of these competitions - our elected officials. Worse yet, the source of the current gridlock is not subject to any one close-end decision. To the contrary, our federal government is doing thousands of things which no single vote, war or legislative act

“Simply put - a government that does but 100 things will find far fewer partisans than a government that does 1,000 things.” have ever before – and by a wide factor. Those governments doing many more things lead to unprecedented partisanship that is at the crux of gridlock today. Simply put - a government that does but 100 things will find far fewer partisans than a government that does 1,000 things. Today, our governments all combined do $5 trillion worth of things each year and we have many more partisans than our founders could ever imagine. As a result, we also have an unprecedented competition among those seeking government benefits, preferences and spoils doled out at all levels of our state, local and federal governments. Businesses, citizens, lobbyists, charities, government contractors and more compete for those spoils. Indeed, many businesses seemingly compete as much in the halls of our governments as they do in the marketplace. Many times, they can gain greater victories from government than they can in the marketplace. All of this adds up to the fact that the number of people doing business with our governments or dependent on them dwarfs the number of those people at any previous time in our history. The result of this

could resolve. As a result, we are likely to face division and gridlock for decades to come. Some choose to blame hyperpartisans in the major parties – and now the Tea Party – for our current gridlock. Partisans, however, are present in every age. For instance, Samuel Adams was considered incendiary as he sought revolutionary change in Boston. He was the leader of a mob and far more partisan than anyone in modern politics. He was essential, however, to our founding and the freedom that has spread across the world. Continuing the thought, John Adams stated outright that the Revolution would be attributed to another highly partisan writer of the age, Thomas Paine.

The point is that for anyone to blame partisans is to blame the symptom, not the cause. It is human nature for people with so much at stake to be highly partisan. As lawyers, we should be no more surprised at their fervor than at the fervor of our clients whose cases mean their fortune to them, if not more. In short, we should stop blaming the participants and start focusing on the dynamic, which brings them to the fray. They are acting in their self-interest or for their personal ambition. The rules of the game accentuate their ambition and their natures. Should one company sit at home while another seeks an advantage in Congress? Should we really expect people being taxed to the point of moving not be vocal? California has lost over 4.5 million taxpayers since 1998, mostly to low tax states. We shouldn’t any more blame them than to blame our clients for filing lawsuits for their claims. So what are we to do? First, and this will be the hardest, we need to understand that there is no example in history of a government lasting as comparatively large as ours. Part of the story of Rome and Greece at their heights is bureaucratic breakdown and class warfare over stagnant economies and divisive tax schemes. It is not a story of governments getting their fiscal house in order. As such, we need to understand

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Budget Gridlock, cont. from page 9 that growing government will lead to more division, not less. Each time we add to the size of government, we add to this unprecedented partisanship and potential for gridlock. We simply must stop looking to government for every happenstance or to resolve every inequity on the globe. Second, we need leaders that have the ability to focus voters on a common goal more than to divide their constituents. Reagan and Kennedy focused Americans on grand goals like restoring the economy and strengthening of our foreign policy goals. In both cases, Reagan and Kennedy relied as much on the private sector as on public sector activity. Both used tax cuts for all Americans, which bound people to their common presidential goal of reviving the economy. Kennedy challenged us to go to the moon and to join the Peace Corps. Reagan set a national goal for transcending communism. Those goals did not exclude any American from participating in their achievement. By creating goals for all Americans, goals that relied on private initiative, it made it easier for them to bring people together.


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Finally, as long as we have a tax system that pits one class of Americans against another, like our federal system, we can expect growing division. Taxing half of Americans and not the other half is the very nature of division. If we moved to a consumption-based tax system like many thriving states, we could minimize our divisions and grow the economy and revenues – all of

that would lead to less gridlock. Those are long-term changes we need to make as a society. In the short term, it will take an extraordinary president or Speaker of the House to forge a consensus around a new national goal to break the current deadlock. The number of divisions present today in The Divided Era, however unfortunately, are not likely to simply go away. s

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The California Cliff by Mark Ericsson


alifornia, the state that takes a backseat to no one, has certainly taken a backseat in the fiscal cliff debate. While all eyes were glued to the TV to watch the fight over how much the federal tax would bite the rich, California passed Proposition 30 which raised California’s top tax rates nearly one and a half times as great as our federal counterpart, and we did it retroactively to the start of 2012.

Let’s look first at the rates we voted in by way of the proposition. The increases in California rates start at lower levels than the federal increases. For a single person, the top rate for those with incomes under one million dollars, formerly 9.3 percent, increases to 10.3 percent at a taxable income of $250,000, 11.3 percent at $300,000 and 12.3 percent at $500,000. The existing 1 percent surcharge kicks in at $1,000,000 taxing income in excess of $1,000,000 at 13.3 percent. For married couples, the increases come at twice the income levels as for the single taxpayer. While the increase in the top rate nationally was an increase of 13 percent over the 2012 rate, the increase in California was 32 percent over 2011, remembering the state increase was retroactive. For Californians with taxable incomes over $250,000, the news in California is not good. When you add in the effects of the alternative

minimum tax, the ObamaCare investment tax and California capital gains policy, you can get some scary results. The alternative minimum tax was passed some 30 years ago to prevent high-income taxpayers from sheltering their incomes from tax. To calculate the tax, you first calculate your normal tax. You then calculate the tax without the shelter items to create a broader base and apply a lower rate. You pay the higher of the tax calculated by the two methods. One of the shelter items is state income tax. You do not get to deduct state income tax when calculating your alternative minimum tax. Taxpayers in states with high income tax rates like New York and California often get no tax benefit federally from paying state tax. Therefore, the two taxes are often additive. The combined tax rate for a single person with taxable income above $250,000 is 45.2 percent; above $300,000 it is 46.2 percent; above $400,000, it is 50.8 percent, above $500,000, it is 51.8 percent; and above $1,000,000, it is 52.8 percent. We then have the ObamaCare investment tax of 3.8 percent on investment income. All investment income over $200,000 for individuals and $250,000 for families is taxed at 3.8 percent. If you sell your house for a profit, you will certainly be subject to this tax. A lot of income is going to be taxed at 56.6 percent. Most disruptive is that in California, we don’t give any break for capital gains. The theory is that the California rates aren’t high enough to drive taxpayers out of the state. Thus someone with a capital gain from the sale of property or a business can incur a 12.3 percent rate on gains above $500,000 in addition to the 23.8 percent federal rate.

I have a client who is going to sell his company for $150,000,000. He has asked me for instruction on how to cut his ties to this state. With 13 percent of his capital gain being taken by California, he sees no advantage in living in this state in a time where mobility is the big new thing. He will pay no tax if he moves to Nevada or Texas. The governor’s balanced budget assumes that no one is going to leave the state. Multiply the $18,500,000 in taxes the state is going to lose from this one taxpayer by the hundreds of others leaving and the budget loses its glamour. It is often noted that tax rates were much higher during the prosperous years of the Eisenhower administration. However, society is much more mobile now and work forces are much more competitive. Relocation is no longer a burden. Not only does California have America’s highest income tax rates, California has the nation’s highest sales tax rate, with counties that are looking to the more profitable real estate sectors to extract property tax and cities that are increasingly enforcing once lax gross receipts tax ordinances. One has to wonder why California needs the most pervasive tax regime by far of any state in the nation. s Mark Ericsson is a partner in the tax and business firm of Youngman & Ericsson, has served as the 2006 president of the Bar Association and is currently the chair of the Taxation Section. He has written over 30 articles on tax and business issues.



Elements of ATRA


by G. Scott Haislet

he American Taxpayer Relief Act (ATRA) became law on January 2, 2013.

ATRA: (1) repealed the sunset of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA); (2) increased tax rate; (3) increased the capital gains rate; (4) re-introduced the “stealth” taxes by reduction of itemized deductions and personal exemptions; (5) created “permanent” alternative minimum tax relief; and (6) extended estate and gift tax exemptions established in 2010. ATRA relief retained some of the Bush-era tax policies and avoided government spending cuts, although resolution of the debt ceiling question has only been deferred. ATRA was a compromise. The administration wanted higher tax rates on incomes of at least $250,000 (citing those successful families and individuals as “rich”), while Republicans resisted higher rates. The definition of rich settled at singles making over $400,000, and $450,000 for married joint filers.

Repeal of EGTRRA Sunset EGTRRA provided significant tax breaks from 2001 through 2012, particularly in the area of capital gain rates, estate taxes and gift taxes. EGTRRA was scheduled to sunset after 2010, meaning that we would return to higher tax rates in effect before 2001. Both sides agreed to defer the EGTRRA sunset at the end of 2010 to December 31, 2012, at which time the government would face its self-imposed fiscal cliff. When the dust settled, both sides claimed victory when they made


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EGTRRA permanent under ATRA, with no possibility of sunset in the future.

Income Tax Rates ATRA retained existing 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent rates that prevailed pre-ATRA. Absent ATRA, these rates would have been materially higher. ATRA added a 39.6 percent rate for income above the applicable threshold of $400,000 for single taxpayers, $450,000 for married joint filers and $425,000 for heads of household. The applicable threshold will be adjusted annually for inflation. The tax brackets on which income is taxed at 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent will be adjusted annually for inflation. These favorable policies retain the “bracket creep” avoidance policy dating from the 1980s.

Capital Gain Rates ATRA retained the zero percent and 15 percent long-term capital gain rates. That means zero percent capital gain rate will apply to gains that would otherwise be subject to 10 percent or 15 percent ordinary

rate; 15 percent will apply to gains that would otherwise be subject to 25 percent, 28 percent, 33 percent or 35 percent ordinary rate. ATRA imposes a 20 percent longterm capital gain rate on income above the applicable threshold (e.g., above $450,000 for married joint filers and $400,000 for singles). That means that 20 percent capital gain rate will apply to gains that would otherwise by subject to the 39.6 percent ordinary rate. For example, it will be possible for a gain to be taxed partially at 15 percent and partially at 20 percent. Long-term capital gain rates will apply to gains on sales of capital assets and on “qualified” dividends. A dividend is qualified if taxpayer holds the stock at least 61 days during the 121-day period that begins 60 days before the stock goes ex-dividend. Note: a new 3.8 percent tax will apply to net investment income (interest, dividends, gains, etc.) for those with “modified” adjusted gross income of $200,000, and $250,000 for married joint filers; that tax began January 1, 2013, under federal tax code section 1411, which was adopted by Congress in 2010. Thus, top federal long-term capital gain rates are effectively 23.8 percent.

ATRA also retained the 25 percent rate on “unrecaptured section 1250 gain,” which is taxpayer’s accumulated depreciation on real estate. Example: taxpayer buys commercial property for $1 million in 2005; taxpayer sells the property for $1.2 million on February 1, 2013, at which date accumulated depreciation was $100,000. Taxpayer will pay tax at applicable capital gain rate on $200,000 ($1.2 million minus $1 million purchase price) and pay 25 percent on $100,000 unrecaptured section 1250 gain. Taxpayer will avoid both the capital gain tax and 1250 gain tax in the event of a successful 1031 exchange. The new 3.8 percent tax will apply to the unrecaptured section 1250 gain.

Stealth Increases Without increasing tax rates, taxes increased during the Clinton administration by reducing deductions for personal exemptions and certain itemized deductions. EGTRRA reduced those stealth tax increases in 2005-2008 and eliminated

them from 2009-2012. Thus, for 2012, each individual was entitled to a personal exemption of $3,800 irrespective of income. A married couple without children would save $7,600 in taxable income. A married couple with two dependents would save $15,800 in taxable income. Under ATRA beginning in 2013, personal exemptions are phased out for adjusted gross income (AGI) over $250,000, and $300,000 for married joint filers. Beginning in 2013, itemized deductions for mortgage interest, taxes, charity, and miscellaneous deductions will be reduced for single taxpayers with AGI over $250,000, and $300,000 for married joint filers. The reduction of itemized deductions is 3 percent times that sum above applicable AGI.

Alternative Minimum Tax (AMT) AMT is an alternative taxation system. Each individual taxpayer computes his income tax under the “regular” and “alternative” systems,

paying the higher of the two. The regular system is AGI minus itemized deductions, minus personal exemptions, the result being taxable income subject to the tax rates discussed above. The AMT system is AGI, modified for certain items, minus itemized deductions (except that deductions for taxes and miscellaneous deductions are not permissible under AMT), the result being alternative taxable income subject to 26 percent or 28 percent rates. Note: many Californians fall into AMT because of high state income taxes. A relatively large personal exemption frees most taxpayers from AMT concern. The higher the personal AMT exemption, the more likely a person would not be subject to AMT. The previous permanent AMT exemptions were $45,000 for married joint filers and $33,750 for singles. Beginning with EGTRRA, the exemptions were temporarily increased with an AMT “patch”; laws

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Elements, cont. from page 13

enacted every one to two years after 2001 to provide for relatively higher levels of AMT exemptions. ATRA has eliminated the need for future patches by adopting permanently higher AMT exemptions: $78,750 for married joint filers and $50,600 for singles.

Estate and Gift Taxes Estate taxes are levied on a decedent’s assets valued at date of death. Tax law permits a person to transfer a sum of property and money to heirs or other individuals. The limit has varied over the years. The limit was $675,000 before EGTRRA, increased to $1 million under EGTRRA with additional increases until reaching $3.5 million in 2009. There was no limit for persons dying in 2010 (i.e., taxpayers died tax-free). Example: an unmarried person died in 2009 with net estate of $7.5 million with no prior gifts. The sum of $4 million would have been taxed ($7.5 million net estate minus $3.5 million exemption). The $4 million is the decedent’s taxable estate. EGTRRA was supposed to sunset at December 31, 2010. Congress extended EGTRRA, implementing a $5 million tax-free transfer limit applied for 2011 and 2012, again subject to expire after 2012. ATRA extended the $5 million limit permanently, with inflation adjustment after 2011. Thus, the limit for persons dying in 2012 was $5.12 million, and is $5.25 million for persons dying in 2013. The top estate tax rate in 2011 and 2012 was 35 percent. ATRA increased that rate to 40 percent. That means, for example, that a single person dying in 2013 with


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$7.25 million net estate will incur $800,000 estate taxes, which is $7.25 million minus $5.25 million, or $2 million, times the 40 percent top estate tax rate. This example assumes that the decedent had made no gifts prior to death that would have reduced the lifetime exemption limit. Gift and estate taxes were “unified” in 2011 and 2012 and remain so under ATRA, meaning that a donor’s gifts during life or after death count against the lifetime exempt limit. Therefore, some donors give money and property to their heirs during their life up to a lifetime limit ($5.25 million in 2013), because: (1) of concern that the government may reduce the limit in future, and (2) any appreciation on today’s gifts escape tax at the donor’s death.

While ATRA makes the $5 million limit permanent, nothing involving tax legislation is ever really permanent inside of the beltway, and that applies to all the permanent changes noted above. Thus, clients should consider inter vivos gifts to exhaust the lifetime gift exclusion in case it disappears. s

G. Scott Haislet is a CPA and tax attorney in Lafayette. He is a certified specialist in taxation law, Board of Legal Specialization of California Bar. His practice includes tax planning, preparation, controversies, real estate matters, estate planning, and 1031 exchanges. He may be reached at (925) 283-1031 or scott@


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Business Tax Provisions of ATRA 2012 An extension of targeted incentives, but needed corporate tax reform must wait…


hen have budgetary and tax machinations in Washington generated so fertile a phrase, one so conducive to corny metaphor and other colorful figures of speech? I pledge in writing this article to avoid the use of the phrase “fiscal cliff.” Oops, I just did. Well, never again…

The purpose of this article is to discuss those provisions of the American Taxpayer Relief Act of 20121 (the Act) of particular interest to business. The Act extends a variety of tax incentives for business, including 15-year depreciation and bonus depreciation on certain property and Section 179 expensing (essentially 100 percent depreciation on certain assets up to $500,000, subject to certain limitations). In addition, two very interesting corporate incentives were made retroactively applicable to 2012 and extended through the end of 2013. These are described and discussed in the first two sections below. The final section explores proposals for the corporate tax reform which are being seriously discussed in Washington, but which were not addressed in the Act.

Qualified Small Business Stock In the June 2011 edition of CC Lawyer, this author reported on an economic stimulus provision relating to small business stock. See “Gains from Investments in Small Business Stock Acquired During 2011 May Be Tax Free” [CC Lawyer June 2011]. Section 1202 of the

tax code generally provides a 50 percent exclusion of gain from the sale of “qualified small business stock.” Measures enacted in 2009 and 2010 increased the exclusion to 100 percent temporarily and thus allowed an investor to effectively pay zero percent tax on gains from QSBS purchased prior to the end of 2011 and held for at least five years before sale. QSBS is defined in Section 1202 as stock in a C corporation that: (1) has no more than $50 million in gross assets, and (2) engages in the active conduct of a qualified trade or business.2 For a detailed description of the other qualifications and limitations of Section 1202, see “Gains.” California adopted the analogue of Section 1202 in 1993, allowing a 50 percent exclusion of gain for QSBS, but restricted eligibility to California businesses. California did not follow the federal lead in offering a temporary 100 percent exclusion. The Act extends the effective zero percent tax rate on capital gains from the sale of QSBS through the end of 2013. It provides a 100 percent exclusion of eligible gain received by an individual taxpayer from the sale of QSBS acquired after September 7, 2010, and before January 1, 2014, and held for more than five years. In addition, gain from QSBS is excluded for alternative minimum tax purposes. Note that the Act has retroactive application to 2012. The exclusion had expired at the end of 2011. The Act both extends the exclusion through the end of the 2013 but also retroactively applies it to QSBS acquired in 2012. Absent another extension, beginning

by George Cabot January 1, 2014, QSBS will again be eligible for only a 50 percent exclusion and the excluded gain will be a tax preference item for alternative minimum tax purposes. That is the good news. The bad news is that California’s 50 percent exclusion has recently been found to be unconstitutional by the Court of Appeals in Cutler v. Franchise Tax Board, (2012) 208 Cal. App. 4th 1247, which held that the provision violates the U.S. Constitution by discriminating in favor of California businesses. That means that QSBS qualifying for partial or full exclusion for federal income tax purposes will still be subject to California income tax at rates up to 13.3 percent (capital gains are not eligible for preferential tax rates in California). Taxpayers who relied upon this exclusion in prior tax periods that are not closed by the statute of limitations are required to amend their returns and recompute their taxable income without the exclusion. From a planning perspective, the temporary 100 percent exclusion for QSBS makes the C corporation an interesting alternative to passthrough entities (LLCs and S corporations) for start-ups. In addition,



Provisions, cont. from page 15

existing LLCs and S corporations may want to explore conversion to C corporation status prior to the end of 2013. Will the exclusion be extended beyond 2013 or made applicable for California income tax purposes? There is certainly reason to hope so, given that the economy is likely to remain very sluggish well beyond 2013 or even return to recession as a result of the anti-growth policies currently being pursued in Sacramento and Washington.

S Corporation: Built-in Gains Relief Provision C corporations can gain the benefit of a single level of taxation by converting to S corporations. However, converted S corporations remain subject to tax on built-in gains on assets that existed at the time of conversion. If the S corporation disposes of any BIG assets during the 10-year period following conversion, the realized built-in gains are taxed at the highest C corporation tax rate, currently 35 percent. As a result of economic stimulus legislation in 2009 and 2010, the holding period for BIG assets was reduced. For tax years beginning in 2009 and 2010, the holding period was seven years. For tax years beginning in 2011, the holding period was five years, meaning that in 2011 an S corporation could sell BIG assets held as little as five years without being subject to BIG tax. Like the relief provision for QSBS discussed above, this S corporation relief provision expired at the end of 2011. However, ARTA 2012 extended the five-year holding period through the end of 2013 and made it retroactively applicable to 2012.

What Wasn’t in ATRA 2012 (but may be on the horizon):


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The U.S. corporate tax system has grown increasingly out of sync with the corporate tax structures in other developed countries. The U.S. currently taxes corporate income at a top rate of 35 percent - the highest among advanced world economies. The average is closer to 25 percent in most of the developed world. Moreover, most of the other developed countries have a territorial tax system, under which a company is taxed only on income generated domestically. The U.S., on the other hand, taxes a corporation on its worldwide income. Tax credits are available for taxes paid in a foreign jurisdiction, but if those taxes are imposed at a lower rate (which will usually be the case) the U.S. corporation effectively pays the higher U.S. tax rate. U.S. taxation of foreign earnings can be delayed by keeping the earnings inside foreign subsidiaries, but the earnings will be subject to U.S. taxation when repatriated to the U.S. According to J.P. Morgan, U.S. companies control $1.7 trillion in foreign earnings held outside the U.S., a portion of which would doubtless be repatriated and used for investment in the U.S. but for the disincentives in the current corporate tax system. There is an emerging consensus on both sides of the political aisle that the U.S. corporate tax system needs to be reformed to make it more competitive. President Obama has at least paid lip service to the notion in the presidential debates last fall. Proposals for legislative reforms are being actively debated, and the impetus for taking action is strong given the serious imbalance between the U.S. corporate tax system and that of our major trading partners. The outcome of reform proposals is far from certain, but what would be the implications of a reduction in top U.S. corporate tax rates to something in the 25 percent ballpark? A top corporate rate significantly below the individual rate, currently 39.6 percent, will reduce the tax

incentive for forming pass-through entities (LLCs and S corporations). There was a time in the past when a similar dynamic prevailed. For example, in the 1960s and 70s the top individual rate was 70 percent, but the top corporate rate was 35 percent. In those times it was not uncommon for closely held businesses to operate as C corporations. It was even common to hold real estate in C corporations – something that is considered the height of lunacy today. Nonetheless, if we again see a significant rate differential, it may be “back to the future.” Even without legislative reform, the temporary extension of the 100 percent exclusion for QSBS discussed above gives the C corporation a comparative advantage in some situations through the end of 2013, and maybe later if it is extended. s 1 P.L. 112-240, signed by the President on January 3, 2013. 2 The definition of “qualified trade or business” excludes investment companies, professional services and consulting, banking, insurance and other financial services, farming, oil & gas or mineral extraction, and the hotel, motel or restaurant business.

George S. Cabot is a Partner at PremierCounsel LLP, with offices in San Francisco and Lafayette. George is a Certified Tax Specialist with a business transactional practice focusing on structuring business entities, M&A and entity level tax planning.

Win A $100 GIFT CARD! We will be sending out a member survey via email this month and would greatly appreciate your feedback. When you receive it, please complete the survey for a chance to win a $100 gift card to the store or restaurant of your choice!

IRS Return Preparer Regs Derailed by Warren Peterson


n January 18, 2013, the United States District Court for the District of Columbia decided Loving v. Internal Revenue Service,1 derailed the IRS’ efforts to regulate hundreds of thousands of tax return preparers who are not attorneys, CPAs or enrolled agents with the IRS (hereinafter “unenrolled preparer”). The IRS had promulgated regulations that required unenrolled preparers to register with the IRS, pass a qualifying exam, pay an annual application fee and take 15 hours of continuing education each year. Three unenrolled preparers brought suit to enjoin the regulations. In an opinion issued just in time to throw things into a turmoil for this tax season, the District Court granted summary judgment to the plaintiffs finding that the IRS did not have the statutory authority to regulate unenrolled preparers. The IRS’ effort to regulate unenrolled preparers was prompted by

the increasing importance of third parties and tax preparation software in the preparation of tax returns. In 2007 and 2008, over 80 percent of federal individual income tax returns were prepared by paid tax preparers or by taxpayers using tax preparation software. The IRS has estimated that there may be 1.2 million paid preparers.2 Organizations such as the IRS National Taxpayer Advocate3 and the Treasury Inspector General for Tax Administration (TIGTA)4 have each identified errors and omissions in the preparation of tax returns by both unenrolled preparers and national tax preparation chains. Many critics argued that the wide-open nature of the industry makes it difficult to ensure minimum competence and ethical standards for unenrolled preparers.5 The IRS has been focusing on this issue since June 2009, when the Commissioner of the IRS, Douglas Shulman, initiated the Return Pre-

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parer Review. The IRS solicited input from the public which led to the following recommendations: 1. Mandatory tax return preparer registration. 2. Mandatory competency examinations for unenrolled preparers. 3. Required continuing professional education for unenrolled preparers. 4. Extension to unenrolled preparers of the ethical standards established by Treasury Department Circular 230.6 The IRS implemented these recommendations by adopting regulations. The system was to go into full effect as of the beginning of 2013. The IRS reported that 88 percent of those expressing an opinion favored registration of unenrolled preparers. Those who addressed the issues of minimum education and testing requirements were 90 percent in favor of such requirements.7 At the same time, others did not favor the direction the IRS was taking on regulation of unenrolled preparers. There were objections to the costs and burden the regulatory regime would place on return preparers, with the costs likely being passed onto taxpayers.8 This opposition to the new regulatory requirements prompted the filing of Loving. The District Court determined that the key question was whether tax return preparers are ‘representatives’ who ‘practice’ before the IRS” (Loving, p. 9). The court considered the meaning of



IRS Return, cont. from page 17 statutory language about “presenting their cases” and concluded that normal usage of the term would not include the tax return preparation activities of unenrolled preparers, striking down the regulations.

Northern California Mediator / Arbitrator 16 years as Mediator 25 years as Arbitrator 33 years in Civil Practice

The IRS will file an appeal by early March 2013.9 s

Roger F. Allen 510.832-7770

1 show_public_doc?2012cv0385-22 2

AICPA Tax Advisor, Regulation of Tax Return Preparers, May 1, 2011. 3

National Taxpayer Advocate, 2009 Annual Report to Congress, Vol. 1 (December 31, 2009). 4

TIGTA, Inadequate Data on Paid Preparers Impedes Effective Oversight (2009-40098), (July 14, 2009).

Ericksen, Arbuthnot 155 Grand Avenue, Suite 1050 Oakland, CA 94612


IRS Return Preparers Review, December 2009, pp. 24-30.


Supra, pp. 3-4.


Supra, p. 2.


Supra, p. 32.


Warren R. Peterson, a Danville sole practitioner, has been practicing law in one form or another for several years. He is a graduate of New York University School of Law and holds an M.S. in Taxation from California State University East Bay. Warren has extensive experience in various areas of corporate law and was employed as a Revenue Agent by the Internal Revenue Service. He is presently concentrating his practice in the area of tax conflicts, defending taxpayers in disputes with federal and California state tax authorities.

MARCH 2013

• Serving on Kaiser Medical Malpractice Neutral Arbitrators Panel • Settlement Commissioner, Alameda and Contra Costa Counties • Experienced in all areas of Tort Litigation, including injury, property damage, fire loss, malpractice, construction defect

WANTED — Conservatorships think


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Learn more about the CCCBA, its sections, committees, and upcoming events at

as in Pedder, Hesseltine, Walker & Toth, LLP

oldest partnership in Contra Costa County (since 1955)

p 925.283-6816 • f 925.283-3683 3445 Golden Gate Way, P.O. Box 479 Lafayette, CA 94549-0479 AV Martindale-Hubbell

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DAviD B. PAStor 1280 Boulevard Way, Suite 212 • Walnut Creek, CA 94595 925-932-3346 •

Annual Officer Installation January 25, 2013

The Honorable Barry P. Goode administering the oath

Fireside Chat with the Honorable Goodwin Liu

Board of Directors and Section Leaders taking the oath CCCBA 2012 President Audrey Gee CCCBA 2013 Board President Jay Chafetz presenting Richard Frankel with a plaque honoring his many years of volunteer service to the CCCBA Photos courtesy of Michael Moya, MOYA fotografx | ArType Studio



Meet Your New Judge: Judy Johnson

Administration of the oath by the Honorable Thelton E. Henderson

CCCBA Board President Jay Chafetz presenting the gavel

Presentation of the judicial robe by Delores Fontenberry and Maxine Johnson

The Honorable Diana Becton, Starr Babcock, Esq. and the Honorable Teri L. Jackson

JUDY JOHNSON was inducted on February 1, 2013. She

has been named as one of 20 “Women Leaders in Law” by The Recorder in 2011. Last year she came out of retirement and accepted an appointment by Governor Brown to the Contra Costa County Superior Court. After graduating from King Hall School of Law at UC Davis, Judy became a legal aid attorney in Oakland, and soon after was appointed as Assistant District Attorney for the city and county of San Francisco. In 2000, Judy took the position as the State Bar’s executive director and served for 11 years, the longest that the position has been held in California history. Judy is also extensively involved in community affairs as the elected board president for the California Consumer Protection Foundation.


MARCH 2013

The Honorable Willie Lewis Brown Jr.

Meet Your New Commissioner: Anita Santos ANITA SANTOS is excited to

be the new child support commissioner. Prior to her appointment, Anita had a private practice in Solano County as a sole practitioner in family law since 2008. After graduating from UC Berkeley, Anita attended Hastings College of the Law in San Francisco. In 1994, she began her career as a police officer in Concord. She moved on to become a deputy district attorney in Contra Costa County from 1997 through 2008. Anita has been married to her husband, Mitch Celaya, for 17 years. Mitch is chief of police in Calistoga. They have four children: JC, 23 years old, Nile, 16 years old, Mateo, 12 years old and four-year-old Lanissa.



Judicial Demeanor Training

In January, CCCBA members responded to the call from the CCC Superior Court for Pro Tem Judges. Participants in the Judicial Demeanor training classes learned about appropriate bench conduct, demeanor and decorum. Discussing potential scenarios led to much laughter among participants!

The Honorable Jill Fannin and the Honorable Theresa Canepa

Joscelyn Jones Torru and Helen Peters

Katherine Wenger

Women’s Section Powerlunch January 16, 2013

Nicole Mills and Robin Krutzsch

Margaret Grover, Michelle Thimesch, Ericka Ackeret and Michelle McGrath


MARCH 2013

Lubna Jahangiri, Victoria Robinson Smith and Marta Vanegas

Meet Your Local Judges, Family and Juvenile February 7, 2013

Andy Ross introducing the judges

Commissioner Anita Santos, Paula Grohs and Constance Figuers

The Honorable Barry Goode, Luis Montes and the Honorable Barry Baskin

Barbara Suskind, the Honorable Rebecca Hardie, the Honorable Barbara Hinton and the Honorable Lewis Davis

Peter Loewenstein, the Honorable Bruce Mills and Gary LaMusga Joe Wolch, the Honorable Trevor White and Lisa Reep



The Women’s Section

Annual Wine Tasting & Silent Auction Dedicated to the Hon. Joyce Cram on the Occasion of Her Retirement and for Her Service to the Women’s Section

Thursday, April 11, 2013 5:30 pm - 7:30 pm

Proceeds Benefit the Hon. Patricia Herron & Hon. Ellen James Scholarship Fund

Contra Costa Country Club 801 Golf Club Road Pleasant Hill

Pricing $15 for Students $30 for Section Members and Judges $35 for CCCBA Members $40 for Non-Members

De Tas liciou ty H s Clo ors Wines thin D’o gD euv & r ive r for Opp for W es! ortu a nity rdrobe !

RSVP Online at or contact Theresa Hurley at (925) 370-2548

Info on Donations or Sponsorship Contact Megan Cohen at (925) 945-1880 or email


MARCH 2013




KICKOFF FOR FOOD FROM THE BAR 2013 Benefitting the Food Bank of Contra Costa and Solano

When: Wednesday, April 24 Doors open 6:00pm Show starts at 8:00pm Where: Back Forty BBQ 100 Coggins Drive Pleasant Hill


Thanks to our Generous Sponsors!*

Will Durst


Irish Newsboys with Barry Melton

PATRONS Archer Norris Newmeyer & Dillon LLP The Recorder Steele, George, Schofield & Ramos LLP Timken Johnson LLP U.S. Legal Support, Inc.

Tickets: $60

*Vegetarian option available upon request - contact Renee by April 15 at (925) 771-1310 Bring a can of Beef Stew to enter a drawing for valuable prizes!

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GET YOUR TICKETS TODAY! For tickets, scan the QR code or contact Theresa Hurley at (925) 370-2548 or

*For sponsorship opportunities, contact Lisa Reep at (925) 288-2555 or

As of February 12, 2013

BBQ Buffet*: 6:30 - 7:30pm

CONTRIBUTORS Certified Reporting Services Esquire Gagen, McCoy, McMahon, Koss, Markowitz & Raines Gil Berkeley Law Offices of Suzanne Boucher MassMutual Financial Group Miller Starr Regalia Scott Valley Bank

Bring your checkbook to enter a raffle and bid on valuable silent auction items! CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER


Domestic Partner Coverage Rights Under the California Insurance Equality Act by Ralph L. Jacobson GJEL Accident Attorneys


nder California law, registered domestic partners are “two adults who have chosen to share one another’s lives in an intimate and committed relationship.”1 The California Domestic Partner Rights and Responsibilities Act of 2003 required that registered domestic partners be provided the same rights, protections and benefits as spouses; and that they also be subject to the same responsibilities, obligations and duties under law.2

One year later, the California Insurance Equality Act3 (hereafter referred to as The Equality Act) was enacted to mandate that insurance policies governed by the law provided coverage for the domestic partner equal to that provided for the spouse of an insured. It states: (a) Every policy issued, amended, delivered, or renewed in this state shall provide coverage for the registered domestic partner of an insured or policyholder that is equal to, and subject to the same terms and conditions as, the coverage provided to a spouse of an insured or policyholder. A policy may not offer or provide coverage for a registered domestic partner if it is not equal to the coverage provided for the spouse of an insured or policyholder. This subdivision applies to all forms of insurance regulated by this code. 26

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(b) A policy subject to this section that is issued…shall be deemed to provide coverage for registered domestic partners that is equal to the coverage provided to a spouse of an insured or policyholder. (c) It is the intent of the Legislature that, for purposes of this section, “terms,” “conditions” and “coverage” do not include instances of differential treatment of domestic partners and spouses under federal law. The Equality Act also amended Insurance Code Section 10121.7, regarding group health insurance, to read: “A policy of group health insurance that provides hospital, medical, or surgical expense benefits shall provide equal coverage to employers or guaranteed associations, as defined in Section 10700, for the registered domestic partner of an employee, insured, or policyholder to the same extent, and subject to the same terms and conditions, as provided to a spouse of the employee, insured, or policyholder, and shall inform employers and guaranteed associations of this coverage. A policy may not offer or provide coverage for a registered domestic partner that is not equal to the coverage provided to the spouse of an employee, insured, or policyholder.” Prior law had required group

health care insurance plans and policies of group disability insurance to offer coverage for the domestic partner of an employee or insured to the same extent as coverage provided to a dependent. 4 That statute was amended by the Equality Act as well. This prior definition seemed to be at odds with the statutory definition of dependent, which was: “’Dependent’ means the spouse or child of an eligible employee, subject to applicable terms of the health benefit plan covering the employee...”5 On its face, this definition did not seem to include the domestic partner, leaving ambiguity. Prior to adoption of the Equality Act, there were also gray areas as to the contractual standard of what constituted a dependent in a health insurance contract. Most revealing in that regard is Prudential Ins. Co. of America, Inc. v. Superior Court,6 which concerned whether or not a college student daughter of an insured was, or was not, a qualified dependent under her parents’ health insurance policy at the time she suffered catastrophic injuries. Under the policy, qualified dependent status was defined to include children of the insured over the age of 18 who were full-time students. In this case, the insured’s daughter had chosen not to enroll in school for the quarter following her freshman year due to personal problems, but she had retained the right to seek re-admission. Evidence from the school indicated that this was not an unusual circumstance; and the parents and student asserted she should be deemed a qualified

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dependent in light of her continuing relationship with her school at the time of the accident. But the appellate court, citing out-of-state cases on the same subject, held that the plain meaning of “full-time student” is “attending classes on a substantial basis.” Since the daughter had not met this requirement for the quarter in question, the court granted summary judgment in favor of the insurance company, and denied the daughter’s claim, finding that she was not a qualified dependent. Fortunately, prior to adoption of the Equality Act, there were no appellate cases which had to construe similar factual permutations of a partner’s status that might arise during a domestic partnership (part-time residency, lack of financial dependency on the other partner, etc.), in conjunction with this sort of murky notion of dependent status. The outcome would have been less than predictable, had such cases arisen. According to one commentator, these ambiguities caused real world problems for domestic partners: “Without a uniform definition [of dependency], confusion often resulted in the area of health insurance and domestic partners were routinely denied benefits and coverage, or were forced to pay higher premiums.”7 Under the Equality Act, there is now a “bright line” test: the domestic partner is indeed entitled to equal coverage as the named insured, without condition, and without the need for interpretation of dependency sta-

tus. For this reason, if nothing else, the Equality Act has served its purpose: premiums can be calculated based upon the known status of a domestic partner; and domestic partners can be assured of the right to the same insurance contract health benefits purchased by their partner, or by their employer on their behalf. A longer term question will be to what extent, over time, these health insurance rights of registered domestic partners might become subject to preemption by either law or regulation under ObamaCare. s 1

Family Code § 207(a).


Family Code § 207.5.


Ins. Code, § 381.5, et seq.


Cal. Health & Safety Code § 1374.58(a).


Ins. Code, § 10700(e).


Prudential Ins. Co. of America, Inc. v. Superior Court (2002) 98 Cal.App.4th 585, 600 7 Meredith A. Felde, California Insurance Equality Act: Providing Equal Insurance Coverage to Domestic Partners (2005) 36 McGeorge L. Rev. 917, 920.

Ralph L. Jacobson is a founding partner of, and now of counsel to, the law firm of Gillin, Jacobson, Ellis, Larsen & Lucey in Orinda.



The Population Cliff by Perry A. Novak


emography, the statistical study of living human populations, is one of those detail laden subjects that just doesn’t lend itself to much excitement, but demographic change is about to have a profound impact on the U.S. economy.

Here Comes the Baby Boom Population change normally occurs at a glacial pace, unless there is an extreme outside influence. World War II was just such an influence, increasing the U.S. birthrate by more than four million annually in the years following the war. From 1946 through 1964 there were 75 million births which gave rise to the term “baby boom.” When it comes to us boomers, no single group has had quite as profound an impact on the U.S. economy as we have. Boomers, who now range in age from 49 to 67, control over 80 percent of all personal financial assets, and account for more than half of all consumer spending. We are responsible for 80 percent of leisure travel, 77 percent of prescription drugs and 61 percent of overthe-counter drugs. The rise of the baby boom has caused tremendous growth in the U.S. economy, from the housing boom that started in the 1950s, to the creation of suburban living that changed the face of a previously agrarian nation. Unfortunately, the rapid retirement of the baby boom will accelerate some of the country’s most serious financial problems. Most of our large-scale consumptive spending occurs between the ages of 40 and 55, as we build our 28

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families and acquire the items we seek to make our lives more comfortable. After that, and especially as we approach retirement, our consumptive spending declines sharply. Consumer spending accounts for roughly 71 percent of U.S. gross domestic product (GDP). That is why the government usually deals with economic crises by trying to encourage consumers to spend. The changing demographics of the U.S. economy mean there will be fewer people in a position to spend us back to a robust economy. The second, more dramatic problem, is really two sides of the same coin. When we retire, we stop paying into programs like Social Security and Medicare and start taking out benefits. The money starts flowing the other way, so the costs of these programs rise dramatically just as their income is falling off sharply. More than 10,000 boomers a day began retiring in 2011 and that cycle will continue for most of the next two decades. More than 36 percent claim they have nothing in retirement savings and 35 percent of those over age 65 are relying entirely on Social Security for their retirement income. An AARP survey found that 40 percent plan to work until they die because they did not plan or save for retirement.

Social Security: Past and Present The Social Security program was created in 1937 and began paying regular benefits to retirees, age 65 and older, in 1940. At that time, however, average life expectancy in the United States was just 58 years.

If someone actually did live to age 65, their remaining life expectancy was 12.7 years for men and 14.7 years for women. When the program began, it covered workers but not spouses or dependents. It covered roughly 60 percent of the active workforce and provided a benefit equal to 26 percent of pre-retirement income. According to the 1940 census, there were only nine million Americans age 65 or older, and only a small fraction of them received benefits. The program was originally adopted to aid retirement only. It did not include disability payments or Medicare, both of which were added much later. Fast forward to 1990, and the numbers had changed dramatically. The number of Americans age 65 and older had climbed from nine million in 1940 to 34 million, comprising 13 percent of the U.S. population. Life expectancy had climbed as well. An expansion of the original law now covered 96 percent of the workforce versus the original 60 percent and benefits as a percentage of pre-retirement wages had climbed from 26 percent in 1940 to 45 percent in the 1990s. The increased number of retirees, living longer and receiving larger benefits as a percentage of their preretirement wages, has resulted in the payroll tax rate being increased over 500 percent since the program first began. Fully 80 percent of American workers pay more in payroll taxes than they pay in income taxes. That is why the federal government temporarily reduced the employee rate two years ago in an effort to influence consumer spending and jump-start the economy.

Unfortunately, the rate reduction expired at the end of 2012 and was not extended as part of the Fiscal Cliff Tax Bill. The result is an annual increase in employee payroll tax withholding of roughly $120 billion, which will impact consumer spending and potentially lower U.S. economic growth by roughly one-half of 1 percent in 2013.

The View from 2030 Fast forward again, to the year 2030. The number of Americans age 65 and older has more than doubled since 1990, rising from 34 million and 13 percent of the population, to 69 million and 20 percent of the population. Life expectancy, which had been 12.7 years for men and 14.7 years for women in 1940, has risen to 18 years and 21 years respectively. Estimates from the Social Security Trust Fund say that payroll taxes will have to double from their 2013 levels to cover the cost of providing benefits in 2030. Keep in mind, too, that these figures are for Social Security retirement benefits alone. They do not include the explosion in Social Security Disability costs or Medicare. Medicare alone cost $555 billion in 2011, and is expected to see costs rise 75 percent by 2021, according to the Congressional Budget Office (CBO). A Wall Street Journal editorial published in November 2012 found that while the national debt is about $16.4 trillion now, it rises to $87 trillion if we take into account the unfunded Social Security liability – the amount owed over the lifetime of those people who are currently retired and drawing benefits. Turn the clock ahead 20 years, when all of us boomers are retired, and the unfunded Social Security liability rises to $202 trillion, according to a Boston University study.

What Does a Trillion Look Like?

A trillion is one of those numbers, like light-years, that is often cited, but hard to get a handle on. What does a trillion look like? One trillion pounds is roughly the combined weight of every single person on the planet. If you had a trillion bricks, you could build the 5,500 mile-long Great Wall of China...and 257 more just like it. A pile of 202 trillion bricks, one for every dollar of unfunded future liability in the Social Security system, would build a Great Wall that would circle the earth almost 12,000 times. As our elected leaders wrestle with the debt ceiling, sequestration, the federal budget, national debt and deficit, and tax code changes, entitlement reform will be a constant topic of discussion and disagreement. Entitlement programs now consume every single dollar the federal government receives in tax revenue and the cost is rising rapidly. That is the real cliff. Let’s hope they find an answer soon. s


The Novak Group would like to thank the following sources of data used in this article: U.S. Social Security Administration (SSA); U.S. Census Bureau, U.S. Treasury Department, Congressional Budget Office (CBO), Office of Management & Budget (OMB); American Association of Retired Persons (AARP); Boston University; The Independent Institute; The Wall Street Journal; James Brown’s Option Investor; David Wessell, Red Ink: Inside the HighStakes Politics of the Federal Budget; UBS Wealth Management Research – Art Cashin, Director of Floor Operations, New York Stock Exchange.

Perry A. Novak, J.D., is a financial advisor and Senior Vice President at UBS Wealth Management in Walnut Creek, CA. Perry is an active member of the Taxation, and Business Law & Corporate Counsel sections. He has served as an advisor to the Joint Economic Committee of the U.S. House of Representatives, the California Society of CPAs and the California Medical Association. He can be reached at (925) 746-0245 or by email at perry.


“A unique and effective style a great mediator” Candice Stoddard     Ron Mullin

Willows Office Park   p   1355 Willow Way, Suite 110 Concord, California 94520 Telephone (925) 798-3413   p   Facsimile (925) 798-3118 Email




How do you fix the congressional process?

You need a bunch of independents or a third political party of centrists.

Fix the voters.

Jay Chafetz

Attorney at Law

Mark W. Frisbie

2013 Board President

Make our elected representatives be subject to all of the laws they pass, including social security and health care.

Joshua Genser

Genser & Watkins LLP

Elect Democrats!

Joel Zebrack

Attorney - Mediator

I believe that our Congress members now focus almost all their efforts to re-election rather than taking care of the nation’s business. Free TV and newspaper ads and finding a way to interest the bulk of the citizens the political process would help. A fix must really wait to make the citizens angry enough to get out and vote in large numbers.

Gerald T. Richards Attorney at Law


MARCH 2013

I was a strong supporter of term limits until I worked in the State Assembly. Then I soon realized that with term limits, the only people in the Legislature with any “institutional memory” were the lobbyists and others who were only too willing to take the freshman lobbyists “under their wing” and show them the ropes. With (3) two year terms, they were constantly worrying about raising re-election campaign funds instead of learning their way around. The end result was that many were wholly ineffective – voting for the wrong reasons – either uninformed, or to get re-elected. I suspect Congress is like that on steroids. SO…my plan would be that everyone gets to serve in Congress for one six year term…period, and then they go home. That way, they would not be distracted by raising campaign reelection money 80 percent of the time, they would have more time to get educated and, most importantly, they would vote their conscience – do the right thing without regard to how that vote would affect them in the next election. Six years is enough time to learn and do some good but not so long that if you occasionally got a real loser in there we couldn’t weather the storm until they were out.

Stephen Gizzi, Esq. Gizzi & Reep, LLP

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CCCBA offers MCLE self-study articles as well as audio and video self-study MCLE programs. You can get credit for a variety of courses including Detection/Prevention of Substance Abuse, Elimination of Bias and Legal Ethics. Go online to:



You can access and print your attendance certificates for most of CCCBA’s MCLE programs. Log in and choose “My Past Events.”

Elder Law is

The average survival rate is eight years after being diagnosed with Alzheimer’s — some live as few as three years after diagnosis, while others live as long as 20. Most people with Alzheimer’s don’t die from the disease itself, but from pneumonia, a urinary tract infection or complications from a fall. Until there’s a cure, people with the disease will need caregiving and legal advice. According to the Alzheimer’s Association, approximately one in ten families has a relative with this disease. Of the four million people living in the U.S. with Alzheimer’s disease, the majority live at home — often receiving care from family members.

If the diagnosis is Alzheimer’s, call elder law attorney

Michael J. Young

Estate Planning, Disability, Medi-Cal, Long-term Care & VA Planning Protect your loved ones, home and independence.

Alzheimer’s Planning


925.256.0298 1931 San Miguel Drive, Suite 220 Walnut Creek, California 94596



CCCBA offers help on fee disputes, client relations and access to directories for ADR, Experts, Judges and more. Go online to: attorney/assistance-services.



Joining a CCCBA section gives you the opportunity to network and access to special events and programs. With low annual dues, you’ll receive discounts on most section events. Go online to:



Easily search online for other members by city, practice area, language or section. Log in and choose “Directory Search.”

— WANTED — Will/Estate Contests Conservatorships

You handle the estate, we do the contest. Cases, except conservatorships, often handled on a contingent fee basis, but can be hourly. Referral fee where appropriate. Pedder, Hesseltine, Walker & Toth, LLP oldest partnership in Contra Costa County (since 1955)

p 925.283-6816 • f 925.283-3683 3445 Golden Gate Way, P.O. Box 479 Lafayette, CA 94549-0479 AV Martindale-Hubbell



inns of court

by Matthew Talbot


n January 11, 2013, Judge Craddick’s group (consisting of Jeremy Seymour, Nataly DiCortossa, Alison Chandler, David Marchiano, Heidi Coad-Hermelin, Harry Styron, Joseph Ryan, Matthew Guichard and Ralph Zappala) provided the educational presentation at the Robert G. McGrath Inns Of Court Meeting. Their presentation was about electronic discovery. It is often said (mostly by me) that discovery fights are the bane of every attorney’s existence. Nothing in this presentation helped dissuade me from that outlook. Even UFC fighters think discovery fights are too primitive and brutal. Technology has only complicated discovery in ways that few could have anticipated. The bottom line of the presentation was “never use technology ever.” First, Alison Chandler and Jeremy Seymour used a photo of Judge Craddick uploaded to Flickr to discuss meta-data. Meta-data is all the background information about electronic items (such as digital photos) that few ever pay attention to. They discussed how the iPhone tracks everything it does and everywhere it goes. This information can be discoverable and you might not have even known that it existed. The discussion next flowed to providing the electronically stored information (ESI). Federal Rule Of Civil Procedure 26(b)(2)(B) notes that


MARCH 2013

you don’t have to provide the ESI if it is not easily accessible because of burden or cost. Nataly DiCortossa and Ralph Zappala discussed the enforcement of this rule. You can bring motions for a protective order or to compel discovery. These motions are generally a delightful experience not filled with minutiae regarding what constitutes an undue burden. Or the exact opposite of that sentence. The discussion flowed to setting up a Discovery Plan for the court if you end up in the middle of an ESI discovery fight. Additionally, the group discussed the duty to preserve ESI. You do not have a duty to preserve every piece of electronic information. If you have a standard policy (such as deleting ESI every 90 days), it is appropriate. However, deleting ESI specifically to avoid

discovery is about as big a no-no as you can get. Unless you slap your opposing counsel about the face and neck with a stack of document requests. And negligent destruction can even lead to sanctions. So, don’t leave all of your hard drives on the furnace during the winter. Matt Guichard and David Marchiano then focused on the protective orders. They discussed drafting them, including Liquidated Damages Clauses in the Protective Orders themselves. The conversation flowed to methods of production. Electronic discovery can include thousands or even millions of documents. It could easily overwhelm a smaller law firm. One way to assist with electronic discovery is to hire a vendor to organize the discovery. You can use in-house attorneys if you are a big enough firm, but

that can be expensive for the client. Some attorneys even outsource the organization and review process to foreign corporations. The key is to ensure that only appropriate documents are sent and nothing privileged is sent to opposing counsel. Casey McTigue introduced us to the concept of the discovery clawback. In that always awkward situation when you inadvertently provide a privileged document, you can basically demand that opposing counsel destroy the document without reviewing it. They have to destroy it and the privilege is protected! It is significantly more complicated than that, but I only have so many words. Joseph Ryan finished off the night with a further discussion of various privileges that can restrict document production. He noted that pursuant to California Evidence Code 917, if you claim privilege for a document, the opposing counsel has the burden of proof to disprove privilege. Disproving privilege can be incredibly difficult without reviewing the document giving the discovery respondent the advantage. All this discussion helped remind me to avoid discovery fights for my own mental sanity. The next meeting is March 14, 2013, at the Lafayette Park Hotel. To learn more about the Inns Of Court and get involved, contact President Scott Reep at (707) 784-0900 or Scott@Solanolawgroup. com. s




* Adjunct Professor Taxation Golden Gate University Law School, LL.M. Taxation Program

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MARCH 2013

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March 12 | Alternative Dispute Resolution Section

ADR Roundtable: Using ADR to Resolve Discovery Disputes more details on page 36 March 15 | Real Estate Section

Recent Developments for the Intersection Between Deeds of Trust and Article 3 of the Commercial Code more details on page 36 March 15 | Family Law Section

How Children’s Development and Sexual Behavior Impacts Custody more details on page 36 March 21 | Employment Section

ERISA - Employment Retirement Income Securities Act Basics for Employment Law Practitioners more details on page 36 April 10 | Family Law Section

Social Security & Retirement - Effect on Spousal Support more details on page 36 April 11 | Women’s Section

Annual Wine Tasting & Silent Auction more details on page 24

April 23 | Conservatorship, Guardianship, Probate & Trust Section

20th Annual Probate & Trust Symposium more details on page 36

April 24 | Res Ipsa Jokuitor XVIII

Comedy Night & Kickoff for Food from the Bar 2013 more details on page 25 April 25 | Employment Section

The Employment Tax Consequences of Settlements and Judgements more details on page 37 April 29 - May 10 | CCCBA

22nd Annual Food From the Bar more details on page 37 May 2 | CCCBA

Interprofessional Mixer - Springfest! more details on page 37 May 9 | Appellate Section

A Discussion with Justice Henry Needham more details on page 37 May 10 | Employment Section

Violence in the Workplace: Employer Obligations, Legal Issues and Threat Assessments more details on page 37 May 15 | Business Law & Corporate Counsel Section | Litigation Section

The Ever-Evolving Enigma of ESI (Electronically Stored Information) and Its Ethical Obligations more details on page 37

For up-to-date information on programs, please visit and/or subscribe to our weekly “Events & News” email. To subscribe, text CCCBA to 22828. CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER


March 12 | Alternative Dispute Resolution Section

ADR Roundtable: Using ADR to Resolve Discovery Disputes This roundtable will be a wide ranging discussion of ways to use ADR to resolve Discovery and other pre-trial disputes short of a complete global settlement. Drinks and snacks will be provided. Speaker: Kenneth Strongman Time: 6 pm – 7:30 pm Location: San Ramon Center 2010 Crow Canyon Place - 1st Fl. Conference Room, San Ramon MCLE: 1.5 hours general credit Cost: $10 for section members and law student members; $15 for CCCBA members; $20 for non-members

March 15 | Real Estate Section

March 15 | Family Law Section

Recent Developments for the Intersection Between Deeds of Trust and Article 3 of the Commercial Code

How Children’s Development and Sexual Behavior Impacts Custody

Speakers: Marcus Brown Brian Gunn Time: 7:30 am – 9 am Location: Scott’s Seafood 1333 N California Blvd., Walnut Creek MCLE: 1 hour general credit Cost: Free for section members; $5 for law student members; $15 for CCCBA members; $35 for non-members Registration: Online at More Info: Contact Theresa Hurley at (925) 370-2548

Registration: Online at

Speakers: Rhonda Barovsky, LCSW, BCD Hon. Jill Fannin Carol George, PhD, Prof. of Psychology, Mills College Time: 1:15 pm – 4:45 pm Location: Contra Costa Country Club 801 Golf Club Rd., Pleasant Hill MCLE: 3 hours general credit Cost: $75 for section, CIC and law student members; $100 for CCCBA members; $150 for non-members Registration: Go to the Family Law website at More Info: Contact Therese Bruce at (925) 930-6789

More Info: Contact Theresa Hurley at (925) 370-2548

March 21 | Employment Section

April 10 | Family Law Section

ERISA - Employment Retirement Income Securities Act Basics for Employment Law Practitioners

Social Security & Retirement Effect on Spousal Support

Speaker: Ruth Silver Taube, Esq., Law Office of Silver & Taube

Location: Contra Costa Country Club 801 Golf Club Rd., Pleasant Hill

Time: 12 pm – 1:15 pm

MCLE: 1 hour general credit

Location: Massimo Ristorante 1604 Locust St., Walnut Creek

Cost: $50 for section members and law student members; $75 for CCCBA members; $100 for non-members

MCLE: 1 hour general credit Cost: $35 for section members and law student members; $45 for CCCBA members; $50 for non-members Registration: Online at More Info: Contact Theresa Hurley at (925) 370-2548

Time: 12 pm – 1:15 pm

Registration: Go to the Family Law website at More Info: Contact Therese Bruce at (925) 930-6789

April 23 | Conservatorship, Guardianship, Probate & Trust Section

20th Annual Probate & Trust Symposium, sponsored by Mechanics Bank Making the most of and avoiding the pitfalls of the new tax legislation. Registration: 11:45 am | Buffet Lunch: 12 pm Program: 1 pm - 2:45 pm Dessert Reception to follow Speaker: Samuel A. Donaldson, Prof. of Law, Georgia State University College of Law Time: 11:45 am – 2:45 pm Location: Lesher Center for the Arts 1601 Civic Drive, Walnut Creek MCLE: 1.5 hours tax specialization credit (pending) Cost: $50 for section members; $25 for law student members; $60 for CCCBA members and non-members Registration: Online at More Info: Contact Theresa Hurley at (925) 370-2548


MARCH 2013

April 25 | Employment Section

April 29 - May 10 | CCCBA

May 2 | CCCBA

The Employment Tax Consequences of Settlements and Judgements

22nd Annual Food From the Bar

Interprofessional Mixer - Springfest!

Make a difference to the hungry people in Contra Costa County (and show those other law firms how generous your firm really is!)

Come join attorneys, bankers, CPAs and real estate and financial professionals for an informal happy hour mixer. Get to know other trusted advisors. No host bar.

Speaker: William Hays Weissman, Esq., Littler Mendelson, P.C.

MCLE: 1 hour general credit

This year marks the 22nd Annual Food From the Bar drive benefitting the Food Bank of Contra Costa and Solano. This amazing organization provides food to over 132,000 people EVERY MONTH in Contra Costa and Solano counties.

Cost: $30 for section members; $25 for law student members; $35 for CCCBA members; $45 for non-members

The firm with the highest per capita figures in each category will receive an individual award for permanent display in their office.

Registration: Online at

This year’s goal is $100,000 and 10,000 pounds of food. We hope to break the $1,000,000 mark in cumulative FFTB donations this year. Do your part to feed the hungry in your area. Participate in Food From the Bar!

Time: 8 am – 9:15 am Location: Scott’s Seafood 1333 N California Blvd., Walnut Creek

More Info: Contact Theresa Hurley at (925) 370-2548

Time: 5 pm – 7:30 pm Location: Pyramid Alehouse 1410 Locust St., Walnut Creek Registration: Please RSVP online at More Info: Contact Theresa Hurley at (925) 370-2548

Donate food from your computer with the Virtual Food Drive! Sign up online at

May 9 | Appellate Section

May 10 | Employment Section

A Discussion with Justice Henry Needham

Violence in the Workplace: Employer Obligations, Legal Issues and Threat Assessments

Join First District Court of Appeal Justice Henry Needham and Appellate Practice Section Chair Gary A. Watt for a discussion on appellate practice, pitfalls and pet peeves. Speakers: Justice Henry E. Needham Gary A. Watt, Esq. Time: 12 pm – 1:15 pm Location: Archer Norris 2033 N Main St. #800, Walnut Creek MCLE: 1 hour appellate law specialization credit (pending) Cost: $15 for section members; $25 for CCCBA members and non-members Registration: Online at More Info: Contact Theresa Hurley at (925) 370-2548

Speakers: James Cawood, Threat Assessment Expert, Factor One Thomas Klein, Esq., TKlein Associates, Inc. Moderators: Andrea Kelly Smethurst Shannon Walpole Time: 8 am – 9:15 am Location: Scott’s Seafood 1333 N California Blvd., Walnut Creek MCLE: 1 hour general credit Cost: $30 for section members; $25 for law student members; $35 for CCCBA members; $45 for non-members Registration: Online at More Info: Contact Theresa Hurley at (925) 370-2548

May 15 | Business Law & Corporate Counsel Section and Litigation Section

The Ever-Evolving Enigma of ESI (Electronically Stored Information) and Its Ethical Obligations Program from 3:30 pm - 5:30 pm, Wine and Cheese reception to follow. Free parking validation offered. Speakers: Hon. Steve Austin Jonathan Redgrave, Esq. Kirk Pasich, Esq. Jeffrey Rabkin, Esq. Roger Brothers, Esq. Moderator: Linda DeBene, Esq. Location: JAMS Office Conference Room 1255 Treat Blvd. #700, Walnut Creek MCLE: 1 hour general credit 1 hour legal ethics credit Cost: $30 CCCBA members; $35 for nonmembers Registration: Online at



WE WANT YOUR ARTICLES! We invite you to take the opportunity to get your articles published. Please take a look at our 2013 editorial calendar below for upcoming themes and deadlines. If you think of a timely, interesting article - write it and send it to us! We have editorial guidelines available on our website, at


2013 EDITORIAL CALENDAR Print issues are listed in bold, online-only issues in regular font. Themes are subject to change. Check our website for the most up-to-date information.




April 2013 Mar 12, 2013 Employment Law May 2013

Apr 5, 2013

The Future of Law Practice

June 2013

May 7, 2013

The Vacation Issue

July 2013 June 3, 2013 Criminal Law August 2013

July 9, 2013

Women in Law

September 2013

Aug 2, 2013

Real Estate

October 2013 Sept 10, 2013 Our Cities November 2013

Oct 4, 2013

Bench/ Bar Issue

December 2013

Nov 12, 2013

Pro Bono



MARCH 2013

Why YOU should make referrals to CCCBA’s

LRIS • Our LRIS is the only State Bar certified & ABA approved lawyer referral service in our county • Our LRIS has been providing quality referrals as a public service since 1978 • LRIS panel attorneys are required to meet specific experience requirements as a prerequisite to joining the service • Every LRIS attorney is required to carry malpractice insurance • Our LRIS has an experienced, friendly and knowledgeable staff to assist you!

Candice E. Stoddard Personal Injury Real Estate Litigation Trust and Estate Disputes Mediation


Law Offices of Candice E. Stoddard 1350 Treat Blvd., Suite 420 Walnut Creek, CA 94597

925.942.5100   •   fax 925.933.3801 Practicing law in the East Bay for over 25 years

Ingenuity Colleen is renown for understanding her clients' financial needs. Using ingenuity, and that understanding, she works hard to find the best solutions for you and your business. Her commitment exemplifies the personalized service for which Scott Valley Bank is known. Her 30 years of banking experience and Scott Valley Bank - now that is a powerful marriage of knowledge, experience, and the style of banking service you deserve.

For more information, call LRIS Coordinator Barbara Arsedo at 925.370.2544

Walnut Creek Office 1500 N. California Blvd. • 925.944.0180 Oakland • 1111 Broadway • 510.625.7850 San Jose • 2001 Gateway Place • 408-573-7710

Colleen Benatar

VP / Relationship Banker

925.944.0180 ext. 215




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MARCH 2013