THIS ISSUE'S HEADLINES

New Privacy Protections for Substance Use Disorder Treatment

Putting Flexibility Back Into Your IRAs with Charitable Remainder Trusts

Fundamental Provisions of a Construction Contract

Stay Informed — PLDO COVID-19 Resource Library


NEW PRIVACY PROTECTIONS FOR SUBSTANCE USE DISORDER TREATMENT

On December 2, 2022, the U.S. Department of Health and Human Services (“HHS”) issued a Notice of Proposed Rulemaking in the Federal Register, announcing regulation changes designed to better align the overlapping and often-conflicting privacy protections for Substance Use Disorder (“SUD”) treatment found in HIPAA and 42 CFR part 2, commonly referred to as “Part 2.” As any healthcare provider can attest, HIPAA’s privacy protections are very strong. As any SUD provider can attest, HIPAA has nothing on Part 2.

Part 2 has strong prohibitions against disclosing SUD treatment records without the written consent of the patient for each disclosure and redisclosure. Promulgated in the 1970s, the intent of Part 2’s draconian restrictions was to protect SUD patients from the stigma of being labeled as substance users. Fifty years later, with a change in public perception arising from a better understanding of the physiological nature of SUD, the greater concern has become Part 2’s prohibition against an SUD treatment provider sharing a patient’s SUD records with a provider treating the patient for other medical issues. Care protocols may differ if a patient is afflicted by, and/or is in treatment for, SUD issues. The inability of a treating provider to access SUD records without a patient’s written consent for each disclosure can put that patient’s life or well-being at risk.

Like Part 2, HIPAA generally prohibits a health care provider from disclosing a patient’s health information without the patient’s consent. However, unlike Part 2, HIPAA provides a reasonable array of circumstances under which a patient’s health information can be disclosed without the patient’s specific consent. The most common of these are the “TPO” exceptions: treatment, payment, and health care operations. The treatment exception allows providers to share information about a patient in a manner often could not be accomplished if the patient had to provide specific consent for each disclosure, and this information-sharing can often have a direct impact on medical outcomes.

The CARES Act, which was enacted to provide emergency relief during the COVID health emergency, instructed to HHS to make changes to HIPAA and Part 2 that bring Part 2 more into alignment with HIPAA in numerous ways, beyond merely enabling TPO disclosures. Part 2 will now incorporate HIPAA-like provisions granting patients the rights to access their records, and to restrict and be informed about disclosures. Certain providers will have to modify their Notices of Privacy Practices to include language regarding SUD records. And significantly, Part 2 will now explicitly incorporate HIPAA’s breach notification rules, and its significant civil monetary penalties for breaches and other violations.

This Proposed Rule, like most, fills hundreds of pages in the Federal Register: far more than can be addressed here. To learn more, please contact PLDO Partner Joel K. Goloskie at jgoloskie@pldolaw.com or 401-824-5130.

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PUTTING FLEXIBILITY BACK INTO YOUR IRAS WITH CHARITABLE REMAINDER TRUSTS

In late 2019, Congress enacted the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which aims to expand, preserve, and encourage retirement savings. While the Act does provide business and individuals with more flexibility and options for retirement planning, its elimination of the popular “stretch” feature for qualified plans and Individual Retirement Accounts (IRAs) presents new planning challenges.

Prior to the enactment of the SECURE Act, the IRA owner’s child, grandchild, or other non-spouse beneficiary who inherited the account could “stretch” the required minimum payments (RMDs) over his or her life expectancy. This strategy allowed the beneficiary to spread the income tax liability over his or her remaining lifetime and investments within the account to grow and compound income tax free. The SECURE Act got rid of the stretch provision for many (but spouses and certain other “eligible” beneficiaries [e.g., a minor child or a disabled or chronically ill beneficiary] can still use it), creating a new 10-year rule.

Now, instead of being able to stretch inherited IRA withdrawals over a lifetime, non-eligible beneficiaries must draw down the account by the end of the 10th year following the owner’s passing, thereby reducing the benefit of tax-free growth and accelerating income tax liability on distributions from the account. Several planning opportunities exist for the non-eligible beneficiaries of an inherited IRA under the SECURE Act, including a solution that utilizes a special trust known as a Charitable Remainder Trust (CRT).

If the intended beneficiary does not fall within one of the exceptions, naming a CRT as beneficiary of your IRA or qualified retirement plan can provide the tax efficiencies, lifelong income stream, and other benefits of the stretch IRA (assuming it is structured properly). A CRT is an irrevocable trust that distributes a percentage of its assets to one or more individual beneficiaries for life or a term of up to 20 years. After that, the remainder goes to one or more charities. The percentage distributed to the beneficiaries can range from 5% to 50%, and annual payments may be based on a fixed percentage of the trust’s initial value (an annuity trust), or the trust’s value recalculated annually (a unitrust). Recently, most of our clients have opted for the unitrust variation because it allows payouts to keep pace with inflation.

Setting up this plan involves a simple two steps. First, the CRT is established either as a separate trust that is created, but not funded, during the IRA owner’s lifetime, or is incorporated as part of the IRA owner’s will or revocable trust. Next, the IRA owner designates the trust as beneficiary of the IRA. At the owner’s death, the transfer from the IRA account to trust is tax-free because a CRT is a tax-exempt entity. Assets within the trust can grow tax free over the beneficiaries’ lifetimes or 20-year term (as the stretch IRA used to work). The funds are not taxed until they are distributed to the beneficiaries over the payout period. This is particularly useful if beneficiaries are in their peak earning years and the additional income would push them into a higher tax bracket. Additionally, unlike the receipt of IRA funds, which are subject to tax by the beneficiary at ordinary income tax rates, distributions may be subject lower tax rates depending on the amount and type of trust investments.

We encourage you to speak with us if using a testamentary charitable remainder trust in lieu of a stretch IRA is of interest to you. This planning can result in a steady income stream for your intended beneficiaries and much larger amounts of wealth shifting from one generation to the next. For more information, please contact Attorney Jason P. Jones in PLDO’s Boca Raton, Florida office at 561-362-2030 or email jjones@pldolaw.com.

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The construction industry is complicated in terms of relationships and communication. A crucial step to successfully completing a construction project involves the drafting of terms that outline the how the relationship between the contractor and owner will work. A clearly worded construction contract is essential to mitigating the risks for both parties in preventing or resolving future disputes. Below are the most important provisions to include in a construction contract:

Scope of Work
A clearly defined scope of work for a construction project is critical to protecting both parties and mitigating disputes, particularly as it relates to who is responsible for each portion of the project. The plans and specifications for the project are the basis for the scope; however, the contract should be detailed as to what portion of the plans and specifications are owned by the contractor or third parties.

Limitation of Liability
The construction contract must also outline who has liability for the various components of the project. To limit a contractor’s liability, a specific limitation clause must be included which would limit activities and their associated dollar values. Most importantly, should there be a delay in the project, the clause should include a limit to consequential damages, i.e., loss of use, revenue or profit.

Indemnities
Indemnity provisions in a construction contract are intended to hold a party liable for direct loss or damage incurred or arising from, or in connection with, services provided that were outlined in the scope of work. Indemnity language must be specific and qualified to reduce the potential for a dispute. A loss caused by a third party should be carved out of an indemnity clause applying to the contractor. The contractor should also seek to be indemnified for any loss arising from the negligent acts of a third party.

Payment Terms
It is important that the contract clearly outline the payment terms and methods of payment, which could lead to delaying the receipt of payment. The elements relating to payment terms should include when payments will be made, entitlement to interest if a payment is late, and how and when the contractor would benefit from delivering the project early. A carefully drafted termination clause protects the contractor when the owner is not complying with the payment terms of the contract. In this event, the contractor would have the right to stop work. Without this clause, the contractor remains at risk to complete the project despite defaults by the owner.

Force Majeure
Anticipating potential events that might impact the completion of the project pursuant to the original terms has become commercially impractical or impossible. Force majeure clauses protect the contractor if circumstances arise during the project that are beyond the control of the contractor.

Additional Clauses
Several additional clauses in construction contracts are essential to fair dealing by the parties. Including a “entire agreement clause” in the construction contract seeks to prevent claims that were not foreseen by the parties when the project was originally priced. The goal is to eliminate claims relating to so-called “oral agreements” during the project. Other clauses, such as warranty obligations, termination for convenience and dispute resolution, are all intended to protect both parties and prevent future disputes.

To avoid unnecessary disputes, the terms of a construction contract must be consistent in the relationship between the general conditions and schedules. Use of the phrase “incorporated by reference” is dangerous for the contractor who does not carefully review the relationship between the scope as defined and the plans and specifications. Construction projects involve multiple contracts that are intended to work simultaneously. Therefore, it is important that the clauses for each contract line up with the general contract as it relates to what documents govern the relationship.

In summary, a construction contract, which is confined to an AIA document, must be carefully drafted. To the extent that the standard AIA terms do not protect the contractor, an exhibit should be included that addresses the fundamental provisions outlined above. For further information on construction contracts, please contact PLDO Managing Principal Gary R. Pannone at 401-824-5100 or email gpannone@pldolaw.com.

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STAY INFORMED – PLDO COVID-19 RESOURCE LIBRARY

PLDO’s team of attorneys continue to add updates and advisories regarding the pandemic and its impact on families, businesses and organizations. To access our COVID-19 Resource Library, click here.

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