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» Looking out for the little guy » Looking at undue influence
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DAVID SWANN / DSWANN@STARBULLETIN.COM
Looking out for
the little guy
The U.S. Small Business Administration defines small business as an independent business having fewer than 500 employees. Hawaii's Regulatory Flexibility Act, as amended in June 2002, defines it at 100 employees or less.
According to the SBA's most recent report, 96.7 percent of all businesses in Hawaii are small and they employ approximately 56 percent of the state's working population.
Our figures closely pattern those of the nation as a whole, where small firms represent more than 99.7 percent of all employers and have more than 50 percent of all private sector employees. They also create more than 50 percent of non-farm private gross domestic product.
One can imagine that if this sector was crippled, Hawaii's economic stability would be devastated. And so I applaud Gov. Linda Lingle's agenda and action plan in support of small businesses. Obviously, she knows the key players in stimulating the economy.
The most distressing factors that plague this sector are taxes and regulations. This may sound common-sensical, however, one must consider the limited assets of small organizations to assess the magnitude of these burdens. Compared to medium- and large-sized companies, small businesses are at a heavy disadvantage. For example, an employment lawsuit may bring the same financial ramifications to a small firm as it would to a larger one. Fines and penalties are based on the gravity of violations, not the size of the organization. So the ratio of legal liabilities over assets tends to be more leveraged for larger organizations. Although company size imposes a quantitatively higher probability of legal risks, the magnitude of risks is the same for all sizes. In the area of employment, it could take only one person to close a company. The only time regulations become a non-issue is if a firm is too small to be covered, either by number of employees under the anti-discrimination laws, or by gross annual income under the wage and hour laws.
An August 2001 study by W. Mark Crain and Thomas D. Hopkin found that "very small firms with fewer than 20 employees spend 60 percent more per employee than larger firms to comply with federal regulations. Small firms spend twice as much on tax compliance as their larger counterparts." And we should understand that state regulations can either mirror federal regulations, or be more restrictive, but never more lenient. Therefore, our legislators and state court systems must help our small businesses fulfill the terms of the already burdensome federal regulations, without imposing any more restrictions that add cost to doing business here in Hawaii.
According to Beverly Harbin, small business advocate for the Chamber of Commerce of Hawaii, the biggest issues facing small businesses in the state is the enforcement and administration of existing rules. They believe enforcement should be done in a more supportive and collaborative fashion, rather than the policing approach they experienced in the past. Government agencies will better serve their purpose, and the public in general, if they apply customer service principles to working with businesses. For example, without undermining the seriousness of any rules violation, friendly warnings and guidance sessions would serve for a first minor safety offense, instead of an outright issuance of fines and penalties.
The last thing that people and businesses want to feel is the government using regulatory implementation as an abusive, money-making effort. They want to see a government-business partnership. "We need to have the governor behind this fresh mindset," said Harbin. She said the governor and her staff have been willing to dialogue with her group, an important step in proactive legislation.
Michelle Alarcon is an assistant professor of management at Hawaii Pacific University. She can be reached at malarcon@hpu.edu.
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Looking at
undue influence
It is natural for people who have a close relationship to want to benefit each other. This is especially true in Hawaii where our ohana often extends far beyond our blood relations. However, sometimes people can try to use a close relationship to try to take advantage of a vulnerable person.
As a result, gifts and inheritances left by such a vulnerable person can be subject to question if they seem unusual, even if no foul play is involved. This question arose when Jake Schlagel Jr. left assets to Martha Teegarden.
Jake hired Martha in 1994 to take care of Jake's ailing wife, Ethel. Ethel suffered from Pick's disease, a progressive degenerative disease much like Alzheimer's. Martha lived in the Schlagels' home and provided nursing services to Ethel. A few months after Martha was hired, Ethel was moved to a nursing home. Martha continued to live in the Schlagels' home and continued to provide nursing services to Ethel in the nursing home. By late 1996, Jake's relationship with Martha had become intimate and romantic. Jake and Ethel's children disapproved and family relationships became strained. Jake transferred assets to Martha's name and disinherited the children. He took these actions after consulting with an attorney.
Jake revised his will to give part of his estate to a trust for Ethel for life with the balance going to their grandchildren. He gave the other part of his estate to Martha, or to his grandchildren if she did not survive. In 1999, Martha transferred back to Jake all of the property he had placed in her name during the earlier family hostilities.
Jake and Ethel died within months of each other in late 1999. Jake's children challenged the will and alleged that Martha had exerted undue influence over him. However, the Colorado Court of Appeals decided that the bequest to Martha was not the result of undue influence. Although the nature of their relationship caused a presumption of undue influence, that was overcome by careful planning.
The fact that Jake consulted an attorney was key to the decision. The court concluded that Jake had made the decisions based on his discussions with his attorney and that Martha did not play an active role in Jake's estate planning.
This illustrates the critical nature of proper estate planning, especially when you contemplate making a disproportionate gift or bequest to someone in a position of influence.
Judith Sterling and Michelle Tucker are partners in the Honolulu law firm of Sterling & Tucker. Reach them through www.sterlingandtucker.com or by calling 531-5391.
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