Section 501(C)(3) Organizations, Single Member Limited Liability Companies, and Fiduciary Duties
Ellen P. Aprill
Tax-exempt organizations, including section 501(c)(3) organizations and their donors, use single member limited liability companies (SMLLCs) for a variety of purposes. Exempt section 501(c)(3) nonprofit organizations—to be referred to as charities—that have a number of facilities, such as schools, hospitals, or real estate investments, may form a separate SMLLC for each of them, primarily to protect other assets from liability. Charities may wish to place an activity with a high risk of environmental or tort liability, such as an overnight summer camp, in its own SMLLC. SMLLCs may be used to isolate unrelated business activities from related activities or risky investments from more traditional ones. They may also be used to isolate risky investments from more conservative ones.
An SMLLC leads a schizophrenic existence. Although an entity under state law, it is disregarded for most purposes under federal tax law. Furthermore, the leading theoretical approaches to LLCs and to nonprofit organizations stand in sharp contrast to each other, particularly regarding the ability to rely on contract. These very different sets of applicable law and theory allow for regulatory arbitrage, which involves taking advantage of inconsistencies between the applicable rules.
LLCs, including SMLLCs, have the choice of being member- managed or manager-managed. To ensure the greatest liability protection, the member of an SMLCC may choose for it to be manager-managed. Some LLC statutes, most importantly Delaware’s statute, permit the SMLCC to waive fiduciary duties. Charities, however, cannot waive fiduciary duties. This divergence in applicable rules regarding fiduciary duties could lead to conflict between the member charity and its SMLCC, such as pursuing activities inconsistent with the charity’s exempt purpose or engaging in campaign intervention. To avoid such conflict, this Article recommends that the IRS issue guidance requiring control of the SMLCC by the charity, as it has done in the context of charitable contributions to a charity’s SMLCC.
You Can’t Lock the Doors! Are Lenders Powerless to Stop Zombie Properties In Lien Theory States?
Timothy M. Harris
In Jordan v. Nationstar Mortgage, the Washington Supreme Court effectively eliminated a lender’s ability to change the lock on a house after a borrower has defaulted on a loan—even to secure and protect the lender’s interest in the property—regardless of whether such limited entry is contractually permissible or whether the property is vacant. The case represents a significant development in the law of Washington and may reverberate to the many states with lien theory statutes like Washington’s. Jordan may have the unintended consequence of harming lenders, borrowers, and neighborhoods by furthering blight, increasing crime, devaluing property, and preventing lenders from maintaining vacant and deteriorating homes.
New Perspectives on Planned Unit Developments
Daniel R. Mandelker
Planned unit developments, also called planned communities, are a major development type. Originally cluster housing projects with common open space, they can be planned today as infill in downtown areas or as a major master-planned community. They require discretionary review, are often dominant in the zoning process, and present a challenge to the zoning system. A threshold question is how municipalities should zone for planned unit developments, and this Article discusses conditional use, base zone, and rezoning alternatives. This Article next discusses the zoning review process for these developments, which must operate fairly and produce acceptable decisions. Alternatives that can avoid or supplement discretionary review are considered next, and this Article concludes with a discussion of affordable housing as a social responsibility.
Till Death Do Us Part. . . . But What About Our Property? Giving Abused Spouses Their Inheritance Rights Back
Michelle E. Loakes
The American legal system often divides the criminal and civil law. However, in the realm of family violence, the crossover is inevitable. The slayer rules encompass this complex circumstance. The slayer rules confront complex crimes where the murderer is a close family member of the victim and the victim has bequeathed part or all of his estate to his killer. A murderer to the criminal court is an unworthy heir to the probate court. But what happens when that murderer is also subject to domestic abuse of the person whom they murdered? Under criminal law, she may be deemed not guilty by reason of temporary insanity. But under the current slayer rules, she is still an unworthy heir—a “slayer.” This Article argues that legislatures should codify the temporary insanity exception to the slayer rule to allow abused spouses to inherit from their abusers’ estates. After all, their abusers never took care of them to begin with. Now they can.