Estate Planning

SAMUELS YOELIN KANTOR SEMINAR SERIES

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We are pleased to announce a new seminar series that will keep our clients and colleagues informed on recent developments and industry best practices. The seminars take place in our beautiful, state-of-the-art conference room on the 38th floor of the US Bancorp Tower. Seminars are complimentary and include a boxed lunch.

To register, contact events@samuelslaw.com or call us at 503-226-2966. Seating is limited, so be sure to contact us soon!
 

VIRTUAL ASSETS
WEDNESDAY JUNE 1, 2011, 12 NOON – 1:30 P.M.

Presented by Victoria D. Blachly and Michael D. Walker, P.C.

Virtual assets include emails, digital images, electronic financial statements, social media accounts, web sites, and e‐banking related accounts, among others. Many of these assets are assets that are generally transferred through a client’s will or trust.

As more of our population goes online, we have seen a rising number of cases surrounding the use (and abuse) of these assets.

This seminar will outline the policies employed by some common email and media providers, talk about where these assets fit in our clients’ estate plans and point out some specific areas of concern. We will conclude by talking about the pros and cons of some of the different “online vaults” that are available to clients.

ASSET PROTECTION
WEDNESDAY JUNE 8, 2011, 12 NOON – 1:30 P.M.


Presented by Edward "Ted" L. Simpson

The legal landscape across which creditors chase debtors is ever changing. What worked 10 years ago does not necessarily work today.

This has resulted in three categories of asset protection strategies: those that are readily identifiable and either do or do not work according to established law; those that are promoted as asset protection strategies, but about which the law is not settled; and those that are new and unique, have not been identified as asset protection strategies, and which have not been the subject of studied attempts to pierce. In this seminar we will take a thoughtful and practical look at how asset protection planning is approached and how strategies are developed, both broadly and in specific situations.

INCLUDING PETS IN YOUR ESTATE PLAN
WEDNESDAY JUNE 29, 2011, 12 NOON – 1:30 P.M.


Presented by Glen Goland

This seminar will discuss Oregon’s long history on the forefront of animal rights and will cover the short and long‐term questions that pet owners should consider when preparing their estate plans.

To register for any of these seminars, contact events@samuelslaw.com or call us at 503-226-2966. Seating is limited, so be sure to contact us soon! 

DIY Legal Advice: You Get What You Pay For

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Often free internet advice on Do It Yourself ("DIY") professional matters is worth exactly what you pay for it:  nothing.  The internet has changed the way we interact with each other, the way we shop, and the way we manage our lives. Search tools like Google and Bing now steer users to millions of web pages, some of which contain “professional” advice on everything from medicine to law.  

One of these sites that provides an online database of legal forms was recently investigated by the Attorney General in the State of Washington.  This investigation was settled and the parties signed an Assurance of Discontinuance (pdf) on September 1, 2010. The Assurance highlights some of the pitfalls people should look out for when preparing their own legal documents online.

Article II of the Assurance lists the acts which the Attorney General determined were “unfair or deceptive acts or practices and unfair methods of competition in violation of 19.86.020 RCW”. These acts include the following:

  • Failing to offer estate planning legal forms in Washington that conform to Washington law.
  • Failing to clearly disclose that communications between the provider and Washington consumers are not protected by the attorney-client or work product privilege.
  • Comparing service costs with those of an attorney without disclosing to Washington consumers the fact that the provider was not a law firm.
  • Misrepresenting the costs, complexity and time required to probate an estate in Washington.
  • Misrepresenting the benefits or disadvantages in comparing estate distribution documents in Washington.
  • Failing to comply with 19.295 RCW (the statute dealing with estate distribution documents).
  • Engaging in the unauthorized practice of law by providing legal advice about self-help documents.

While the Assurance notes that it is not to be considered an admission by the provider and that it “shall not be considered a finding of wrongdoing,” the document does effectively spell out some of the questions individuals should be thinking about when preparing their own legal documents:

  1. Do you have all of the correct forms?  Many online law providers are not allowed to direct readers to particular or necessary forms.
  2. Do the documents comply with all of the laws for the relevant state(s)?  If you’ve got property or assets in more than one state, this is important. 
  3. Is there sensitive information that the individual would rather keep confidential?
  4. How complex will the implementation of the documents be.  For example, what will probate cost? 
  5. What will the process ultimately cost?  If future litigation blows up because the forms are defective or insufficient, your estate and/or your beneficiaries will pay the price. 

You’ve heard these warnings before: "If it’s too good to be true……" or "an attorney who represents himself has a fool for a client."   The same cautionary advice holds true for those who opt to prepare their own legal forms using an online service.  While some may be able to use these services to prepare inexpensive legal documents, the costs associated with enacting these documents and the opportunity for error can be significant.

 

Finally, if an attorney commits an error in preparing legal documents, the attorney is covered by malpractice insurance (or should be – some states demand mandatory insurance while others do not), but no such protection exists for those that prepare their own documents. 

Hugh Hefner – the Quintessential Tax Planner

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Kudos to Hugh Hefner. In case you haven’t heard, the 84 year old entrepreneur just announced his engagement to an attractive 24 year old. Now, I know you presume that this is the natural outcome when two people fall in love, but I suspect there may be ulterior motives.

We all know that Hugh is, from all appearances, a pretty wealthy guy. I can only conclude from this most recent nuptial announcement that he is also an incredibly gifted tax planner.

I am not sure the ink was even dry on the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 before the perennial purveyor of porn jumped into action. You see, included in Congress’s extension of the Bush tax cuts was a brand new provision in the estate tax law dealing with “portability” of the estate tax exemption. Beginning in the year 2011, the estate tax exemption increases to $5 million. In addition, the executor of a decedent’s estate can elect to transfer his or her remaining $5 million exemption to his or her surviving spouse.

Hugh gets his own $5 million exemption. We all know how young and spry he is, and based upon his lifestyle, we can only presume that Hugh thinks he is going to live to age 150. His naïve yet enchanting young wife, who has never been faced with the pressure of modern day life being married to a multi-millionaire, may well succumb to the physical stress of the relationship and meet an untimely demise during either 2011 or 2012. If this is the case, Hugh will be entitled not only to his own $5 million estate tax exemption, but to the exemption of his recently deceased spouse as well. Brilliant!

This creative tax reduction “technique” provides a unique new market for the acquisition of “portable estate tax exemptions.” Let’s presume, for a moment, that we have a wealthy unmarried client (call her “Ms. A”) with no foreseeable intent to marry in the future. We explain to Ms. A that if she agrees to marry someone, and if her new husband then predeceases Ms. A, she could receive the benefit of her deceased husband’s unused $5 million estate tax exemption. Ms. A decides that this is worth looking into, so we find a lost soul with no assets, no reasonable life expectancy, and the need for some quick cash. Ms. A and her intended “spouse” would enter into a premarital agreement providing that he waives all claims against Ms. A’s estate, agrees to accept no support from Ms. A and agrees never to communicate with Ms. A again (even though the marriage would last “until death do us part”). Ms. A could then create a trust providing for monthly nominal payments to the new husband during his lifetime (an inter-vivos QTIP). The husband would agree under the prenup to sign a will giving his $5 million estate tax exemption to Ms. A.. At the new husband’s death, the trust would revert back to Ms. A or her intended beneficiaries.

What a plan! This would give Ms. A an additional $5 million of exemption to use in connection with gifts to children or other intended beneficiaries, resulting in a $1,750,000 tax reduction at her death.

If you think this whole arrangement might be comical, let me tell you what’s really comical: Congress thought that portability meant simplification, but instead they created a new quagmire and more confusion among tax advisors. When will they learn?
 

Estate Planning and “Virtual Assets” – Part 2

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In Part 1 of my last article, Estate Planning and “Virtual Assets,” I discussed the complex issues relating to estate planning and “Virtual Assets,” which include financial accounts, email accounts, social media sites, and other personal or family information. All of these assets are typically accessed over the internet with a username and password. Here are two additional recommendations with respect to Virtual Assets:

1.   Consider Who Should Receive Your Virtual Assets. If a virtual asset is a bank or investment account, your will or trust should (presumably) control who will receive these assets at your death. However, what about access to family photos or genealogical information? One might want to specifically instruct your executor or trustee to replicate and distribute these items so that they pass to multiple intended beneficiaries.  

2. Use Caution in Using Commercial Services to Hold Your Virtual Assets. A new cottage industry has sprung up to provide a type of “online safe deposit box” to store your virtual assets and provide a means by which designated individuals can gain access to your virtual assets. A few words of caution are in order. First, be careful and make sure you’re dealing with a reputable company. Giving someone the keys to your digital existence would be a goldmine for someone bent on stealing your identity. Second, remember that giving someone access to information about an asset is not the same as giving that asset to that individual. Your will or trust should ultimately control who should inherit your assets, not an online service provider. There may be complex legal and tax issues that need to be taken into account in designating beneficiaries of virtual assets. For example, one online service provider refers to an “electronic will.” In most states, a will requires certain formalities (typically a written instrument signed before two witnesses), and the absence of these formalities can render one’s good intentions legally invalid.

Estate Planning and “Virtual Assets” – Part 1

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For many, our primary means of communication is email, often through multiple email accounts. We “tweet” about the latest happenings through our Twitter accounts. We keep in touch with friends and colleagues through social networking sites such as Facebook and Linkedin. We store family photos and other important information on a growing array of online sites. We access our financial assets, such as bank accounts and brokerage accounts, over the internet. We pay our bills electronically. We own internet domain names. In the aggregate, these “virtual assets” have tremendous aesthetic and financial value. 

Yet, when we die or become incapacitated, what happens to these assets? Who can gain access to this “virtual existence” when we’re gone?

The answer is a very complex. Most of these virtual assets are controlled by a license agreement with the provider of the online access. Such license agreements vary from provider to provider. Without careful planning, chaos may rein. Here are some key recommendations to consider:

1.      Integrate Virtual Assets into Your Estate Plan. Wills, trusts, and powers of attorney have been around for centuries. In appointing an executor, trustee, or agent under a power of attorney, you are appointing a representative that you trust to take control of your assets and follow your legal instructions. Whether dealing with virtual assets or an office building, you should appoint individuals in these roles that are both trustworthy and competent to carry out these instructions.

2.      Create a Virtual Asset Instruction Letter. A “Virtual Asset Instruction Letter” or “VAIL” will list all of your online accounts and assets, and will provide web addresses, user names, and passwords to give your designated representative the ability to identify and access these accounts. Place the VAIL in a safe location, such as a safe deposit box, that can only be accessed by your legal representative. In addition to a written list, you might consider saving the VAIL to a flash memory drive or CD which can make your representative’s access to these accounts more efficient. For assets such as email accounts, your VAIL may instruct your representative to delete the account after a period of time. Most such accounts will simply terminate after a certain period of inactivity.

Check back with WealthLawBlog.com in a few days to see additional recommendations relating to virtual assets.

Beneficiary Designations – Clearing Up The Confusion

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In my experience, one of the most common areas of confusion in wealth and estate planning is beneficiary designations and their importance in many key areas.

Many important assets in an individual’s portfolio often pass at that person’s death by beneficiary designation and not by that person’s will or trust. Common examples of these types of assets include life insurance, retirement plans, individual retirement accounts (IRAs), and annuities. For many, these assets represent a significant portion of their overall assets, yet the beneficiary designations for these assets are sometimes not carefully considered.

 

Above all, it is very important to recognize that your will or revocable living trust does not control or “override” the beneficiary designations. For example, a parent’s will may direct assets to a trust for minor children if both parents are deceased. If the parent’s life insurance designation names the children directly, then the life insurance proceeds will “miss” the trust entirely, thus potentially requiring a conservatorship for the proceeds until the children reach age 18. While the children may legally be adults at age 18, they may not have sufficient maturity and experience to properly manage large sums of money (think expensive red sports cars here). The better approach would have been for the life insurance beneficiary designation to name the children’s trust as the beneficiary under the life insurance policy upon the death of the surviving parent. 

 

It’s also very important that you understand the tax consequences of your beneficiary designations. For example, if you designate your spouse as your beneficiary under your IRA, your spouse will be able to take advantage of a tax-free rollover of the IRA account into his or her own IRA. On the other hand, if a beneficiary other than a spouse is designated, then the beneficiary will have to take mandatory distributions from the IRA, which in turn will be subject to income taxes. In addition, while the estate tax is in currently in flux, assets passing by beneficiary designation are generally subject to the estate tax in the same manner as any other asset.

 

The best approach is to carefully consider and integrate beneficiary designations as part of a well-designated estate plan.

2010 ESTATE TAX REPEAL STILL ON SCHEDULE!

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On December 16, 2009, the Wall Street Journal reported that the Democrats’ attempt to extend the Federal Estate Tax exemption of $3.5 million into 2010 has been blocked by the Republicans. Senator Max Baucus is quoted as saying, “We clearly will work to do this retroactively, so that when the law is changed, it will have retroactive application.” 

The Republicans believe that the repeal should be allowed to take effect as provided under current law, and Senator John Kyl (R, Arizona) stated, “The problem doesn’t have to exist. They’ll just leave the existing law alone and let the rate go to zero, where everyone wants it anyway.”

 Thus, as the law stands today, Federal Estate Tax will be

  • zero in 2010;
  • with certain exceptions the tax basis step-up will be repealed for 2010;
  • The estate tax exemption will return to $1,000,000 in 2011.

It is an interesting and continuing revelation about the extent of the massive gridlock in the current Congress when the Democrats could not even muster enough votes to pass a mere extension of the $3.5 million exemption for the first three months of 2010.

 

It remains to be seen whether or not enough votes can be mustered to make any estate tax changes in 2010. If the Senate could not pass an estate tax bill with a 60 vote majority, I am skeptical that it will get accomplished in 2010. 

Tax Amnesty Program For Oregon Taxpayers – A Cruel Joke

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Recently, the Oregon Legislature passed a tax amnesty program with the hope of raising $16.2 million in additional revenue. (See Revenue Impact of Proposed Legislation (pdf)) The amnesty applies to corporate income and excise tax, personal income tax, inheritance tax, and transit district (self-employment) taxes. Any Oregon taxpayer with any of these underreported taxes or unfiled tax returns for any period prior to January 1, 2008 will be eligible to apply. (For a copy of the bill see SB880-B (pdf))

  • Short time period: The tax amnesty program is only open for 50 days, beginning on October 1, 2009 and closing on November 19, 2009.
  • Minimal Benefit: The only benefits being offered are the waiver of one half of the interest and all penalties. Not much of an incentive.
  • No Taxes Waived: All the taxes due and the reduced interest must either be paid in full within 60 days of the application or be paid under an installment plan on or before May 31, 2011. Failure to complete an installment plan voids the amnesty benefits.
  • Gotcha Penalty: Anyone who is eligible for this program, but fails to apply will be subject to an additional 25% penalty. This penalty can apply to tax adjustments discovered after November 19, 2009. Also any taxpayer who has received a notice of delinquency or notice of assessment from the Oregon Department of Revenue for any year that would be eligible for the amnesty program cannot participate.

This program is a "cruel joke" because:

  • The amnesty program is only open for 50 days.
  • The amnesty offer is minimal. There is no provision to compromise taxes.
  • Anyone who is currently delinquent with Oregon taxes is probably not eligible.
  • An eligible taxpayer who chooses not participate will have an additional 25% penalty added on.
  • If there is a tax adjustment after the amnesty program has closed it is possible that the additional penalty can be assessed even though the tax payer was not aware of additional tax liability during the 50 day election period.

In conclusion it is hard to see that this program will help either the state of Oregon or its taxpayers.

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