Times are a-changin’ … So should your documents.

“The line it is drawn, the curse it is cast
The slow one now will later be fast
As the present now, will later be past
The order is rapidly fadin’
And the first one now will later be last,
For the times they are a-changin’.”

Bob Dylan wrote these lyrics to ‘the times they are a-changin’ in September of 1964, while probably examining the political and racial upheaval he saw around him. When I hear the song these days, however, I’m convinced that the last verse is actually about updating business and estate planning documents. Bear with me…

2013 has brought changes to the tax structure that impact all of us and our clients: higher income and capital gains rates, higher estate tax exemptions, expiration of the 2% payroll tax holiday, the extension of portability, and the long-term patch to the Alternative Minimum Tax, to name a few. In the tax world, the times they are almost always a’ changin’, so it makes sense to occasionally review your estate and business documents to make sure this important paperwork reflects these changes appropriately.

Many of our clients’ families are going through transitions. (“The present now will later be past, the order is rapidly fading”). The birth or death of a family member, marriage, divorce, graduation, retirement, changes in jobs, receipt of an inheritance, and similar events often prompt the question: Does this change need to be addressed in my estate planning documents or the organizational documents for my business? If you think the answer might be “yes”, you are probably right.

Many of our clients also come to us because their businesses are going through a transition where the order is changing, or is going to change in the near future. Drawing the proper lines around how the next generation will inherit and manage a business can be done in many different ways. Some arrangements provide a business owner’s heirs with equal shares in managing the business and splitting its profits (and risks), and some arrangements hire a property manager to take over the day-to-day operation while the constantly-fighting children inherit profit rights and nothing more. There are many agreements that fall in between these extremes. There is a lot of room to customize the plan to the business (and family) involved, depending on taxes, family dynamics, and other factors. Some of these transitions go really well and some go terribly wrong. The ones that go smoothly usually involve well thought out written plans, open lines of communication, and children that are on good terms.

I am often asked how often our clients should review their estate and business planning documents. The answer is: whenever the times are a-changin’.

I hope this post has not ruined Bob Dylan’s music for any of our readers.

You can watch Bob Dylan perform ‘The times they are a changin’ at the White House here:


Through the force, higher taxes you will see.

A galaxy’s worth of nerds rejoiced when news broke that George Lucas sold the Star Wars franchise to Disney in October, 2012. More movies are on the way, and this nerd is excited about them. At the time of the sale, Mr. Lucas said that he always envisioned the Star Wars empire (no pun intended) would live on long after he was gone and that he felt he was leaving the franchise in good hands. What he was probably thinking was, “my CPA and my lawyer told me to do it.”

The Star Wars sale was closed in late-October, 2012, when there was a great deal of uncertainty in the tax world and the “fiscal cliff” was looming on the horizon. What was certain at the time was that the Bush era long term capital gain tax rate of 15% was set to expire at midnight on December 31st. It was widely expected that the tax rate on these gains, especially for individuals in the highest income tax brackets, would be the target of democratic lawmakers in the fiscal cliff negotiations. It was also known that the new Unearned Income Medicare Contribution tax of 3.8% would kick in for gains recognized by high-income taxpayers like Mr. Lucas, in January, 2013.    

So what did Mr. Lucas do? He sold in 2012 for just over $4 billion: $2 billion in cash and 40 million shares of Disney stock (valued at $2,000,800,000 on 10/31/2012). It is impossible to know the exact tax figures without information on Mr. Lucas’ tax basis in the Star Wars franchise at the time of the sale, but we can make some educated guesses. Mr. Lucas probably recognized close to $2 billion in gain in 2012 and he owes the IRS approximately $300 million in long term capital gains tax on receipt of this cash. Mr. Lucas will recognize (and be taxed on) gains on the Disney stock whenever he decides to sell his shares. It has been speculated that Mr. Lucas may donate the shares to charity which could reduce or eliminate the tax bill when the stock is sold.

Had Mr. Lucas waited to sell Star Wars until 2013, the $2 billion he received in cash would have been taxed at the new 20% rate agreed to under the American Taxpayer Relief Act of 2012, adding an additional $100 million to his capital gain tax bill. The 3.8% Medicare Contribution tax would have added another $75 million, bringing his total tax bill to about $475 million.

Whether this sale strategy was outlined by a CPA who was reading the Congressional tea leaves or Mr. Lucas turned to a more trusted source for his tax planning (“Through the force, the future – and rising taxes – you will see…”), the result is the same: Mr. Lucas probably saved close to $175 million in taxes by selling when he did. The gains from the sale will be going to educational charities, who will put the extra $175 million to good use. You can read more about Mr. Lucas’ charitable plans here:


The sale of the Star Wars franchise presents a good opportunity to analyze some of the effects that the American Taxpayer Relief Act of 2012 has on a high-income earning taxpayers. We will be discussing these recent changes to the income and estate tax calculations at a seminar in our office on March 7, 2013, at 7:30 am. A light breakfast will be served. If you would like to attend this complementary seminar, please RSVP to events@samuelslaw.com or 503-226-2966. May the force be with you.

Beneficiary Designations – the Importance of Proper Planning

In the process of preparing their estate plan, many people are surprised to learn that their wills or trusts generally do not control what happens to assets such as retirement plans, IRAs, life insurance, and annuities when they die. Rather, these assets are controlled by beneficiary designations that the person may have signed when opening the account or purchasing the life insurance. Here is a list of important points to consider in making sure your beneficiary designations coordinate effectively with your overall estate plan:

  1. Carefully determine the current status of the beneficiary designation on each retirement account or life insurance policy. Do not assume that a beneficiary designation on one account will be the same on other accounts. If there are multiple retirement accounts, find the beneficiary designation paperwork for each account. Also, applicable law requires that for qualified retirement accounts such as 401k plans (as well as IRAs in some states), the surviving spouse must sign a written consent if the account’s primary beneficiary will not be the surviving spouse.
  2. As life brings change, change your beneficiary designations. For example, upon a marriage, divorce, birth of a child, death of a previously-named beneficiary, or other significant life event, make sure your beneficiary designation on each account is updated.
  3. If a prospective beneficiary is a minor, young adult, has special needs, or has problems with creditors or chemical dependency, then carefully consider whether additional planning is necessary. For example, if a minor is a designated beneficiary under a life insurance policy, then absent other planning, it could be necessary to have a conservator appointed to manage the life insurance proceeds until the minor becomes an adult. However, as legal “adulthood” is 18 in most states, if the conservatorship ends at age 18, then the assets could be prematurely dissipated due to the young person’s inexperience or youthful indiscretions. If a special needs beneficiary is receiving governmental benefits, the receipt of such assets could cause those benefits to be curtailed or eliminated. Finally, if a beneficiary has problems with creditors (including a former spouse), then these assets could potentially become subject to the claims of these creditors.

    In all these situations, if the retirement account or life insurance proceeds are payable to a trust that is specially designed for the intended beneficiary, then many of these problems can be avoided. Any such trust must be carefully drafted in order to obtain the best possible tax results.

  4. Beneficiary designations can also be incredibly important to proper tax planning. When a surviving spouse is named as the primary beneficiary of retirement accounts or IRAs, the spouse can “roll over” the account to his or her own IRA. In addition, if surviving children or other beneficiaries are named as beneficiaries of IRAs, current law allows these beneficiaries to maintain the account in an “inherited IRA,” which in turn allows them to only take required minimum distributions (or “RMDs”) based upon that beneficiary’s life expectancy. Hence, a younger beneficiary could potentially extend the tax-deferral benefits of an inherited IRA for decades following the death of the original IRA owner (this technique is sometimes referred to as a “stretch IRA”). Finally, for a life insurance policy, proper tax planning might include not only structuring beneficiary designations properly, but also causing the ownership of the policy to be owned by an individual other than the insured, or by a trust commonly known as an “irrevocable life insurance trust,” or “ILIT.”