At Vandeberg, Johnson & Gandara, our attorneys stay up to date on the latest developments in the law around the state and country.
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December 14, 2015
by James A. Krueger
Latest News of Interest to Businesses and Professionals
Reminder of 2015 IRS Standard Mileage Rate
Latest News of Interest to Businesses and Professionals
Over the past year or so the annual entity registration renewal process for the State of Washington has gone paperless. For those of you for whom we act as registered agent, we have been renewing your licenses electronically. Linda Palmer of our office, who handles all of our license renewals and other corporate and LLC compliance tasks, reports the process has been going well, and with a very few minor exceptions there have been no problems encountered in this transition.
The Secretary of State’s Office advises us its goal is to ultimately transition all entity filings in the State of Washington to an electronic format, and thereby eliminate all paper filings. We have begun to utilize this new system as it becomes more and more available, and so far we have not experienced any major problems. It is the goal of the Secretary of State’s Office to not only eliminate most paperwork, but to greatly reduce the turnaround time for most routine corporate and LLC filings. So far most of our experiences with the electronic filing have been positive and have enabled us to provide you with quicker service for many routine matters.
It is easy to forget IRS deadlines—especially those for estimated taxes. Therefore, don’t forget to calendar these important dates:
September 15, 2015
Third installment of 2015 estimated tax due.
2014 calendar year income tax returns due for C corporations or S corporations which obtained an extension.
Third installment of 2015 corporate estimated income tax due.
2014 calendar year income tax returns due for partnerships which received an extension.
October 15, 2015
2014 income tax returns due for individuals who filed an extension.
December 15, 2015
Corporations must deposit the fourth installment of 2015 estimated income tax.
Reminder of 2015 IRS Standard Mileage Rates
Next April when you are finalizing your 2015 federal income tax returns, you will be glad if you thought to keep a log of your automobile mileage for the following matters:
Business use of automobile 56 ¢/mile
Charitable mileage 14 ¢/mile
Medical mileage 23.5 ¢/mile
Moving expense mileage 23.5 ¢/mile
As the nights start to get a little bit chilly, we are reminded summer will soon be coming to an end, and therefore we may wish to include more red wines instead of the whites and rosés most of us have been serving during the hot summer months.
However, for those of you who, like me, wish to stretch enjoyment of rosés a little longer, I suggest you try A to Z Rosé. This delightful rosé comes from a company which was founded by four friends whose families were some of the original vineyard pioneers in the Willamette Valley of Oregon (Eyrie, Domain Drouhin, Archery Summit and Chehalem). This Rosé is made primarily from the Sangiovese Grape grown just north of the California border. It is widely available for $10-$12 a bottle. This is hands down my second favorite rosé.
When you are ready for a medium-bodied red wine that is great with food (pasta, lentil soup, bratwurst, all grilled meats, etc.) or for just sipping in front of an open fire, I suggest you give the Rodney Dangerfield of wines a try. The reason I call it the Rodney Dangerfield of wines is because of its name – Lemberger. Everyone hearing the name immediately has visions of Limburger cheese and almost instinctively begin holding their noses! Due to our ideal climate, some of the world’s best Lemberger grapes are grown in Washington. Washington Lemberger is absolutely delicious with soft tannins and very balanced acidity. A wonderful and affordable example of this really delicious wine is Kiona Vineyards Lemberger, which sells for $10-$12 a bottle.
August 27, 2015
by Mark R. Patterson
You may have heard that the Washington legislature enacted a new limited liability company act this year. The new law becomes effective January 1, 2016. It affects both new companies and LLCs formed prior to that effective date.
Much of the new law restates existing requirements. However, the new statute contains a few important changes to LLC law. One of the important changes is the addition of specific language concerning fiduciary duties an LLC manager owes the LLC and its members. The prior law did not contain a definite description of some of these fiduciary duties, although a few court cases had defined such duties in broad terms similar to those used in the new statute.
“Fiduciary duties” are higher standards of conduct based on trust -- like the relationships between people. The new law describes two such duties that an LLC manager owes to the company and its members: the duty of care and the duty of loyalty. These duties may sound familiar because similar concepts have long existed between directors and officers and corporations, under corporate law, and between general partners under partnership law.
The duty of loyalty is a particular concern. The new statute generally defines the duty of loyalty to include (1) the duty to account to the LLC and hold “as a trustee” any property, profit or benefit derived from LLC activities or the use of LLC property, (2) the duty to refrain from having an interest adverse to the LLC and (3) the duty to refrain from competing with the LLC. At first glance, imposing these obligations on an LLC manager does not seem surprising and some of these duties existed either in the former LLC statute or in case law. However, given the language in the new statute, how far do these duties extend? What is meant by manager interests “adverse” to the company? What “competition” by the manager with the LLC is prohibited? Many limited liability company operating agreements do not address the parties’ expectations in this area, in part because some of the specific terms now in the statute were not part of the prior LLC statutory scheme.
The manager of an LLC and the members should always try to have a specific understanding about which activities of the manager are potentially adverse or competitive with the LLC. Such an understanding prevents potential disputes between the manager and the members. An understanding of the scope of the duty of loyalty is particularly important when the manager operates more than one business or other separate LLCs with different members. The parties’ understanding should be documented in the LLC agreement.
As a result of the new law,existing LLC agreements should be reviewed to determine whether the parties need to enhance the provisions concerning the manager’s duty of loyalty, conflicts of interest and competition with LLC activities. I suggest several initial steps:
The manager and members should look carefully at the provisions in the LLC agreement and certificate of formation concerning the purpose of the company. Although in the past it may have been useful to describe the purpose broadly to give the company flexibility to engage in future new activities, under the new LLC act the broader the purpose the more opportunity for claims of manager conflicts and competition. Based on the new law, the purpose of the LLC should be reasonably narrow to encompass only the business the members actually intend to conduct. If the original purpose changes, it is easy to amend the LLC agreement to add additional purposes.
The manager and members should determine whether the LLC agreement specifically authorizes key contracts between the LLC and the manager or other businesses affiliated with the manager. Management agreements, real estate development agreements and construction contracts are examples of common agreements between managers and LLCs that should be specifically authorized in the LLC agreement.
The manager and members should consider adding specific provisions in the LLC agreement that describe what is and is not “competition” with the LLC. For example, if the purpose of the LLC is to own and manage income-producing real estate, the LLC agreement could say that the manager’s management or ownership of other real estate investments is not competitive with the LLC. Or the LLC agreement could impose geographic limits for competitive activity similar to limits found in noncompetition covenants in employment or other agreements.
Within certain limits, the new LLC act allows the parties to modify or limit the fiduciary obligations of the manager in the LLC agreement. A clear understanding between the manager and the members of the scope of those fiduciary duties, documented by specific provisions in the LLC agreement, has always been important. The new LLC law raises the focus on these issues by LLC managers and members to an even higher level.
2018 First Quarter Tax Calendar
January 16, 2018
Fourth installment of individual estimated tax payments for 2017 due.
January 31, 2018
Employers must provide employees with 2017 Forms W-2.
Forms W-3, along with Copy A of all Form W-2s are due for 2017.
Forms 1099 for 2017 must be sent to recipients.
February 15, 2018
If employee claims exemption from income tax withholding for 2018, Form W-4 must be filed with employer.
February 28, 2018
Forms 1099 must be filed with the IRS.
March 15, 2018
Partnership tax returns (Form 1065) must be filed for partnerships, limited liability companies, etc., and Schedule K-1s distributed to partners.
S corporation income tax return (Form 1120s) must be filed and Schedule K-1s distributed to each shareholder.
S elections must be made on IRS Form 2553 for 2018 calendar year.
IRS Mileage Allowances
The IRS has slightly increased the standard mileage rates it allows, as follows:
Business travel 54.5 cents
Medical travel 18 cents
Charitable mileage 14 cents
Mileage for moving expenses 18 cents
Some Surprises in the Budget Act
Congress passed the Bipartisan Budget Act of 2018 on February 9, 2018. While this act deals primarily with spending and the budget (such as hurricane relief, continued funding of the Children’s Health Insurance Program, defense spending, etc.), it contains a surprising number of tax provisions which have received very little publicity.
For example, this bill either extends existing tax breaks or creates new tax breaks for such things as nuclear power facilities, live theater productions, race horses, movies, televisions, plug-in electric motorcycles, fuel cell vehicles, etc. Some of the tax breaks contained in this legislation which will be of particular interest to business and professionals are as follows:
Empowerment Zones. Empowerment Zones are previously designated zones in economically depressed areas. The act extends for an additional year the tax incentives for such things as employment credits, tax-exempt bonds, certain gain exclusion for certain designated businesses and employers operating in these zones.
Higher Education Expenses. The act extends the “above-the-line” deduction for higher education expenses. That means taxpayers don’t need to itemize to take advantage of these deductions, which are capped at $4,000 for individuals with adjusted gross income not exceeding $65,000 ($130,000 for those filing jointly), and $2,000 for individuals with adjusted gross income not exceeding ($80,000) ($160,000 for those filing jointly).
Mortgage Insurance Premiums. The act permits taxpayers to continue to deduct mortgage insurance premiums. This deduction is not available for taxpayers having an adjusted gross income above $110,000 (and phases out between $100,000 and $110,000).
Senior Citizen Tax Returns. Congress directed the IRS to prepare a simplified federal income tax return for taxpayers who are 65 or older. This form will become Form 1040-SR. The act contemplates the form will be similar to the Form 1040-EZ (income tax return for single and joint filers with no dependents). The form probably will only be useful for seniors having Social Security and retirement distributions and very limited investments.
These tax provisions are retroactive to the beginning of 2017. This is bound to cause confusion when taxpayers file their 2017 tax returns since all of the 2017 tax return forms were printed prior to the passage of this act. However, the IRS is scrambling to provide revised forms and to amend the form instructions that are affected by these and other provisions of the act.
For those interested in wine this is somewhat of an awkward time of year, as the temperatures begin to rise and the snow in the mountains is melting, the question is what wine shall we drink? The rising temperatures signal it may no longer be desirable to drink a robust red by a roaring fire, and the new crop of wonderful Roseʹs have not yet hit the market. Accordingly, those of us who prefer reds usually just drink a variety of reds, and those of us who prefer whites drink a variety of whites during these months while we look forward to the many wonderful wines spring and summer will bring.
Recently I was in Canada and became reacquainted with a number of wonderful wines from the Okanogan Valley of Canada, most if not all of which are not available in the United States. While Canada certainly has a few really outstanding reds, because of its latitude and climate, I find it is the Canadian white wines which really shine. Because of the import/export laws involved and also become of the somewhat limited production of Canadian wines, it is very difficult to find Canadian wines in the United States. To my taste, Canada produces many cases of Pinot Gris which are as good as, if not better, than the best produced in the United States. Here are my three favorites:
1. Blasted Church Hatfield’s Fuse. This wine is a blend of about 12 different grapes, with Pinot Gris predominating. It sells for about $18.75CDN at British Columbia liquor stores. Everyone is always curious about the name of this winery. The winery is located in Okanogan Falls, Canada. In 1929 a church was moved from an old mining camp to Okanogan Falls. In order to dismantle the church, they set off four sticks of dynamite inside the church which loosened the nails and enabled them to dismantle the church without damaging the wood. They then put it back together in Okanogan Falls, where it stands today. Unfortunately, the steeple did not survive the dynamiting.
2. Grey Monk Pinot Auxerrois. Pinot Auxerrois is a clone of Pinot Gris, and to my palette the two varieties are virtually identical. This wine is made from 100% estate grown Pinot Auxerrois grapes. It sells for about $18CDN at British Columbia liquor stores.
3. Gehringer Brothers Pinot Gris. This small winery located in Oliver, British Columbia, Canada consistently wins numerous gold medals for its wines in both Canadian competitions and wine competitions in Washington and California. Its Pinot Gris recently won a gold medal (and received 94 points) in the Los Angeles International Wine Awards. It is an absolutely classic Pinot Gris (although much better than what I am used to drinking). It sells for about $14CDN at British Columbia liquor stores.
By Jim Krueger
2017 Fourth Quarter Tax Calendar
October 16, 2017
2016 individual income tax return (Form 1040) due for those who filed an extension.
2016 federal income tax return (Form 1120) due for C corporations which filed an extension.
December 15, 2017
Calendar year C corporations are required to deposit the estimated income tax (fourth installment) for 2017.
Reminder to employers: You should request new W-4 forms from employees whose withholding exemptions will change in 2018.
Beware of Internet Scams
The Washington Department of Revenue recently issued a warning that there have been an unusually high number of phishing scams targeting Washington State businesses. Emails appear to come from the Department of Revenue and purport to give instructions on renewing business licenses, etc. Accordingly, every business (and individual) receiving an email from the Department of Revenue should not respond without first verifying that the email is in fact from the Department of Revenue and not from an alternate website. Genuine emails from the Department of Revenue should show a sender’s email address as: firstname.lastname@example.org. Now that the State of Washington has gone exclusively to renewing business licenses on the internet, it is more important than ever to verify that a license renewal request is genuine and not the object of a phishing scam. If you are in doubt that an email from the Department of Revenue is genuine, you can verify it by calling 1-800-451-7985.
Speaking of internet scams, businesses in the State of Washington have recently been experiencing increased ransomware attacks. I know from conversations with clients that some of you may have been victims in the past of ransomware attacks. In these attacks the criminal entices the victim into clicking on an internet link, which then results in the victim’s computer being infected with a virus. The virus locks up all of the data in the victim’s computer network, and then the thief sends the victim a message demanding ransom, usually in the form of Bitcoins, to unlock the ransomed data. Upon payment of the ransom, the criminal sometimes releases the information, but oftentimes does not, leaving the victim unable to use his entire network.
The IRS and FBI have issued bulletins warning businesses of recent ransomware scams whereby victims are notified they face imminent seizure of their bank accounts and arrest, and are directed to a link to download an “FBI questionnaire.” Upon clicking on the link, the ransomware infects the victim’s computer network, and then the victim receives a ransom demand. The FBI recommends against paying a ransom, as it maintains that encourages the criminal activity. Unfortunately, faced with a virtual business shutdown, many businesses consider they have no alternative but to pay the ransom as demanded.
Accordingly, you should instruct everyone on your network not to respond to any threatening contacts from either the IRS or the FBI without first verifying it is a legitimate message. You can ascertain whether or not the contact is legitimate by contacting the IRS at email@example.com, and the FBI at www.IC3.gov.
It is now the time of year where our thoughts necessarily turn to what is the perfect wine to serve with Thanksgiving dinner. Unfortunately, the answer to that question is there is no perfect wine to serve with Thanksgiving dinner. My experience is we oftentimes pick the best wine to go with turkey, but then that wine is far from the best wine to go with the many side dishes that are traditionally served with the Thanksgiving meal. A wine that showcases the turkey will probably be far from the best wine with sage dressing, sweet potatoes and Aunt Sadie’s cranberry mold.
My recommendation is instead of focusing on the turkey, you select a wine which may not be the perfect wine for each of the individual dishes, but will work well with most of them. My recommendation is this year try a Rose, which is heavier than a white but lighter than a red wine, and therefore hits that “sweet spot” where it will work well with most, if not all, of the dishes. In my opinion, an excellent Rose to go with a Thanksgiving meal is AIX from Provence, France. This wine is fairly widely available in the $15-$18 range at some supermarkets and most wine shops. If you want a more festive wine, then I recommend you try Michelle Brut Sparkling Rose from Washington’s St. Michelle Winery. It is also widely available in area supermarkets and wine shops, ranging in price from about $11 to $14.
However, if you are a traditionalist and want to perfectly match only the turkey, then I recommend you try a Pinot Noir from Oregon’s Willamette Valley. One of my favorites is Patricia Green Cellars Reserve (which is one of her cheaper wines, but to my palette is superior to many of her more expensive wines), which is widely available in Oregon and a few supermarkets and wine shops in Washington, for around $25.
August 8, 2017
by James A. Krueger
2017 Third Quarter Tax Calendar
July 31, 2017
IRS Form 5500 or 5500-EZ due for calendar year 2016 for employer retirement plans.
September 15, 2017
Third installment of 2017 estimated income tax for individuals due.
2016 S corporation tax returns due if a 6-month extension was obtained.
Calendar year corporations must deposit third installment of 2017 estimated income tax.
2016 Partnership tax returns due if a 6-month extension was obtained.
Get Ready for New Area Code
You are probably aware by now that beginning on July 29th all local calls in Western Washington are required to use 10-digit numbers, including the area code. This is in preparation for the use of a new additional area code (564) throughout Western Washington, which will begin effective August 28th. If you already have an assigned area code (253, 360, 206 or 425), that will not change. However, beginning on August 28th new phone service may be assigned the new 564 area code. This will apply to both business and residential service.
If you have any questions or concerns regarding this new area code, you can contact the Washington Utilities and Transportation Commission Help Line at 1-888-333-9882, or email firstname.lastname@example.org.
When warm weather finally arrives in Western Washington, we are all anxious to get out our barbecues, if they haven’t completely rusted through during the long rainy winter. That means hamburgers, ribs, steaks and chops. For wine drinkers this may present a dilemma, as there are very few wines which can stand up to a barbecued piece of meat. While some subscribe to the theory that any wine can be drunk with any food, it is often disappointing when a wine is overpowered by barbecue. For those of you who have a favorite wine you like to drink with barbecue then you should, by all means, continue to enjoy that wine. However, for the rest of us who have struggled to find a wine which complements barbecue, I have a suggestion which I recently discovered. Zinfandel was really made for barbecue. No, I am not talking about White Zinfandel, but the real thing. The deep, rich, red classic Zinfandel. Although I have not tasted a large number of Zinfandels, my favorites are Dashe Dry Creek Zinfandel and Cline Zinfandel. These wines are not expensive. The Dashe retails for around $18 and the Cline for around $14. This time of year, they often can be found on sale for less. If you haven’t already tried Zinfandel with barbecue, I suggest the next time you get out your barbecue grill you grab a bottle of your favorite Zinfandel to complement the meal. The Zinfandel (like all red wines) is better if served slightly chilled (around 55°-60° or so).
For those who want a lighter wine to go with barbecued seafood or who just want something lighter with their barbecue, try a glass of Rose such as Barnard-Griffin Rose of Sangiovese or A to Z Rose of Pinot Noir.
May 12, 2017
by James Krueger
May 12, 2017
by James Krueger
Now that spring is here and summer is not far away, this is a good time for us to all do some “Spring house cleaning” and get rid of old files and documents. This blog will focus on how long businesses and professionals should hold onto files before they can be purged.
However, first let’s take a look at the IRS tax calendar:
2017 Second Quarter Tax Calendar
S corporation tax returns due (Form 1120S).
S elections must be made by this date for calendar year 2017.
Partnership tax returns due (Form 1065-B).
2016 Individual income tax returns due (Form 1040, 1040A, 1040EZ).
Contributions to an IRA for 2016 due.
First installment of 2017 estimated taxes due.
2016 tax return for C corporation due (Form 1120).
Second installment of 2017 estimated taxes due.
I don’t think a month goes by that I don’t receive at least one phone call from a client asking how long files, tax returns, etc., should be retained. Unfortunately, there is not an absolutely failsafe period of time one can rely upon in determining the answer to this question. However, the answer is usually driven by the state or federal statute of limitations applying to causes of action which the individual or business could be subjected to, as well as the statute of limitations pertaining to tax matters pursuant to the Internal Revenue Code and Regulations. My response is usually governed by the specific document involved. Therefore, I’ll briefly outline my thoughts based upon the following categories of documents:
Federal Income Tax Documents. Under the Internal Revenue Code and Regulations, there is generally a three-year statute of limitations beyond which the IRS cannot assert additional tax, penalties or interest. However, an exception to this is if there is underreporting of 25% or more, and then the statute of limitations is extended to six years. If a tax return which was due was not filed, then there is no statute of limitations. Accordingly, my general advice is in all but extraordinary circumstances is it is safe to dispose of federal income tax records after seven years from the date the return was due (or such later date it was actually filed).
General Business Records. Since there are many statutes of limitations which potentially could apply to general business records, depending upon the industry of the business and the specific transactions, I believe it is normally safe for a business to dispose of its usual and ordinary business records after seven years. There are some rare exceptions to this general rule, but normally businesses operating in those circumstances are well aware of them through trade associations, etc.
Medical Records. Medical records are an exception to the general rules discussed above for the reason that if a patient is a minor, any applicable statute of limitations does not begin to run until the minor reaches the age of majority, which is 18 years old in the State of Washington. Physicians, dentists and many other professionals who deal with minors are routinely subject to these exceptions. Therefore, my rule of thumb when advising professionals is to wait seven years plus the number of years until the minor reaches the age of 18.
Electronic Records. An increasingly popular method of dealing with records is to store records in electronic form. Electronically stored information is becoming more and more popular as the cost to store voluminous paper records increases. The IRS, the State of Washington and other departments of the federal government generally permit records to be stored in electronic form, so long as certain minimal standards are met. Therefore, before digitizing paper documents, you should always check with the appropriate agency to make certain you are conforming to its electronically stored information standards. Once paper records have been converted to electronically stored information the electronic version should likewise be safeguarded for at least the same time period applicable to the paper version of these records before they are destroyed.
The time periods I am recommending are admittedly very conservative, but given the inconvenience of storing files an additional year or two versus the risk of a claim being made years from now, I’ve always opted to recommend clients retain their files a year or two longer than many recommend, just to be on the safe side.
I have always looked forward to Spring when the new Rose´ wines are released. When the sun comes out and it is warm enough to sit outside and enjoy the weather, nothing is better than a glass of Rose´ wine. It wasn’t all that many years ago when one would visit a wine shop or a supermarket and find less than a half dozen choices of Rose´. Recently I was in a supermarket which had eight shelves devoted exclusively to Rose´. While about half the Rose´ we find locally comes from France there are ever increasing wineries in Washington, Oregon and California that produce excellent Roses´.
Barnard-Griffen Rose´ of Sangiovese is one of my favorites. It is widely available in Washington (where it is made) and is almost always on sale for around $11.00. This wine consistently wins double gold medals at the prestigious San Francisco Wine Competition.
Another favorite of mine is A to Z Rose´ of Pinot Noir. This Oregon wine is available almost everywhere in Oregon, but less so in Washington. However it shouldn’t be too difficult to find usually on sale for around $12.00.
One word of caution. I like my Rose´ to be somewhat dry so if you prefer off-dry Rose´ you should have no trouble finding a little sweeter Rose´ among the myriad selections available at any wine shop or large supermarket.
January 19, 2017
by James A. Krueger
January is always a big letdown after the holidays. As much as we try, it is difficult getting back to “normal” after overeating and taking time off from work. January is also the beginning of a new tax year for most businesses and professionals. So in keeping with our blah month theme, we will begin the year by looking at some IRS information.
2017 First Quarter Tax Calendar
1/17 Final installment date for payment of 2016 estimated taxes.
1/31 Copies of Forms W-2 to employees due.
2/15 New Form W-4 due to employers if exemption from income tax withholding is claimed.
3/15 Partnership returns (including limited liability companies not disregarded entities) due.
3/15 S corporation federal income tax returns due.
3/15 Last day to make a new S corporation election for calendar year 2017.
A Few New Federal Income Tax Provisions for 2017
• Social Security tax is payable on the first $127,200 of employee wages (up from $118,500).
• For 2016 and 2017 an employee can exclude up to $255 a month of employer-provided qualified parking benefits (and transit passes).
• The maximum employee contribution to a health FSA is raised to $2,600.
• The 2017 standard mileage rate for business travel is 53.5¢ (down from 54¢ per mile for 2016).
• Charitable donors may deduct a contribution in full if any benefit received is considered “inconsequential.” The inconsequential test is met if:
1) The fair market value of all benefits received in connection with the donation isn’t more than 2% of the payment, or $106 for 2016 and $107 for 2017, if less; or
2) The payment is at least $53 for 2016 or $53.50 for 2017, and the donor receives only token benefits such as mugs, t-shirts, posters, etc., costing no more than $10.60 for 2016 and $10.70 for 2017; or
3) The charity mails or otherwise distributes free, unordered items to its donors.
• The basic standard deduction for joint filers (and surviving spouses) is increased to $12,700, and for single individuals to $6,350 for 2017.
• The provision allowing up to $100,000 in distributions from IRAs paid to a charity to be non-taxable is made permanent.
• Taxpayers may pay taxes due the IRS in cash at participating 7-Eleven Stores.
Since January is such a blah month, I thought it appropriate to take a look at a couple of wines which are the Rodney Dangerfield of wines – they get no respect (but are actually marvelous wines and exceptionally good values). A white and a red.
Chateau Ste. Michelle Dry Riesling. Forget everything you know about Riesling, as this wine doesn’t taste like any Riesling you have ever tasted. The best way to describe it is it tastes like a cross between Pinot Gris and Sauvignon Blanc. This is a 100% stainless steel fermented wine which has never seen oak, with less than 1% residual sugar. Therefore, it is very bright and lively because of its high acidity, but actually very well balanced. Ste. Michelle bottles almost 100,000 cases every year, and therefore it is available everywhere. This wine sells for $10 at the winery, but I have rarely paid more than $7. This wine pairs particularly well with fish, shellfish, vegetarian dishes and chicken picata. It also makes a great aperitif. This wine gets no respect - because of its high volume and low price many dismiss it as an inferior “supermarket wine.” I find if you hide the label when you first serve it, your guests will love the taste. Make sure it is the Dry Riesling you purchase and not one of the many other varieties of Riesling which Chateau St. Michelle produces.
Kiona Lemberger. It is obvious why this wine gets no respect. Upon hearing the name, almost everyone equates the wine with stinky Limburger cheese. So this is another wine you have to hide the label. This medium body red is produced from Lemberger grapes which originated in Austria and Germany. Kiona is a small Washington winery which has been producing this wine from grapes grown in the Red Mountain AVA for over 30 years and is hands down the best producer in the U.S. There is one winery in California which produces Lemberger, and it also sources its grapes from the Red Mountain. This fruit forward wine is marvelous with pizza and pastas of all types. The wine sells for $15 at the winery, but is usually available for around $12.
It seems friends, clients, some coworkers and I are coming to the age of inquiring into social security benefits. Because a lot of us are or have been married, questions regarding spousal benefits often arise and as it turns out, the answers to many questions are pretty complicated.
What follows is the first and most complicated part of a three-part series on spousal benefits. This first entry is about benefits one spouse may receive based on the benefits record of the other (the Working Spouse or “WS” as the abbreviation). The second entry will address applying for benefits of a deceased spouse, and the final entry will address making application for benefits by a divorced spouse.
This summary is as of January, 2018. Laws change and many of the provisions in this portion came into effect in April, 2016 (under federal law enacted November, 2015).
Birthday Before January 2, 1954 and “Restricted Application”
Filing for Spousal Benefits. If you have been married to your WS for at least a year AND you were born BEFORE January 2, 1954, then after you reach the age of 66 years, (your Full Retirement Age (FRA)), you can file a “restricted application” for spousal benefits only- under your WS’s record PROVIDED the WS is receiving benefits (not just “eligible” to receive or “filed” for benefits). WS need not have reached FRA to receive benefits, but you, filing for spousal benefits only must be at least FRA.
Filing for Your Own Benefits. If you are receiving spousal benefits, you are still entitled to your own benefits (based on your own earnings record) if your benefit is greater than the spousal benefit. For example, if you are 67 years old, and you have been receiving spousal benefits for a year, you may apply for social security benefits based on your own record. If your own benefit is greater than your spousal benefit, you may receive your own benefit. If your spousal benefit is greater than your own benefit, you can keep the spousal benefit.
Birthday on or After January 2, 1954
If you are a non-working or retired spouse born ON or AFTER January 2, 1954, then when you apply for spousal benefits on the WS’s record, you will not have the option of applying for spousal benefits only. You will be “deemed” to have filed for either your own or spousal benefits, whichever is greater. You will not have the option of receiving spousal benefits and then an increase in benefits for delaying receipt of your own benefits.
Following is a flow chart for this analysis.
NOTE: There are many other benefits; disability, parental, benefits for children of a recipient – In no way is this an exhaustive list of all benefits available!
1. John and Joan have been married 25 years. When John dies, can he give his one-half share of community assets to his brother without telling Joan? (yes)
2. Can John give his one-half share away during his lifetime without telling Joan? (probably not)
3. If John inherited $100,000 a week ago and then filed for divorce, can the Court order some of John’s separate property inheritance to go to Joan? (yes) If rather than separating, John died, would all of the separate property be distributed to Joan? (probably not)
4. If John and Joan never married, but lived together as if they were husband and wife for 25 years and then separated, would the property disposition be the same or different? (pretty much the same as if they had been married) If rather than separate, John dies without a Will, would the results be the same as if John and Joan were married? (no)
5. Would the results of any of the above be different if the couple were John and David? (no – not since 2015!)
Who Owns Earnings? Community property began as a way of protecting a non-earning spouse by making all monies the earner makes during the pendency of marriage, owned by both spouses in undivided one-half shares.
It Will Surprise you. Community Property is oftentimes just the opposite of what people expect. If all assets John and Joan own are community property, it does not mean (as so many people think it does – and intuitively may seem) that at John’s death, Joan automatically receives all the community property. In fact, it means just the opposite.
You can Direct Distribution of Your Share of Community and Separate Property by Will or Community Property Agreement. When John dies, he can direct distribution of his share of assets to whomever he chooses. There are some limitations imposed by statute, but generally, John can do what he chooses with his one-half share of the community. If John wants Joan to have all separate and community assets, the best way to get them there is by a Community Property Agreement that makes disposition at the death of a first spouse very simple.
If there isn’t a Will – the laws of “Intestacy” Determine Distribution. If John dies without a Will, then Joan would receive John’s share of community property. Joan would also get all or a portion of John’s separate property, depending on whether John had surviving lineal descendants, but getting it to the intestate beneficiaries (Joan or others) can be complicated.
Married Couples can own Separate Property. Inheritances are not “earned,” and so are not “community” assets. Inheritances are separate property but can be converted to community in a number of different ways.
Prenuptial/Postnuptial Agreements. The comingling and possible division in a dissolution is the reason Pre-nuptial (and sometimes post-nuptial) Agreements are becoming increasing popular. The Agreement can outline the separate and community property of each party and the rights – during life and when each spouse passes away – to all assets, both separate and community.
Process is Critical in Pre/Postnuptial Agreements. Procedure is extremely important to ensure a Prenuptial agreement is enforceable. The Prenuptial Agreement must NOT be done at the last minute – just before a wedding, for example, when the invitations have been sent, the dress fitted and everyone is in a wedding flurry. Courts have held that such circumstances result in the less well-off spouse signing under duress and the Prenuptial Agreement is not enforceable. Since a Prenuptial Agreement changes rights that each spouse may have or acquire, each spouse MUST have his or her OWN attorney. Each spouse MUST list with sufficient detail, all assets he or she owns or expects to inherit – so the other spouse will have a good understanding of what rights he or she is giving up. If the procedures are not followed, the Prenuptial Agreement may very well be determined by a Court to be invalid and the Court will award property as if the Prenuptial Agreement were not even there!
There are many ways of giving to charities that can have a tremendous benefit to the charity and a tax benefit to the donor. Clients have asked me the difference between Charitable Trusts and Charitable Gift Annuities. Here is a quick summary:
Charitable trusts are an extremely helpful tool in estate planning, although the terminology can be confusing. Some explanation may be helpful. Charitable trusts may be set up as “inter vivos” trusts, during a donor's life, or as “testamentary” trusts, through a donor’s last will and testament to take effect at the donor’s death. A charitable trust may be also be set up as either a “remainder trust” or a “lead trust.”
Remainder Trusts. Charitable remainder trusts are irrevocable trusts established by a donor to provide an income stream to one or more income beneficiaries. A public charity or private foundation receives the remainder value when the income stream ends and the trust terminates. These “split interest” trusts (split between income and remainder interest beneficiaries) are defined in §664 of the Internal Revenue Code of 1986 as amended and are normally tax-exempt. A remainder trust pays either a fixed amount (charitable remainder annuity trust §664(d)(1)(D)) or a percentage of trust principal (charitable remainder unitrust §664(d)(2)(D)), to whomever the donor chooses to receive the income.
Normally, the donor may claim a charitable income tax deduction in the year of the donation on the full value of the remainder passing to charity. The donor should not be required to pay an immediate capital gains tax when the trustee of the charitable remainder trust disposes of the appreciated asset and purchases other property as it diversifies its portfolio of trust property.
Lead Trusts. Charitable lead trusts make payments, either of a fixed amount (charitable lead annuity trust) or a percentage of trust principal (charitable lead unitrust), to charity during its term, which may be a specified number of years or for a beneficiary’s lifetime. At the end of the trust term, the remainder can either be distributed back to the donor or to heirs named by the donor. The donor may claim a charitable income tax deduction or a gift/estate tax deduction for making a lead trust gift, depending on the type of a charitable lead trust.
Charitable Gift Annuity
What is It? A Charitable Gift Annuity involves a contract between a donor and a charity, whereby the donor transfers cash (usually) or property to the charity in exchange for a lifetime stream of annual income from the charity. When the donor dies, the charity keeps whatever remains of the gift. The amount of the income stream is determined by many factors including the donor's age and the policy of the charity. Most charities use payout rates defined by the American Council on Gift Annuities.
A charitable gift annuity can result in income and estate tax benefits. A donor may claim a current income tax deduction for the gift of the remainder to the charity. None of the assets transferred to the gift annuity will be included in the donor’s estate for estate tax calculation purposes. Depending on the tax basis of the assets transferred, the payments to the annuitant (the beneficiary receiving annual payments) may not be considered income to the annuitant.
Payments from a charitable gift annuity to the annuitant are fixed from the outset. Payments will neither increase nor decrease, regardless of what happens to interest rates or the stock market. A charity is contractually obligated to make the payments, even if it has to dip into its general funds to do so. Gift annuities can be very attractive to individuals who want simultaneously to support a favorite charity and provide payments to themselves or others.
Gift Annuity Rates. Since 1927, the American Council on Gift Annuities (ACGA) has periodically published a schedule of suggested charitable gift annuity rates. Although a charity is free to offer any schedule of rates it wishes - so long as its rates don't exceed the limits imposed by federal and state laws - most charities, in fact, follow the rates suggested by the ACGA. Thus, donors generally find that the rates offered by various charities are identical. This encourages donors to make philanthropic decisions based on the cause of the charities they consider supporting, rather than the rates offered.
Taxation of Gift Annuity Payments. If the gift annuity is funded with cash, part of the payments will be taxed as ordinary income and part will be tax-free. If funded with appreciated securities or real estate owned more than one year, and the donor is receiving the annuity payments, part of the payments will be taxed as ordinary income, part as capital gain, and part may be tax-free. The charity that issues the annuity will send a Form 1099-R to the annuitant. This form will specify how the payments should be reported for income tax purposes. For details regarding the taxation of gift annuity payments, it is wise to consult with representatives of the charity as well as financial advisors.
by Kerry Brink
Alfred Nobel changed the world when he sat down a few weeks before he died in 1895 and wrote out his Will that established the very rough outline of what became the Nobel Prize Foundation. That foundation has given out life-changing awards since 1901.
Each of our Wills might not change the whole world, but we can change our sphere of family and friends. We can state our directive - our Will - as to how our belongings can best be used to help the people we love and perhaps even the world beyond!
Here's a short, entertaining and interesting message about Alfred Nobel and his Will.
Documents That Changed the World: Alfred Nobel’s Will, 1895
One of the biggest concerns that parents have is how to provide for a child with special needs when both parents have died. Parents of a child with special needs often know that the child will never be able to manage assets on his or her own behalf, and further that if the child is eligible for very valuable public benefits, receiving monies outright or in the wrong kind of a trust can render the child ineligible for services and may require an expensive court-supervised financial guardianship.
We have experience in customizing Special Needs Trusts that will enable the child with special needs to continue to qualify for benefits, while at the same time allowing for distributions to be made to improve the quality of the child’s life and care. When preparing estate planning documents, don’t forget to talk to your estate planner about your wishes for your child with special needs, or other family member, regardless of age.
by Kerry Brink
So many times, clients come in with a big mess. They have done things on their own and now, it is a mess and it will cost WAY more to fix it than to do it right in the first place.
Here's a recent example. A client (I will call Joe) came in with his mother's Will that she had put together 2 years before she died last fall. The Will left 60% to Joe and 40% to his brother (I'll call him Bill"). A year or so before she died, she made a gift to Joe of a substantial amount that was in part for the work and money he had given her and in part to help pay for Joe's daughter's wedding.
Bill is objecting to that gift. Joe cannot tell the Court that his mother told him she did not want to leave anything to Bill, because those kinds of statements are prohibited by the "Deadman's Statute" that prohibits a person with an interest in an estate from telling the court what the now-deceased person may have said. So now, Joe is having to get statements from other friends and neighbors that show the bad things the mom said about Bill, so that Bill (and his attorney) will understand the mother intended to make the gift to Joe. How awful is that?
If mom had written a note indicating her desire to make the gift, none of this would have been necessary. It would have saved lots of money and the brothers would not have been pitted against each other.
Of course divorce is a hugely emotional, difficult time. The heart wrenching events leading to the decision to file for divorce are excruciatingly difficult, especially if there are children involved. So then you, or maybe your spouse, files for dissolution of the marriage, and figuring out who gets what and what the parenting schedule will be for the children becomes the focus.
Don’t forget, though, that when times weren’t so rocky, you may have done estate planning, providing that in your Will or a Community Property Agreement you left everything to your spouse.
The fact that you are now in the middle of a dissolution does not revoke those estate planning documents. Unless the terms of the estate planning documents themselves revoke the Will or
Community Property Agreement, you will need to take affirmative steps to change your Will and other estate planning documents.
For example, the Power of Attorney in which you appointed your spouse to act on your behalf is not automatically revoked when your spouse files a Petition for Dissolution of Marriage, unless that is specifically provided in the Power of Attorney.
Likewise with the Community Property Agreement, unless the agreement itself specifically provides that it is revoked if one of you files a Petition for Dissolution of Marriage, even though you are in the throes of a contentious dissolution, if you die and your spouse survives the Community Property Agreement is still in effect and all community property will pass to your surviving spouse.
Your Will operates the same way. As long as you are married, gifts to your spouse under your Will are unaffected. As soon as the dissolution is final, Washington statuses change that, but until it is final, spousal gifts are unaffected.
Also consider beneficiary designations that you may have made in your retirement or life insurance that you have through work or independently. It may be that you have designated that your spouse be the beneficiary, and this will be the prevailing beneficiary designation unless you make a change!
So, the moral to this difficult tale is: If you are involved in a dissolution of marriage or a legal separation, then bring all of your estate planning documents into your attorney’s office, along with a copy of this message, and talk with your attorney about making changes to your estate plan as part of the dissolution process.
October 7, 2016
by Kerry E. Brink
The discounts that have been allowed for gifts of minority interests in a family business, to other family members, may be eliminated in 2017! The IRS has proposed changes to regulations that are intended to eliminate the ability of an appraiser to take minority ownership into consideration when valuing a gift of closely held businesses to family members. It is not clear what the timeline of implementing these regulations might be – but there is a push for the regulations to be finalized in early 2017. The proposed regulations are out for comment and there are many criticisms, so an actual implementation date is hard to calculate.
So – You may want to consider making those gifts sooner, rather than waiting!
At 97 years old, my grandfather died after living a life that took on big issues – agricultural methods in Zimbabwe (then, Southern Rhodesia), originating and organizing Child Protective Services in southern Washington and in his retirement years, promoting and supplying food banks in the Gig Harbor and Tacoma areas. So it was a little surprising that he was so incredibly detailed in putting together his Bequest by List – in a spiral notebook – that gave away absolutely everything with specificity. His gifts included the canned food in the pantry and the cleaning supplies under the kitchen sink (which were designated to come to me).
Of course he also gave away treasured family items to each of his children and grandchildren, which were all the more meaningful because he gave them directly to us. The fact that he remembered us specifically made receiving the item a direct connection with this remarkable man.
Very few people ever fill out the Bequest by List forms, but I think it means a lot to the beneficiaries to receive a direct gift from a parent, grandparent or a friend. By the time my grandpa passed away, there weren’t many cleaning supplies under the kitchen sink, but I treasure the circa 1972 Encyclopedia Britannica set he left me and his copy of Man’s Search for Meaning by Viktor Frankl that contained Grandpa’s comments and underlines from numerous readings. Oh yes – and the silver tea set. That was special, too.
by Kerry Brink
Effective June 12, 2014, Washington state law allows an individual to transfer real property to one or more beneficiaries effective at the transferor's death by executing and recording a transfer on death (TOD) deed. The TOD deed must be recorded prior to the transferor's death in the public records office of the county auditor in the county in which the property is located. A TOD deed is fully revocable during the transferor's lifetime, even if the deed or another instrument contains a contrary provision. In some circumstances, this may avoid the need for probate altogether or the use of a revocable living trust as a means to avoid ancillary probate in Washington state for an out of state resident.
The majority of claims are not complex. Sure there may be some hiccups along the way, but claims are usually administered, workers get timely and proper treatment, and claims will close.
Unfortunately, it is not the typical claim that costs the employer the most. It is the atypical, expensive, drawn out claim with the unusual medical condition or the condition that evolves to include multiple body parts without any logical explanation that costs the employer.
How does an employer avoid those complex claims and control costs?
Of course there's no magical crystal ball, and there's no box for the claimant to check to let you know that their claim is going to turn into a years-long adversarial relationship between the employer and worker. However, an employer can get a sense of the beginnings of a complex claim by paying attention to some warning signs.
For instance, were there disciplinary issues immediately prior to filing of the claim? For instance, is the date of injury within a matter of days of a disciplinary action? Or perhaps the worker's spouse has a medical condition that requires care, and the only available caregiver is the worker? Or how about the case of a "normal" condition that suddenly evolves to involve multiple body parts?
Another factor that may make the claim complex is the nervous claimant. Let's face it, the worker's comp system in Washington involves a lot of laws, rules, and policies that are sometimes in conflict with each other. Your claimant may not understand how the system works, and may be confused, distrustful, or just scared of what may happen in the future.
What about the worker's attorney? Is the worker's attorney facilitating administration or putting barriers in the way to delay administration? Does the attorney have a reputation for making claims worse, taking every case to litigation, or engaging in other questionable conduct?
While a single one of these "red flags" may not be indicative of a complex claim, they do provide some warning to the employer to proceed with caution.
So what do you, as the employer do? Follow my blog as I discuss both general and specific strategies for handling the complex claim. Of course, I am happy to answer any questions you may have, so please contact me and I will be happy to discuss your specific case with you!