Changing Beneficiary Designations

A person or couple creating a new estate plan should carefully consider changing beneficiary designations on retirement accounts and life insurance policies, to make sure that the goals of the estate plan are being served by these beneficiary designations.  Priorities in changing beneficiary designations frequently include the following:

  1. Don’t leave money directly to a minor child or very young adult.  If your will or living trust includes testamentary trust clauses for your children until the reach a certain age, name the first testamentary trustee as the beneficiary.  Then name your children as the contingent beneficiaries after the trust.  This will help ensure that, if your children have reached a certain age and the testamentary trust is no longer needed, your children will still receive the intended benefits.  You can obtain appropriate language for naming a testamentary trust as a beneficiary from your attorney, life insurance provider, or financial institution.
  2. Name your living trust as the final contingent beneficiary.  By doing so, you should avoid probate of the proceeds if all of your named beneficiaries have predeceased you.
  3. Consider deferred taxation on retirement benefits.  IRAs, 401(k)s, and similar retirement benefit plans are subject to complicated rules regarding minimum distributions. Consult with a CPA or CFP about the tax implications of your beneficiary designations.
  4. Be careful about exposing life insurance proceeds to creditors’ claims.  In most cases, life insurance proceeds are not subject to the claims of the deceased person’s creditors.  Life insurance benefits can thus provide crucial support for minor children even if the parent’s estate was otherwise insolvent.  Clients should thus be careful about naming their trust or estate as a beneficiary of life insurance proceeds, which could unnecessarily expose those proceeds to creditors’ claims.

 

Oregon Estate Tax Planning Overview

While the rather high ($5 million) current federal estate tax exemption amount means that very few estates will owe federal estate taxes in 2012 and 2013, the much lower $1 million Oregon estate tax exemption amount means that many more estates will owe Oregon estate taxes in the coming years.  In my own practice, I have frequently encountered  estates in the $1-2 million range owing Oregon taxes that could have been avoided with proper estate tax planning.

Effective January 1, 2012, the current “Oregon Inheritance Tax” will be renamed the “Oregon Estate Tax,” and the present byzantine rate structure will thankfully be simplified.  Estates in excess of $1 million will be subject to a variable tax rate of 10-16%, with highest 16% marginal tax rate kicking in at $9.5 million.  Without tax planning, a single person with a $2 million estate may owe about $102,500 in Oregon estate taxes.

Basic estate tax planning strategies may address two important goals:

  1. Doubling the exemption amount.  For married couples, tax planning may ensure that each spouse can use his/her exemption amount when assets eventually pass to children or other beneficiaries.  The principle technique my law firm uses in this area is the disclaimer credit shelter trust.  For a $2 million estate, proper use of a disclaimer credit shelter trust could save a married couple over $100,000 in Oregon estate taxes.
  2. Reducing the size of a taxable estate.  Gifts during your lifetime may reduce the size of your taxable estate.  A life insurance trust can move life insurance benefits outside of your taxable estate by transferring ownership of the life insurance policy.  A charitable remainder trust may allow you to preserve income from assets while avoiding future estate taxes on those assets.  Charitable giving can reduce or eliminate estate taxation, while allowing you to contribute to causes you believe in.

The estate planning team at Hillsboro Law Group PC provides affordable estate tax planning solutions for Oregon families. Consistent with our general philosophy, our estate tax planning services are priced to offer great value for our clients.

Consider also that, in January 2013, the federal estate tax exemption amount is scheduled to fall down to $1 million, with a huge 55% tax on amounts in excess of $1 million. Given the uncertain political climate in Washington, I believe that there is a real possibility that Congress may deadlock on the estate tax, and massive federal estate taxes could be imposed in 2013 on unprepared Americans.

How to Keep Your Legal Fees Down

For most clients, keeping legal fees down is, or should be, a major priority in the legal process. Surprisingly, however, many clients do not adequately explore the likely cost of litigation, perhaps because of the emotions involved. Here are some suggestions on how you can help reduce your legal costs if you need to hire an attorney:

  • Carefully review the lawyer’s fee agreement. Fee agreements are usually drafted so as to give maximum leverage to the law firm. It is very important that you understand the precise mechanics of how you will be charged in your case.
  • Review and understand your lawyer’s policies on minimum billing increments. Many lawyers will bill a minimum amount of time for a particular task. For example, lawyers may charge at least .1 (six minutes) or .25 (15 minutes) for a phone call, regardless of whether the call takes that full amount of time. If your lawyer will bill you .25 hours every time you call him/her, you should know that in advance. You might also consider the reasonableness of competing attorneys’ minimum billing amounts in deciding which law firm to hire.
  • Try to consolidate your communications to your attorney, to reduce the impact of being billed for multiple emails, calls, etc. For example, if you are going through a divorce, rather than sending your attorney six emails on a given day about six different issues, try to send one email addressing all six issues.
  • Before you hire an attorney, ask for a total cost estimate in writing, and request in writing that your attorney email you if the cost will exceed the estimate you have been given.
  • Pay attention to your attorney’s hourly rate. In my experience, most clients are much more concerned about the initial retainer amount. The attorney’s hourly rate may ultimately have more impact on the total cost of litigation, however.
  • If you are consulting with an attorney about a divorce, ask the attorney how much the firm charges on an average divorce case. Also ask what you can do to make sure that your legal fees do not exceed that average cost.
  • After you hire an attorney, try to give a lot of consideration to the attorney’s advice. If your attorney advises you that a particular course of action will not likely be successful, but you pursue it any way, your legal fees will likely increase significantly. In some situations, you might also have to pay the opposing party’s legal fees, which can be financially devastating.

Estate Planning Involving Vacation Homes

If you own a vacation home, and would like to keep that home in the family after you pass away, you have a variety of options to choose from. You might opt to directly transfer the property to your children upon your passing away, but this is rarely the best option. Your children would own the property as tenants in common, which is rarely conducive to effective property management (or to good sibling relations) over time.

Another option is to put the family cottage into a trust. This option may avoid some of the potential pitfalls of direct ownership by tenants in common. There are three main reasons, however, why a Family Cottage LLC is probably a better option than a trust:

  • LLC management is usually more democratic than trust management, which can lead to more harmonious relations among your beneficiaries.
  • If a claim for damages is made related to the vacation property, a trust may offer your beneficiaries less protection from personal liability compared to a LLC.
  • The Rule Against Perpetuities mayt dictate that your a trust cannot last more than about 90 years. A LLC, on the other hand, has a potentially unlimited duration.

Starting a New Business in Oregon – Choice of Entity

When starting a new business in Oregon, it is important that you make an educated decision regarding choice of business entity. Basic options include the following:

  • Sole Proprietorship
  • Partnership
  • LLC
  • S Corporation
  • C Corporation

For many small businesses that are just starting out, a sole proprietorship or partnership may be the best option, particularly if the business is unlikely to be sued. Going this route may limit start up and administrative costs. As the business becomes more profitable, however, it often makes sense to convert to a LLC or S Corp, to take advantage of potential tax savings and partial protection from personal liability.

Many small business owners are uncertain whether to go the LLC or S Corp route. In general, a LLC offers greater flexibility and lower start up costs compared to a S Corp. On the other hand, a S Corp may offer greater tax savings and other benefits for some businesses.

When consulting with a business attorney, a business owner should make sure to ask for a clear estimate of costs and services being provided. My law firm has a growing Hillsboro business law practice that focuses on delivering cost-effective business law services to small business owners.

Burton McCaffery Oregon Lawyers PC

I am pleased to announce that my law firm’s new Beaverton-focused website is online at www.bmolawyers.com. For 2011, we have decided to reposition our Beaverton office using our actual corporate name of Burton McCaffery Oregon Lawyers PC, while continuing to do business in Hillsboro as Hillsboro Law Group PC, a registered assumed business name. We have already taken steps in 2011 to build up our Beaverton operations, including joining the Beaverton Chamber of Commerce, and setting up the new website.

Our Beaverton office’s contact information is as follows:

Burton McCaffery Oregon Lawyers PC
12725 SW Millikan Way Ste. 300
Beaverton, OR 97005
tel 503-906-7840

Federal Estate Tax

Under the tax compromise agreement recently negotiated by President Obama and congressional Republicans, the federal estate tax exemption amount for 2011 will likely be $5,000,000, with any excess amount being taxed at 35%. This represents a massive increase on the $1 million exemption amount that was scheduled to kick in in 2011, and, in my opinion, is too high given the massive budget deficits the federal government is currently running. Increasing the exemption amount will have little, if any, stimulative effect on the economy. I am also concerned that, by allowing a married couple to potentially transfer up to $10 million tax-free to their children ($5 million per spouse), the government is encouraging increased disparity between wealthy elites (the top 1%) and the vast majority of Americans. Meanwhile, the cost of our government’s unrestrained borrowing from foreign lenders will have a long-term negative impact on our country. There continues to be an irrational disconnect between the professed concerns of both politicians and voters about excessive government debt, and the failure of the government to take any meaningful action to address the problem.

New Google Place Search Impacts Law Firm Search Results

I was surprised and then delighted to see Google’s new “Google Place Search” this afternoon, which gives greater prominence to local search results when a search phrase includes local content. For a more complete description of these changes, check out Google Place Search is No Yelp Killer. The change is apparently intended to make Google more competitive with Yelp and other local search services. My law firm’s placement in search results appears to have increased across the board as a result of the change. It will now much more important for law firms to get client reviews on Google and CitySearch, as these reviews are very prominently accessible in search results. In general, the change may allow SEO-savvy law firms to achieve greater dominance over competitors in Google.

Attorney-designed websites

I am pleased to announce that the second generation Hillsboro Law Group PC website is now online and fully operational. I created the website myself using Adobe Dreamweaver CS4, having first begun learning HTML in 2007 when renovating the Garland Burton McCaffery PC website. Our associate attorney Meghan Bishop again contributed a number of excellent unique photographs to the site. By using proprietary photos of our offices, the local courthouse, etc., we are hoping to avoid the generic feel of many professionally-designed law firm websites.

I am not aware of any other attorney-designed law firm websites in existence, but I am sure there are many others out there. I would like to create a web page gallery of websites designed by practicing attorneys, so please let me know if you have any links.