SSJH News & Updates

Our updates and posts are offered for general information and educational purposes only and may be considered advertising. Although we intend to use updates and posts to provide current, useful information, they are not offered as legal advice and do not constitute legal advice or opinion. You should not act or rely upon this information without seeking the advice of an attorney.

Mark Hoyt Receives 2017 Lestle J. Sparks Medallion from Willamette University

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Mark Hoyt combines service to the legal profession with a commitment to the community of Salem and Willamette University.

A partner in the Salem law firm of Sherman, Sherman, Johnnie & Hoyt, LLP., he represents businesses and individuals in all aspects of complex civil litigation, land development and construction. Beyond his law office, Hoyt is an active volunteer including as a member of the Salem Area Chamber of Commerce’s Executive Leadership Council, as past-president of the Marion County Bar Association, the Abiqua School Foundation and Illahe Hills Country Club, and as chair-elect of the Mid-Willamette Valley Strategic Economic Development Corporation.

Hoyt has served on the Willamette University Law Board of Visitors since 2003 and is a member of the college’s Leadership Cabinet. An engaged student while at Willamette Law — he served on Law Review, participated in Moot Court and graduated cum laude — Hoyt continues to be an active and dedicated alumnus. He participates in campus events, frequently speaks with students about career opportunities and served as an adjunct professor for the Business Law Clinic.

This was first posted on willamette.edu.

Posted in Business, Construction, Real Estate & Land Use, SSJH News & Events |

Creditor’s Rights, Real Estate, and Land Use Associate

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Sherman Sherman Johnnie & Hoyt, LLP is seeking an associate attorney with 2-4 years’ experience to join its creditor’s rights and business practice group.  Candidate will support one Partner and one of Counsel Attorney with banking and creditor’s rights, associated real estate and land use practice.  Candidate will also provide litigation support on an as needed basis.   Strong writing skills and communication skills are a must.  Trial experience preferred.

If this ad peaks your interest, and you think you are a fit for our team, send resume and writing sample to hiring@shermlaw.com

Posted in SSJH News & Events |

Civil Litigation Associate

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Looking for a change?  Come join our team at Sherman Sherman Johnnie & Hoyt, LLP.  We are an AV-rated civil law firm with unwavering commitment to client service, community involvement and lawyers having lives.

If you are a 3-5 year experienced attorney in the area of civil litigation, can work as part of a team, and share our commitment to achieving results for our clients please send letter, resume and writing sample to hiring@shermlaw.com.  We offer a full package of benefits, and the opportunity for career advancement.

Posted in SSJH News & Events |

Designation of a Minor as an IRA Beneficiary

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Introduction

Parents who have an IRA are concerned with the possibility that they will die simultaneously and the IRA will be left to their children. Another issue is that the single parent or the surviving spouse may only have minor children who would be beneficiaries of the estate. In some cases, parents or grandparents may want to leave IRA accounts to minor children to provide flexibility and long term growth. Deferring income taxes until distribution of the IRA allows maximum tax deferred growth of assets.

Problems with Distribution of IRA Accounts to Minor Children

Planning for the distribution of the IRA is designed to provide for a required minimum distribution (“RMD”) over the longest possible time so that tax deferred growth of assets is achieved. Under the internal revenue code the RMD time period is calculated to pay out over the designated beneficiary’s lifetime.

There are certain problems that must be addressed in an estate plan when minor children are to receive the benefits of an IRA. First, if the IRA assets are left to a minor child, a conservator will have to be appointed. Parents must appoint a conservator and the court will have to approve the person. There is no guarantee that the court will appoint the person(s) you have designated. You will have to appoint this person because IRA custodians are prohibited from dealing directly with minors in any capacity. Providing for a person in the Will does not solve the problem because your Will deals with assets subject to probate and IRA assets do not go through probate. Second, you will have to decide how to leave your IRA depending on when you want your minor child to have access to the entire fund. Separate trusts can be established, or a single trust could be split in shares. How the trust is set up effects how the measuring life for RMD is determined.

When Does A Minor Have to Start Taking the RMD?

Unlike an IRA left to a spouse, a minor child does not have the option to roll over an IRA into their own IRA. A minor child will have to begin taking RMDs soon after the parent’s death. The RMDs will be calculated over the lifetime of the oldest beneficiary based on her age and the beneficiary will have to pay income tax on the distributions. In addition, retirement assets passing to minors are included in the decedent’s estate.

Options for Your Children When Inheriting Your IRA

If the IRA assets are left to the minor child through a conservator, the distributions can be placed in a Uniform Gift to Minor custodial account. The downside is that the minor can have access to the entire account at 21.

Another alternative is a 529 College Fund Plan. This will allow the funds to grow tax free until they are used for college. This planning can fail if the child decides not to attend college.

A third option is a trust. The conservator could be your trustee. The trust will provide specific instructions as to how you want the conservator/trustee to handle the IRA distributions to the minor child.

Complications of Using a Trust

Only individuals may be designated beneficiaries. When a trust is the beneficiary, the IRA proceeds must be paid out over the lifetime of the oldest beneficiary of the trust. This is not a rollover IRA. The trust must be carefully structured to insure that the parents’ wishes are carried out. While the trustee may want to make only RMDs over an extended period of time, using a conduit trust will require the trustee to remove the RMD each year from the trust. A conduit trust requires that all distributions from the IRA are paid out currently and nothing is accumulated in trust. In the case of a minor the trust will last to a certain age whereupon the trust will terminate and the assets will be distributed to the child. If there are multiple beneficiaries of the trust, then the designated beneficiary will be the oldest child, with RMDs determined by that beneficiary’s life expectancy. The tax advantage is that the trust usually pays a higher tax rate than the child and, thus, the transfer will reduce the income tax on distributions.

The Five Year Distribution Problem

The five year distribution rule can come into play if the beneficiary of the trust does not live to the designated age of distribution. For example, suppose under the provisions of the trust, the IRA assets are held in trust to a specific age. If the child is living at that age, she gets the assets. If she is not living at that age, the assets could go to the settlor’s remaining heirs or perhaps to her grandparent who is in his seventies. This will result in the required minimum distributions to be calculated based on the grandparent’s life expectancy.

Even if the trust required that trust assets be distributed to the child’s estate upon her death, this could result in a five year payout because the child’s estate is not an individual. This would make the child’s estate the sole beneficiary of the trust. A better option is to designate a specific individual as the contingent beneficiary, preferably someone of equal or younger age, such as one of the other minor children. To achieve this result the distribution to the other child must be outright. This could create a problem, if the other child is still a minor.

As discussed above, one solution is the use of a conduit trust. The conduit trust allows distribution of RMDs for the benefit of the minor child so that the trust is not taxed and the child beneficiary of the trust is considered by the IRS as the designated beneficiary. If the trust is properly structured, then the minor child will be the designated beneficiary and the assets can continue to grow based on her life expectancy. As to the distributions to the minor, consideration should be given on how the distributions can be made and meet the requirement that they are paid directly to the minor. The trust instrument should include a provision requiring distributions be either paid to or for the benefit of the minor.

Conclusion

The greatest possible tax deferral is through the use of a conduit trust for each minor beneficiary. However, there may be other reasons, such as qualifying for special needs or asset protection that suggest a different solution. Each family situation must be examined to determine the most appropriate approach to planning for IRA assets.

 

 

 

Posted in Estate Planning, SSJH News & Events |

Estate Tax Law

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Estate Planning is More Complex if You Live in Oregon and Have a Large Retirement Plan

For many people, the largest asset in their estate is their 401K, retirement plan or IRA. With recent changes to Federal Estate Tax Law increasing the exemption in 2014 to $5,340,000 per person, indexed for inflation, and making this new exemption “portable” between spouses, planning your estate if your primary asset is a Qualified Retirement Plan is much simpler than in the past. While Oregon still maintains a $1,000,000 exemption before taxing estates, the change in federal law provides options for both estate tax and income tax savings.

CHANGES IN ESTATE TAX

The federal estate tax exemption increased in 2014 to $5,340,000. This is purported to be a permanent change. The exemption is indexed for inflation, so it increases each year. This exemption is per person.
The new law now makes the exemption “portable” between husband and wife, meaning that if the first spouse to die does not use all of his or her exemption, then the exemption can be transferred to the surviving spouse.
In addition, under current law, the maximum federal estate tax rate is 40%.
For higher income individuals there is now a 3.8% surtax on net investment income. The highest marginal tax rate on individuals is 39.6% on ordinary income, and 20% capital gains tax. Individuals can give up to $14,000 per donee that is also exempt from Gift Tax.

HOW THE NEW LAW AFFECTS ESTATE PLANNING FOR MARRIED COUPLES

If a couple has a very large retirement account the new law not only simplifies planning, but provides a means to drastically reduce estate and income taxes. Prior to the passage of the new law a couple with largely retirement plans as their major asset had the option to leave the retirement benefits to their surviving spouse who could then make a spousal rollover to another IRA account in order to obtain income tax benefits. The surviving spouse would be able to gain the income tax benefits because she or he would not be required to take minimum distributions from the account until the deceased spouse would have been 70 and a half years old, and the surviving spouse can stretch the period for determining what has to be withdrawn over his or her life expectancy if they are younger than the deceased spouse.
Because there was no “portability” of the deceased spouse’s federal exemption, couples often had to leave retirement benefits to a “Credit Shelter Trust” to save estate taxes through the applicable federal or state exemption, but the surviving spouse was then subject to income taxes due to the loss of the spousal rollover.

THE NEW LAW ELIMINATES PROBLEMS WITH PLANNING FOR RETIREMENT BENEFITS

Under the new law, if a couple’s combined assets are under $5,340,000 in 2014, they are not subject to federal estate taxes. For a couple whose combined assets are greater than $5,340,000 and have a substantial amount of their estate in retirements plans, the first spouse to die can now leave his or her retirement benefits to the surviving spouse, and leave his or her unused federal estate tax exemption (“DSUE”) to the surviving spouse so at the time of their death they will have a double exemption to prevent taxes on all inherited assets and the assets will be exempt from federal estate tax. In Oregon, this choice is more complicated because the Oregon inheritance tax exemption is on $1,000,000 and is not indexed for inflation. Further, the Oregon exemption is not “portable.”
A couple can have $10,680,000 in assets and still avoid federal estate tax on the first and second death if their primary asset is retirement benefits. Assuming the husband dies first, he can leave a $10,680,000 retirement account outright to his wife. After death, the husband’s executor can make an election to port or transfer the husband’s DSUE to his surviving wife. When the retirement account is transferred to the wife she can do a spousal rollover of the account and gain income tax savings by spreading the receipt of income over an extended period of time. When the surviving wife dies, if she has an IRA or Qualified Plan in excess of her federal exemption amount, she can use her husband’s DSUE if it was ported to her to increase the federal estate tax exemption. Thus, IRA accounts can now be transferred to the surviving spouse directly without setting up complicated trusts as in the past in most states. However, because Oregon has a state estate tax which starts at a lower amount of assets; trust planning may still be necessary.

THERE ARE REASONS A COUPLE MIGHT STILL WANT TO USE A TRUST FOR RETIREMENT BENEFITS

One of the biggest reasons for continuing to use Trust planning is the fact that the Oregon estate tax exemption is $1,000,000, and transferring the IRA account on the second spouse’s death could trigger Oregon Inheritance Tax. Other reasons for using a trust is to preserve assets for the couple’s existing children, in case the surviving spouse remarries and favors the children of the second marriage over the children of the first marriage. If the account owner is concerned with controlling IRA distributions rather than adverse income tax consequences. Some couples have concerns about vulnerability to creditors which can be protected through the use of trusts. Finally, a couple may need to use a bypass trust and fund it with IRA assets when other assets are insufficient to take advantage of the Oregon estate tax exemption.
If the estate is not primarily retirement benefits, then tax wise the choice between use of trusts and leaving assets outright to the spouse, while depending on the facts of each case, is usually neutral. Under the new tax law, in a decoupled state like Oregon that has its own tax exemption level, the new planning model requires that each asset be analyzed for basis, income generated, and potential for appreciation to determine the income tax and estate tax potential liability before a plan can be recommended that is in the best interest of the couple.

SUMMARY

The ability to leave a retirement account to the surviving spouse, and also preserve the unused federal estate tax exemption under “portability” in a decoupled state like Oregon with its own estate tax and lower exemption level than the federal estate tax, provides a challenge to planning for qualified retirement accounts, but also opens the door of opportunity for simpler and effective estate plan. The new law is especially useful for couples who do not otherwise have sufficient other assets to fully fund a Bypass Trust.
There are many complications to handling retirement accounts and careful attention has be given to the terms of the retirement plan, the exact language of the beneficiary designation of the plan, and the drafting of estate planning documents. While there are multiple estate planning options, some qualified retirement plans simple do not provide for distribution patterns that will reduce taxes for the account holder’s beneficiary.
Even though the rules are now simpler, it is still very complicated and loaded with traps that can result in additional taxes. If you have a large amount in retirement plans and your estate is potentially subject to paying either federal or Oregon estate taxes, a consultation with an estate planning attorney can save you and your family members taxes and other expenses in the long run.

Posted in Estate Planning, SSJH News & Events |