Is Your Dog or Cat Prepared to Live Without You?

Every day I go off to work and leave my two dogs, Daisy and Angel, behind to guard the house.  Because Daisy and Angel’s combined weight is less than ten pounds, I have a sinking suspicion that they are less than diligent in this duty.  However, when I get home, they meet me at the door and find comfortable seats on my lap at night when I watch the evening news.  Thus, and in spite of their lack of aptitude as guard dogs, I have grown fond of Daisy and Angel and plan on keeping them around and caring for them for at least the immediate future.

As long as I come home, all is well.  But what happens to Daisy and Angel if I become disabled, go to the hospital, move to a nursing home, or pass away?

Each year in the United States approximately 500,000 pets end up in shelters when their owners die, become disabled, or move to long-term care.  Unfortunately, depending on the data used, 50-70% are euthanized rather than adopted.

As a society, we do extensive planning in anticipation of disability and death, and to provide for the care of our spouse and children, but what happens to Daisy and Angel? While most pet owners think of their pets as members of their family, the vast majority fail to plan for them as they would a human family member.

In planning for the care and well-being of your pets, you need to think about short-term emergencies and well as long-term care.

What happens if you are in a car accident, suffer a stroke, or our hospitalized with an injury and don’t return home?  How long can your dog or cat survive without you?  Usually pet care is needed within a few hours, not a few days.  For the short-term emergency, you need to ensure that someone is able to care for your pet immediately.  

There are several simple and informal steps you can take to ensure that your pet is cared for in the event of an emergency.  Have an identification card in your wallet or purse so emergency responders realize that you have pets that need immediate attention.  Plan ahead with a caregiver, by providing them with a profile of your pet’s information such as veterinarian, medications, behavioral habits, fears and dislikes, allergies, special diet needs and special care instructions.  Make sure the emergency care provider has access to your house and can feed and care for your pets in the short term.  Place window decals on your home so emergency responders know how many children and pets are in the house.  Leave the profile with a second relative or neighbor so that your pet receives necessary food, water and medicine.

After the immediate crisis is resolved, you need a long-term plan to care for your pets. 

In Oregon and Washington, this can be done by using a pet trust.  In addition, a power of attorney or a will can include provisions to provide for your pet’s care in the event of your death or incapacity.  Whether you provide for your pet in a will or trust, you should seek the advice of legal counsel to make sure your wishes are carried out, and upheld by the court if challenged by your devisees or beneficiaries.  Some of the items that you should consider and include in your will or trust are: 

  • Who will have custody of your pet?
  • Who do you want to name as a backup care provider if your first choice dies, is incapacitated, or refuses to do it?
  • Who will pay for the expenses of care (it doesn’t have to be the same person who has custody)?
  • Do you want a trust protector?  This is the person who makes sure your pet is cared for and that the money you set aside is used for your pet.

You should also determine how much money to set aside for the care of your pet.  How much do you spend every year for food, supplies, training, toys, medical care, and kennel stays during vacation?  How old is your dog or cat and how many years do you want to provide for them?

Someday you will not be there for your pet.  Providing for them can be done as part your estate planning or on a stand-alone basis through a pet trust.  Don’t fail to plan for your pets.  If you have a dog, cat, fish, snake, or lizard and want to make sure they are cared for when you can’t, seek the advice of an attorney, carefully consider the needs of your pet, and make a plan for the well-being of your pet.

Avoid Unpleasant Springtime Tax Surprises

This is the time of year when last year’s taxes weigh heavily on the minds of many. For most of us, there is not much we can do at this point to change last year’s tax picture, but it never hurts to consider how to manage affairs moving forward.

The tax code is an enormous body of law, and it is constantly changing. Many business decisions and life events can create significant tax implications, and it is difficult even for professionals to keep up with it all.

It is a good practice to touch base with your advisors, (i.e., your accountant or your lawyer, or both) periodically throughout the year, especially when you are facing a life change or a big decision. Though tax preparers (and Turbo Tax) can often work wonders with what you give them after the fact, sometimes the full extent of tax implications from activities conducted this year will not surface for several years. In that case, fixing them after the fact is usually costly.

Far from exhaustive, here are a few examples of situations where the tax issues can get tricky fast, and it is a great idea to do a little research or call your advisor(s) to make sure you are on solid footing as you proceed.

Estate planning. A “taxable estate” exists when the total value of all your property interests and the items you own exceeds the amount of the estate tax exemption. There is an exemption for Federal tax purposes (currently $5 million for 2012, which drops to $1 million in 2013 unless Congress acts) and each state has its own exemption level (in Oregon for 2012, it is $1 million). The Federal gift tax imposes a tax burden on gifts given “inter vivos,” which means “while living.” In 2012 the gift tax is exempted for cumulative gifts of up to $13,000 to another individual during the calendar year. Federal and state estate taxes operate on “testamentary” transfers (transfers of wealth by death). Gift and estate taxes have significant overlap and interplay, but operating together they essentially ensure that transfers of wealth beyond certain amounts to persons other than your spouse do not go untaxed.

Though tax issues often dominate estate planning considerations, estate planning is not just for wealthy people and it is not just about taxes. Besides the advanced planning strategies employed by the wealthy to minimize their tax burden, there are many practical tips and considerations which can be put into action today to ensure that the assets you have now pass to your loved ones according to your wishes. Without any estate planning instruments such as a will or a trust, much of your property will go through a public probate process, subject to the default rules of succession imposed by the State, which may or may not be the way you wish your assets to be divided.

Facing divorce. Planning for divorce is not an action item on many people’s to-do lists, and it shouldn’t be. But if it’s a reality for you or someone you know, you should discuss the situation and the potential financial and tax consequences with your respective advisors. One thing you should know is that spousal support payments, the payments one spouse pays to the other as part of a divorce settlement (known as alimony in many states), are treated as taxable income to the person receiving them, and a tax deduction for the person paying them.

An issue can arise if a portfolio of investment properties is being divided as part of a divorce settlement where some properties have a low basis. “Basis” is a tax term that determines what is taxable when the property is sold. Usually, the difference between the basis (which is adjusted downward by depreciation and upward by improvements to the property) and the sale price represents the “gain,” or what is taxable. The receiving spouse takes the property’s then existing basis when it is transferred between spouses or as part of the divorce. When property is purchased, its basis will usually be what is paid for it. The point here is that otherwise comparable property with a lower basis will result in higher taxes when you go to sell it. If there is a portfolio of investment properties being divvied up, factoring in the basis of the properties at issue will result in a fairer division of assets.

When you move to a different state. The structure of taxes between states varies greatly. Here in Oregon, we have no sales tax (currently), but we have a personal income tax, property tax, and an estate tax, as well as various minor consumption taxes (gasoline, liquor, etc.). In Washington, there is no personal income tax, but there is a sales tax on most consumer goods and an estate tax and consumption taxes on some goods. When you are anticipating moving, be sure to familiarize yourself with the structure of taxation in that state before you go. If you are being transferred for work purposes and have some bargaining leverage, raising the issue of a less favorable tax structure in your destination state could be worth some concessions in your favor. For an overview of taxes by state, click here.

Non-qualified deferred compensation. And just what is that? Deferred compensation is any compensation earned by you in one tax year but paid to you in a future tax year. Non-qualified deferred compensation is any form of deferred compensation that is not specifically exempted by other sections of the tax code, such as the special tax treatment given to common forms of employer-sponsored retirement plans.

If you are entering into any kind of deferred compensation arrangement with an employer besides a standard retirement plan, you should be sure to inquire as to whether it has been structured to comply with the provisions of §409A. Enacted in 2005 to limit executive compensation schemes, §409A applies to everyone, and it governs all deferred compensation arrangements. While it exempts many common business practices such as most types of retirement plans, bonuses given within 2 ½ months of the end of the tax year, etc., §409A carries with it significant tax penalties (20% plus interest) for the employee for noncompliance. You, not your employer, pay the penalty.

You don’t have to learn all the ins and outs, but if your employer offers you extra compensation to be paid in a future tax year for services you perform in the current year, §409A could apply. Even an informal, “I’ll pay you X dollars two years from now if you meet the Y goal this year,” could fall under §409A or promises made in employment offer letters or separation agreements. It is worth some due diligence.

Only pleasant springtime surprises. If you are in the habit of relying on your tax preparer or Turbo Tax to do the best they can with whatever you’ve got at the end of the year, it is a good habit to break. Even if you don’t get around to it much during the year, having a real conversation with your advisors on an annual basis about what’s coming up in your life will give them an opportunity to help you flag the tax consequences of upcoming situations− and avoid a future unpleasant springtime surprise.

May all your springtime surprises be pleasant ones.

– Elliott Dale

Previously its business manager, Elliott has worked as a law clerk at SSJH since March 2011. He graduated from the evening program at Lewis & Clark Law School in December 2011. Pending admission to the bar, he will work as an attorney for SSJH practicing in the areas of banking and lending law, creditor’s rights, general business, and real estate.

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CIRCULAR 230 NOTICE: We must inform you that this message, if it contains advice relating to federal taxes, was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed under federal tax law. Under these rules, a taxpayer may rely on professional advice to avoid federal tax penalties only if that advice is reflected in a comprehensive tax opinion that conforms to stringent requirements under federal law. Please contact our office if you would like to discuss our preparation of an opinion that conforms to these rules.

Yours, Mine and Ours – Estate Planning for the Second Marriage

No one gets married planning to get divorced. However, it is estimated that over 50% of first marriages end in divorce. For people whose marriage ends in divorce when they are under 45, 75% remarry within four years. More than half of remarriages involve children from a prior marriage.

Whether your new family is the Brady Bunch or socially and psychologically challenged, second marriages have unique estate planning challenges, and I have a few thoughts to share.

Some of the challenges unique to the “yours, mine and ours” family include disinheriting your ex-spouse, providing for your new spouse, your children and stepchildren, and minimizing taxes without disinheriting your children at the time of your death.

Before remarriage, consider putting a simple prenuptial agreement in place that clarifies your desires and how your major assets will be maintained and handled during marriage. Absent an agreement, commingling of assets usually means that what you thought were your separate assets are now joint assets. Beware though, that a poorly drafted agreement may also limit your planning options down the road.

It is common for a married couple to leave all their assets to the other spouse upon their death. In a second marriage giving all your assets to your surviving spouse can result in your surviving spouse depleting the inheritance during his or her lifetime, leaving nothing for your children. To provide for your second marriage spouse, you may want to place your assets in a trust with income going to your spouse during his or her lifetime, but leave the corpus of the assets remaining in trust for your children or grandchildren. Not only will this provide for your children, but it protects your inheritance in the event of your spouse’s subsequent remarriage and even divorce. Properly drafted, a trust can provide protection from excessive spending, divorce, frivolous lawsuits and bankruptcies to ensure that your assets are allocated according to your wishes.

With a blended family from divorce and remarriage, there are a myriad of estate planning challenges with various solutions depending on your goals and family members’ needs. One size does not fit all. Assure your own peace of mind by identifying and discussing your concerns with your family, and seek the assistance of a qualified estate planning attorney to ensure that your wishes will be followed.

Don’t want to leave your property to daughter (or son)-in-law?

Most parents who leave property to married children want to leave the property to their sons and daughters and not to their daughters and sons-in-law.  In 2006 the Oregon Court of Appeals held that a married child’s inheritance from his mother was marital property subject to division on divorce with his spouse.  It was up to the son to show his mother’s intent to leave the inheritance only to him.  Even though the son’s mother never named the daughter-in-law in her will, the court held that the inherited property should be divided equally upon the son’s divorce.

On January 1, 2012, Oregon law changes so that property passing by gift, beneficiary designation or inheritance is not presumed to be intended for both the married child and his or her spouse.  Although property left to a married child by inheritance is not presumed to be for both husband and wife, the court still has discretion to divide property in a manner that is just and equitable on divorce.

Oregon law also provides for a surviving spouse’s elective share upon his or her spouse’s death.  Under the elective share it is still possible that a son-in-law or daughter-in-law could receive a share of an inheritance.

While you may be very close to your son-in-law or daughter-in-law, you may want to leave your property only to your son or daughter.  If so, it is important that you state in your will that you intend the inheritance to be only for your son or daughter.  With the change in law coming up in January, you should have your will reviewed by an attorney to make sure you are leaving your property as you intended.