The Washington Law Against Discrimination makes it unlawful for an employer to “discharge, expel, or otherwise discriminate” against a job applicant or employee on the basis of that person’s protected characteristic such as race, age, or sex. Likewise, the WLAD also makes it unlawful for an employer to do the same because he or she has opposed or complained about such unlawful discrimination. This is known as retaliation.
Until recently, employees who complained about an employer’s discrimination were only protected from retaliation from their current employer. Put differently, if an employee who complained about discrimination quit their job and sought a new position with a different employer, their prospective employer could refuse to hire them based solely the fact that they had complained about discrimination at their prior job.
On November 9, 2017, however, the Washington State Supreme Court issued its ruling in Zhu v. N. Cent. Educ. Serv. Dist.-ESD 171 which expanded an employee’s protection from retaliation.
In Zhu, the plaintiff, a math teacher, sued his employer, the Waterville School District, for racial discrimination. The case settled and the plaintiff left his employment with Waterville. He then applied to work for the North Central Educational Service District (“the District”). The plaintiff was one of the top three candidates, but the District ultimately hired a less-qualified candidate. Zhu then sued the District for retaliation and obtained a favorable jury verdict at trial.
The District appealed, arguing that the WLAD did not create a cause of action for retaliation against a prospective employer. In a unanimous decision, however, the Washington State Supreme Court disagreed, holding that the definition of “employer” under the WLAD is not limited to an individual’s current employer for purposes of a retaliation claim and that the WLAD prohibits all forms of discrimination by employers in their capacity as employers, which includes hiring.
Thus, as a result of the Supreme Court’s ruling, it is now unlawful for any employer to refuse to hire an otherwise qualified candidate because he or she complained about or otherwise opposed discrimination by a prior employer.
If you think you have been the victim of retaliation by an employer, it is vital to consult with an employment attorney to determine if you have a case. Please contact Shannon Trivett at Lasher Holzapfel Sperry & Ebberson PLLC to set up a consultation to discuss your specific situation.
Recycle Your Old Cell Phones to Save the Gorillas!
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It’s time for spring cleaning! We’re excited to officially be partnering with ECO-CELL, a company which reimburses organizations for collecting useful handheld electronics, batteries, and accessories and keeps them out of landfills. This helps reduce the demand for Coltan, an ore used in phones and other electronic devices. Coltan is mined primarily in the Republic of the Congo, where habitat critical for the survival of endangered species, including the eastern lowland gorilla, is being destroyed.
Bring your used handheld electronics (cell phones, MP3 players, handheld games, e-readers, digital still and video cameras, laptops, GPS, portable hard drive, etc.) to Woodland Park Zoo for recycling. Receptacle boxes are available for collection of items at both the South and West zoo entrances, and the volunteer office. We’re also happy to announce that our Litigation Practice Group is helping to save gorillas too! For every device that is turned in, Lasher will donate $1 towards gorilla conservation in 2018. Woodland Park Zoo will use funds from the ECO-CELL and from the Lasher law firm to support the Mbeli Bai Gorilla Project and other great ape conservation programs.
In a divorce, there are generally three types of payments that can be made between the divorcing parties. The first is considered an equalizing property transfer payment. For example, if, after the allocation of all real property, bank accounts, retirement accounts, and investment accounts, there is a disparate value between the parties, one party usually pays the other party a sum of money to achieve the desired division of all assets. This is considered a property transfer payment is not subject to federal income tax as long as it is qualified as a property transfer payment pursuant to Section 1041 of the Internal Revenue Code.
The second payment type is child support. This is usually in the form of a monthly payment, usually to the person who can claim the children as a dependent. This payment does not get reported as taxable income to the receiving party nor does that paying party receive a tax deduction.
The third type of payment is maintenance, or spousal alimony. This is separate from child support and is also usually a monthly payment from one party to the other over a period of time. These funds have long been considered a tax-deductible expense to the person paying maintenance and must be reported as taxable income for the person receiving maintenance.
The deductibility of maintenance can be a useful tool in negotiating a divorce, since it can significantly shift the relative tax liabilities of the parties. For example, you have a situation where the Wife is in the 28% tax bracket and the Husband is in the 15% tax bracket. The Wife is required to pay the Husband $20,000 per year for maintenance. For purposes of federal income taxes, therefore the parties could effectively shift that $20,000 to a lower tax bracket, which was a key element of negotiating the division of assets and obligations.
However, under the under the Bipartisan Budget Act of 2015 (November 2, 2015), this deduction is no longer available. For any divorce finalized after December 31, 2018, the payment of maintenance will no longer receive this special tax treatment. The paying spouse will not receive any tax deduction and the receiving spouse will not have to pay taxes on the maintenance received. Therefore, in the above example, the Wife will pay $20,000 per year and the Husband will receive the same $20,000. The Wife will pay full taxes on the $20,000 at her tax rate.
For parties currently in the middle of a divorce, this may cause some confusion and will undoubtedly change the entire landscape of divorce negotiation. When negotiating potential settlements, the parties must consider whether they will be able to finalize the divorce by the end of the year. If not, it is likely that the specific amount of maintenance will need to be re-negotiated.
The change in the tax law upends a long-standing tax approach and approach to maintenance payments. All parties in the dissolution field will now have to figure out a new approach and calculation methods for determining an equitable maintenance payment.
It is also important to note that for all divorce decree entered prior to December 31, 2018, the tax deduction for maintenance remains in place. If you have a previously entered decree and are currently paying maintenance, you can continue to take the tax deduction. If you are currently receiving maintenance, you must continue to pay taxes on the funds received. How the IRS will determine which tax returns should be reporting maintenance under the old law and which under the new law, is yet to be determined. It may be necessary to provide a copy of your divorce decree with your tax return.
If you are going through a divorce now or are considering a divorce in the future, it is vital to consult with a divorce attorney and tax attorney to determine how these changes in the law may affect your finances. Please contact Miriam Gordon at Lasher Holzapfel Sperry & Ebberson PLLC to set up a consultation to discuss your specific situation.
Complexity for Employers in New Washington State Sick Leave Law
Beginning on January 1, 2018, all employers in the State of Washington are required to provide paid sick leave to certain employees. This new law implements Initiative 1433, passed by Washington voters in 2016. While employers may be compliant in theory, the new law and regulations include a number of requirements and obligations that employers need to know to avoid potential liability.
Generally speaking, the law, which only applies to non-exempt employees, requires that employers provide employees with 1 hour of paid sick leave for every 40 hours worked (including any overtime hours worked). Employees may use the paid sick leave for a variety of defined purposes related to their own mental or physical well-being, as well as that of their family members. They must also be permitted to carry-over at least 40 hours of accrued paid sick leave from year to year (an employer can permit additional carry-over if they wish).
While employers may already meet these general requirements in practice under their current sick leave or paid time off (PTO) policies, the devil is in the implementation details. Some of the more important details include:
Employers must notify each current and new employee of their entitlement to paid sick leave, along with additional information about such accrual.
Employers must keep accurate records of employees’ paid sick leave accruals each month, and the paid sick leave used and available for use, and must provide that information to each employee no less than monthly.
There are limitations on the notice that may be required from employees to use paid sick leave, as well as what information can be requested by employers to verify employee absences exceeding three days.
Employees can use paid sick beginning on the 90th calendar day after the commencement of employment, and they must be permitted to use paid sick leave in the same increments in which time is recorded by the employer. For example, an employer who tracks employees’ time in 15 minute increments must allow an employee to utilize paid sick leave in the same increment.
Retaliation for the employee’s lawful use of paid sick leave—and all related regulations—is prohibited by law.
These are not the only regulations related to the new sick leave law. Moreover, implementation becomes even more complex for employers who use general PTO policies which combine vacation and sick leave. It’s important when crafting a PTO policy that the employer ensure that these implementing regulations are available for any accrued paid sick leave, but at the same time do not apply to general PTO. For instance, employers who have a busy time of year during which PTO use is restricted will need to ensure that they still have the ability to restrict PTO during those busy times, while at the same time permit employees to use paid sick leave at any time of the year.
A link to the specific implementing regulations can be found here. Please contact the Employment Law group at Lasher Holzapfel Sperry & Ebberson for any questions, including assistance with implementing or modifying your PTO/sick leave policies and employee handbooks.
Estate Planning Alert: New Tax Law Doubles the Federal Estate Tax Exemption Amount ... For Now
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The Tax Cuts and Jobs Act, signed into law by President Trump on December 22, 2017, is the most significant U.S. tax reform to be enacted in over thirty years. One of its many components is the near doubling of the federal estate, gift, and generation-skipping transfer-tax exemption amount applicable to individuals. The Act raised the exemption from $5.45 million per person to $11.18 million per person (or $22.36 million per married couple) – at least until January 1, 2026, when the exemption is set to “sunset” back to only $5 million per person.
With the larger federal exemption amount, only a small fraction of a percent of U.S. estates will be subject to federal estate tax. (Only 0.2 percent of U.S. estates were subject to federal estate tax under the prior law.) And although the increase in the federal exemption would, on its surface, seem to make estate tax planning even less relevant to most of us, it is important to keep in mind that the exemption amount has increased drastically since 2000, when it was a mere $675,000. Generally, any estate plans that have trusts and formulas based on the outdated law and old exemption amounts should be reviewed to determine whether the plan is still sound, or needs to be updated – especially given the substantial increase in the exemption to $11.18 million under the new law.
For example, if a person with a $2 million estate signed a Will in 2003 when the federal estate tax exemption was only $1 million, there may be an old formula in that Will giving “the maximum amount that can pass free of federal estate tax” to a trust for children of a prior marriage, and the remainder to a new spouse. If the testator died in 2003, that Will would have resulted in a 50/50 split between the trust and the spouse. However, this formula would have a drastically different result today under the new law. Under today’s law, the entire $2 million would now pay to the trust (because up to $11.18 million can pass federal estate tax free due to the new exemption amount), and nothing would go to the spouse. This Will should be re-examined, and possibly re-drafted, to ensure that it reflects the person’s current intent and objectives.
An additional concern for planning purposes is the new law’s sunset reversion to a $5 million exemption in 2026. This reversion will occur unless Congress takes further action. It is currently unclear whether the IRS may attempt to “claw back” gift amounts made in excess of the $5 million exemption during the period of the time while that the exemption amounts are high (January 1, 2018 - December 31, 2025). Gifts in excess of the exemption should be made with caution until further IRS guidance is provided.
Additionally, in states such as Washington where the estate tax remains relatively unchanged with a much lower threshold for applicability, it is still very important to properly plan your overall estate tax plan. The Washington exemption is $2.193 million per person in 2018, so it affects many more estates.
If you would like to know how the new tax law might affect your estate plan, please contact one of the attorneys in the estate planning group at Lasher Holzapfel Sperry & Ebberson PLLC. We will be happy to assist you.
DIY Divorce? Why Hiring an Attorney Might End Up Saving You in the Long-Run
In today’s online world, more people are turning to the internet as a way to save money and find a do-it-yourself solution. You can watch YouTube videos explaining how to repair items around your house, do your own taxes through programs like TurboTax, and now there are online programs to walk you through the divorce process. While the idea of a DIY divorce may sound appealing for your wallet, is it the best choice?
In Washington State, there is no requirement to have an attorney in a divorce proceeding. For some people a divorce can be a relatively amicable process and an online program costing less than $1,000 seems appealing. However, there are significant aspects of the law that an online DIY divorce will not cover. An online divorce will not help you understand any of your legal rights or ensure you are receiving an equitable resolution.
Understandably, any divorce with children can be much more complicated. While you and your soon-to-be ex-spouse may get along and having a very general parenting plan may not be an issue now, situations can always change over the course of months and years. Modifying a past parenting plan in Washington State is not an easy task and, while you may have saved money when first creating the plan, the cost to fix or modify it later could be much higher.
If there are no children involved, the process may be a bit more straightforward. Nonetheless, there are no bright-line rules as to how to divide a couple’s assets and liabilities or whether one spouse should get spousal support (“spousal maintenance”). The first step in dividing property is to determine what property is community and what property is separate. However, even if property is characterized as one party’s separate property, the Court might have authority to award some of that property to the other party.
Additionally, some property is not easily divisible. In Seattle, many companies pay employees with stock options or stock awards with different vesting periods. It is important to understand how those property interests are characterized and what interest the other spouse may have in the options. In addition, a retirement account such as 401(k) or pension plan may be divided in a divorce proceeding without tax consequences but there are very specific rules and regulations that must be followed to ensure there are no financial penalties or tax consequences. Overall, Washington law provides that property is to be divided “fairly and equitably” based on a number of factors. What seems “fair and equitable” to one spouse may not seem so to the other.
Ultimately, an online DIY divorce program can save money, but it cannot give you individual legal advice ensuring you understand your legal rights and whether you are receiving a fair and equitable settlement. Final divorces orders can be difficult, or even impossible, to modify in the future and certainly costly to do so. If you are considering a divorce or separation, contact Miriam Gordon at Lasher Holzapfel Sperry & Ebberson PLLC to set up a consultation to discuss the process and your legal rights.
Several recently released cases from the Washington Department of Revenue Administrative Review and Hearings Division provide a good reminder about the reach of the department to collect real estate excise tax (REET) on the transfer of real property.
In the first case (Det. No. 16-0350), the petitioner limited liability company transferred a controlling interest in an LLC holding real property, but asserted that the transfer of interest was a gift because there was no change in the parties responsible for the debt on the property or in the source of funds used to make mortgage payments. Specifically, interests owned by a father and mother along with their daughter were transferred solely to the daughter, who continued to make mortgage payments just as she had been doing prior to the transfer. However, the Department of Revenue denied the petition, arguing that even though the parents transferred their interests in the LLC as a gift, because the daughter was not the sole beneficiary of the LLC bank account, from which funds were taken to pay down the debt (on which the parents remained liable), they obtained a type of consideration for the transfer. Consequently, it was not a gift, and so was not exempt from REET requirements.
This case is a great example of how aggressive the Department of Revenue has become in denying taxpayer relief under statutory REET exemptions.
In the second case (Det. No. 16-0289), a 50% owner of the petitioner limited liability company transferred his interest to the other 50% owner, but only paid REET based on a selling price equivalent to 50% of the outstanding mortgage on the property owned by the LLC. While he later conceded that this was not the appropriate way to calculate the selling price for purposes of REET, he argued that as he only purchased 50% of the LLC interests, REET should be calculated based on 50% of the value of the real property owned by the LLC. His petition was denied in this respect, with the Department of Revenue arguing successfully that state law is very clear that a transfer of 49% or less of an LLC owning real property triggers no REET, while a transfer of 50% or more of the same LLC triggers REET on 100% of the real estate owned by the LLC. When the real property is owned by an LLC rather than personally, “the value taxed is not the consideration paid, but the value of the real estate owned by the entity.” McFreeze Corp. v. Dep’t of Revenue, 102 Wn. App. 201 (2000).
The underlying law in this case is not new, but taxpayers continue to either misunderstand or be unaware of the way the Department of Revenue calculates REET for real property held by LLCs. With the complex REET rules and increasingly aggressive enforcement, property owners would be well-served to speak with the real estate professionals at Lasher Holzapfel Sperry & Ebberson in connection with a transfer of property.
Tangible Personal Property: Planning for the “Small Stuff” in Your Will
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Heirs battling over seemingly “small” personal property items after a loved one has died is a heartbreaking yet familiar scenario in the probate world. While such disputes might seem petty to outsiders, the issue of who gets mom’s favorite purse, dad’s music collection, or even grandmother’s little blue ceramic bowl is often a deeply personal process that can cause permanent damage to family relationships and result in legal costs far exceeding the value of the assets themselves.
Giving some thought to tangible personal property in your estate planning, and providing direction in your Will or Living Trust as to how you want to have these assets distributed, is itself a gift to those you love. Below are some things to consider in respect to tangible personal property assets when embarking on your estate planning process:
What is tangible personal property?
Tangible personal property is your “stuff” – i.e., clothing, jewelry, household goods, furniture, antiques, dishware, vehicles, books, pets, collectibles (including stamps, coins and ceramic cats), personal papers, photos, knickknacks, airline miles, rewards programs, etc. They are part of your estate, and you can direct that these items pass to certain heirs in your Will or Living Trust.
Consider discussing sentimental or high-value tangible items with your family.
Finding out which tangible items mean the most to your heirs can help identify potential conflicts regarding special items and allow for compromise while you are still available to facilitate dialogue. This can minimize the chances for an expensive and relationship-damaging dispute among your heirs after you are no longer with them.
Specificity in your bequests provides clarity to your heirs.
Once you have identified the persons to receive an item of sentimental or other high-value property, try to be as specific as possible in describing the item. This issue came up in Robin Williams’ estate, due to his specific bequest of “memorabilia and awards in the entertainment industry” to his children. Upon his death, his widow interpreted that clause to be limited to entertainment-related items only and, as reported in the New York Times, demanded that all of the non-entertainment-industry items, such as Mr. Williams’ bicycles and his collections of fossils, and toys, pass to her. The uncertainty in a term as seemingly innocuous as “memorabilia” resulted in painful litigation between the widow and children.
There are many methods for directing the distribution of tangible personal property.
Once you have decided on a specific bequest, it should be included in your Will or, as allowed under Washington law, in a signed and dated separate writing referenced in your Will or Trust, and executed in compliance with state law. Even with a separate writing, which is much less formal than a Will, it is important to provide your estate planning attorney with the writing to ensure that the bequest is worded properly and carries out your wishes.
That said, not every item of tangible property that you own could or should be listed in your Will or separate writing. To do so would create lengthy and unwieldly documents, not to mention certain confusion. For tangible personal property not itemized the specific bequests, your Will should include instructions as to which heirs are entitled to receive your tangible personal property generally, and how your executor should allocate specific items among them. Some common methods of allocation are:
Agreement of Heirs. Heirs divide the tangible assets by agreement as of a certain date, often with a direction that the shares must be substantially equal in value. This method likely needs a backup method to be identified, just in case the heirs fail to agree.
Sell Property and Split Proceeds. Executor sells all of the tangible items (or the items in dispute) and split the proceeds among the heirs. The obvious downside to this method is the low dollar value often received and the loss of sentimental property from the family.
Lottery. Family members each select a number out of a hat and then take turns choosing items (or groups of items based on value) based on the ordering system determined from the drawing. This method can result in shares of lopsided value if there is no mechanism for dealing with high-value items, and may need to be paired with an equalization clause so that funds from another part of the estate can be used smooth out the overall shares.
There are many other methods available to distribute tangible personal property, and your estate planning attorney can make recommendations as to the method(s) that might best fit your specific family situation.
In closing, although it may seem daunting to consider how to pass on to the next generation a houseful of tangible property accumulated over a lifetime, this is something that estate planning attorneys handle and advise on regularly. Because of the unique nature of these assets and potential for high sentimental value, it is worth your time to discuss these assets with your attorney when planning your estate. If you would like advice on tangible personal property bequests and how to incorporate them into your estate planning, please contact one of our estate planning attorneys at Lasher Holzapfel Sperry & Ebberson to set up a consultation.
Requests to Relocate With Your Children When You Have a 50/50 Parenting Plan
On March 28, 2017, the Washington Court of Appeals, Division II, threw certain family law litigants a curve ball when it issued its ruling in In re Marriage of Ruff & Worthley, No. 48462-5-II. In Worthley, the court addressed the question of whether the Child Relocation Act (“CRA”) applies to joint parenting plans where the parents share equal residential time and joint decision-making authority. The court held that the CRA does apply to a proposed relocation that would modify a 50/50 parenting plan to something other than joint and equal residential time. Instead, a parent whose desired relocation would necessarily terminate the existing joint and equal residential schedule must now establish “adequate cause” to modify the residential schedule in the parenting plan under the modification statute, RCW 26.09.260.
The impact of this decision is clear and immediate: a parent who has a parenting plan with an equal residential schedule who desires to move with their children now needs to establish “adequate cause” to change the residential schedule in the parenting plan, rather than establishing the less stringent requirements of the CRA. Establishing adequate cause to modify a parenting plan involves proving that there has been a “substantial change” in the circumstances of the children or the parent who is trying to modify the parenting plan—a very difficult standard to meet, and one that may not even be relevant in cases where the only change is based on one parent’s need or desire to relocate. Unfortunately, while the Worthley courtruled that the CRA is not applicable in these cases, it offered little guidance as to how parents with equal residential schedules should proceed in the event of a relocation. This leaves parents in an uncertain position until this issue is further clarified by the Washington courts.
For the time being, the Worthley decision issued by Division II is binding law across the state, despite the fact that Division II only hears cases from about thirteen out of Washington’s thirty-nine counties. Neither Division I nor Division III (which together cover the remainder of Washington’s counties, including King and Spokane, respectively) or the Washington Supreme Court has weighed in on this important issue. It is possible that one or more of those courts could reach a different conclusion than the Worthley court, but until that occurs, trial courts around the state are bound to follow the holding in Worthley.
If you have a 50/50 parenting plan and are considering a relocation, or if you have a more general question about a parenting plan, feel free to contact me or one of the other family law attorneys at Lasher Holzapfel Sperry & Ebberson at firstname.lastname@example.org to set up a consultation.
A Special Notice, dated May 24, 2017, from the Washington State Department of Revenue has provided further clarification regarding Business & Occupation (“B&O”) tax and corporate director fees earned within and without the state of Washington. The Notice makes it clear that compensation received for services rendered as a corporate director may be subject to Washington B&O tax, if the director has sufficient ties to the state. Although this particular Notice was just released, B&O tax has applied to this type of compensation received effective as of July 1, 2010.
The Department of Revenue has taken a very broad position with respect to what is includable in the calculation of total compensation: not only cash payments, but also stock options (granted after July 1, 2010), property received, awards and bonuses, as well as reimbursable expenses related to the services provided, including telephone costs and travel expenses. However, a director who also serves as an employee of the company is subject to tax only with respect to the compensation allocable to services performed in the role of a director. Compensation received in their capacity as an employee is exempt.
Even corporate directors serving on boards of Washington-based companies who are not otherwise residents of Washington may be subject to this tax. If an individual has “substantial nexus” to Washington, that individual may owe B&O tax to the state for any director fees. More information regarding economic nexus in this context can be found on the Department of Revenue website at http://dor.wa.gov/docs/pubs/specialnotices/2017/sn_17_directorfees.pdf. Nevetheless, if a director has a taxable presence in another state, he or she may be able to apportion their director compensation among multiple states.
Finally, the state has exempted from registration those directors whose income from all B&O activities is less than $12,000 per year and who are not required to otherwise register with—or pay fees or taxes to—the Department of Revenue.
The bottom line is that many corporate directors may be exempt from the registration requirement if their corporate fee compensation is minimal. However, larger companies should be aware of this requirement and work with their directors to ensure they are properly reporting any income. The business group at Lasher Holzapfel Sperry & Ebberson can assist with any questions that you may have.
What’s the Difference Between a Legal Separation and Divorce in Washington State?
Seattle elementary school teacher, Mary Kay Letourneau, infamous for her relationship with her 12-year-old sixth grade student back in 1996, recently made national headlines again. After serving multiple jail terms, Letourneau and her student, Vili Fualaau ultimately married in 2005. TMZ recently reported that Letourneau and Fualaau are legally separating. This begs the question, what exactly is a “legal separation” and how does it differ from a divorce?
In Washington State there are two types of petitions that can be filed to formalize a separation between married persons: a Petition for Legal Separation or a Petition for Divorce, often referred to as a “dissolution” in Washington.
In many regards, the two filings are the same. In both cases, the court is authorized to divide the parties’ property (assets and liabilities), order spousal support (“spousal maintenance”), and enter a parenting plan and child support if there are children involved. However, at the end of the case, the parties will either be divorced (meaning they are no longer married) or legally separated (meaning the parties are still married but can in all ways, except a notable few discussed below, conduct themselves as an unmarried person). Many people have misconceptions about “legal separation” and mistakenly believe that this is a required step in the divorce process. This is not true. Parties do not need to first obtain a legal separation order before they obtain a final divorce order.
So why proceed with a legal separation action? Some spouses choose to commence a legal separation proceeding rather than a divorce to take advantage of certain benefits, such as tax considerations, insurance issues, or because of religious reasons. If you are considering a legal separation for a financial reason, it is important to speak with a financial expert to ensure you will still be able to obtain or retain those benefits through a legal separation. For example, historically, parties often choose to proceed with a legal separation instead of a divorce so that one spouse could remain on the other spouse’s employer-provided health insurance. However, that loophole has significantly closed as many employers consider a legal separation a disqualifying event just as they consider a divorce.
At the end of a legal separation, the parties receive an order stating they are legally separated, whereas at the end of a divorce, the parties receive an order dissolving (ending) the marriage. This means that although parties who are legally separated will no longer be accumulating community property or liabilities, at the end of the day, they are still technically married. Thus, the main distinction between a legal separation and a divorce is that if you obtain only a legal separation, neither party can get re-married until the legal separation is converted to a dissolution.
If you decide to obtain a legal separation and later decide you would like a divorce, the court can convert the legal separation to a dissolution at any time after six months have passed from the time you obtained a legal separation. If the parties, or one party, decide prior to finalizing the legal separation that they would like a dissolution rather than a legal separation, the parties together, or one party separately, can request the court enter a final divorce order rather than legal separation order. Since there are not many advantages to a legal separation, they are much less common than a divorce.
If you are considering either a legal separation or a divorce, feel free to contact Miriam Gordon or any of the family law attorneys at Lasher Holzapfel Sperry & Ebberson to set up an appointment.
Checklist: Estate Planning Essentials During Your Washington Divorce
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If you’re currently weathering the stress of a divorce, the last thing you may be thinking about is updating your estate planning documents. Your divorce can have a major impact on your estate plan, however, with implications for you, your children, and those who depend on you. You should consider making the following updates to your estate plan with the help of an experienced estate planning attorney:
1. Make a New Will. Under Washington law, provisions of your Will favoring your ex-spouse are revoked automatically when your divorce is final. This is a good safety net, but it is best to make a new Will right away to remove your spouse and make other changes before the divorce is finalized. For example, a Washington court recently held that provisions of your Will in favor of your ex-spouse’s relatives will not be revoked automatically upon divorce. If you want to change those provisions, you must make a new Will.
2. Choose a Trustee to Manage Your Children’s Inheritance. It is common to create a testamentary children’s trust in your Will naming one or more trustees to receive, manage, and distribute the assets of your estate for the benefit of your children when you die. If your Will already creates such a trust involving your ex-spouse, you must decide whether you want them to have access to the funds that you are passing to your children. You should update your Will to reflect your specific wishes on this issue and to ensure that your children’s trust is set up in the manner you prefer.
3.Update Your Choices for Guardian. While the guardian provisions in your Will cannot override your ex-spouse’s parental rights, it is important to state your guardian preferences for your children in the event no parent is available. Making a new Will also allows you to update prior guardian provisions that you now want to change due to your divorce.
4.Change Beneficiary Designation Forms for Life Insurance and Retirement Accounts. Beneficiary designations in favor of ex-spouses on certain non-probate assets such as IRAs and life insurance policies are revoked automatically when your divorce is final, while designations for other assets, such as 401(k) Plans, are not revoked automatically. If your ex-spouse is the designated primary beneficiary of your 401(k) Plan, for example, unless you name a new primary beneficiary, they will inherit that entire account, even to the exclusion of your children, despite the fact that the ex-spouse was designated prior to the divorce. You may wish to change all of your retirement and life insurance beneficiary designations during your divorce, however be sure to speak with legal counsel before doing so as not to run afoul of any court-imposed limitations or requirements while your divorce is pending or as may be otherwise imposed under the terms of your final divorce orders.
5.Make New Powers of Attorney for Finances and Health Care. Any power of attorney rights you have granted to an ex-spouse prior to a divorce, including health and financial rights, are revoked automatically when your divorce is final. Unfortunately, that revocation is not reflected on the power of attorney paperwork and may cause problems with financial institutions or medical facilities. It is best to update the documents to reflect your current choices. In the event you would like your ex-spouse to have a role in helping manage your finances or health care if you are incapacitated, you must explicitly name them in a power of attorney document executed after the divorce is final, otherwise they will be excluded by the automatic revocation provision discussed above.
6.Retitle Assets and Ensure Proper Alignment of Liabilities. Once your property settlement is finalized, it is important to make sure title to assets and liability paperwork for debts reflect the terms of your divorce. For example, if you were awarded property, you may want have the property retitled in your name alone or , if your ex-spouse is now responsible for a joint debt, you want to have yourself removed from the loan documents in case he or she stops making payments. This advice applies to real estate, life insurance ownership, retirement accounts, joint tenancies, and all other joint debts and obligations that were divided in the divorce. Again, be sure to discuss these concerns with counsel in advance of finalizing your divorce as having language in your final divorce orders as to how and when these sorts of actions will occur can greatly streamline the process.
While thinking through the above issues is a good place to start, you should always work with an experienced estate planning attorney to help you navigate these types of changes. If your divorce is not final, you should also consult your divorce attorney and proceed with care, as there may be court-imposed limitations on your ability to make certain types of changes. If you would like to discuss updating your Will or other estate planning documents during or post-divorce, please contact one of our estate planning attorneys at http://www.lasher.com/practice-areas/estate-planning-trusts-probate.
Complying with the New Statewide Paid Sick Leave Requirements Imposed by Initiative 1433
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In November 2016, Washington voters approved statewide paid sick leave requirements as part of Initiative 1433. Beginning on January 1, 2018, employers throughout the state will be required to provide their employees with paid sick leave, so now is the perfect time for your business to start its compliance planning. While the Department of Labor & Industries is still developing detailed rules and procedures regarding employee notifications and reporting requirements, we already know most of what the new law will require:
Employees must accrue a minimum of one hour of paid sick leave for every 40 hours worked. For the average full-time employee that amounts to 1 hour per week or roughly 50 hours per year.
Up to 40 hours of unused sick leave must be carried over to the following year.
It is important to note that the figures above are requirements—employers are free to provide their employees with more generous paid sick leave accrual and carryover policies.
Employees may use their accrued paid sick leave beginning 90 calendar days after the start of employment.
Employees may take paid sick leave when they are sick, but they may also use paid sick leave to care for a family member, or to seek preventative care for themselves or a family member.
Employees are permitted to take paid sick leave when their place of work or their child’s school or daycare has been closed by order of a public official for any health-related reason.
An employee may also use paid sick leave for any absence that qualifies for leave under the Domestic Violence Leave Act (RCW 49.76).
Again, as with the accrual and carryover policies discussed above, employers are free to permit their employees to use paid sick leave for additional purposes.
The Department of Labor & Industries will be releasing more detailed rules and procedures for paid sick leave later this year. In the meantime, Washington employers should review their sick leave, vacation, and paid time off (PTO) policies to determine whether or not they will need to make changes before the new paid sick leave law takes effect on January 1, 2018. Starting that process now will ensure that your business has ample time to revise its budget and to modify its recordkeeping practices and payroll reporting policies to conform with the new law.
If you have questions about complying with Washington’s new paid sick leave policy, the employment attorneys at Lasher Holzapfel Sperry & Ebberson would be happy to assist you.
The Federal Gift Tax Annual Exclusion and Lifetime Exemption
The most fundamental part of any gifting program is the federal gift tax exclusion. This exclusion allows a taxpayer to make a maximum gift of $14,000 (for 2017) each year to an individual free of tax and reporting (i.e., there is no need for the taxpayer to file a gift tax return). This is not a cumulative amount; a taxpayer can gift the maximum amount to as many individuals as he or she wishes. For example, a taxpayer with three children could make tax-free gifts totaling $42,000 to those children ($14,000 to each child). A married couple could double that to $84,000 ($14,000 per taxpayer per child). All of this would all be free from gift tax. It would also be free from reporting so long as the gift is cash and not some other form of property. The cumulative effect of the exclusion is very powerful and can accomplish many gifting goals.
For people who wish to make larger gifts, the gift tax exemption can be used to cover any amounts in excess of the exclusion. The exemption for each taxpayer is currently $5.49 million (for 2017). However, any amounts gifted that are over the exclusion amount to any individual must be reported on a gift tax return (Form 709) filed by the taxpayer for the year in which the gift was made. Furthermore, any gifts in excess of the annual exclusion reduce what can be sheltered from the tax at death. This is because the exemption is a “unified” exemption – a taxpayer can use it to either shelter gifts during life amounts given at death.
If a donor is uncomfortable making large outright gifts to someone, both the exclusion and the exemption are available for gifts made to a trust (so long as the trust is structured properly). Furthermore, gifts of assets that are eligible for valuation discounts (e.g., minority interests in closely-held businesses or fractional interests in real estate) can further leverage the amounts transferred, shift future appreciation of the gifted assets to descendants, and help minimize estate taxes at death.
A gifting program using the exclusion and exemption is the foundation on which many wealth transfer techniques rest, including business succession strategies and the purchase of life insurance. If you would like to explore other ways in which a gifting program can be structured to accomplish your goals, please contact one of our estate planning attorneys - http://www.lasher.com/practice-areas/estate-planning-trusts-probate.
A Garnishment Primer for Washington Employers
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It is important for Washington employers to understand what to do when they receive a notice that an employee’s wages or salary are being garnished. The judgment and garnishment are the employer’s problem, and there is nothing that an employer can or should do to help their employee. Failure to handle the garnishment properly can have serious consequences for employers, as discussed more below.
Here is how a wage garnishment works. The employee gets notice of the garnishment, and if they have some basis for challenging it, that is up to them. The employee can avail themselves of procedures set forth in the garnishment statute to do that. As an employer, you must be very careful if an employee tells you a garnishment is problematic or invalid. An employer who fails to answer a garnishment can expect serious legal consequences:
If the garnishee fails to answer the writ within the time prescribed in the writ, after the time to answer the writ has expired and after required returns or affidavits have been filed . . . it shall be lawful for the court to render judgment by default against such garnishee . . . for the full amount claimed by the plaintiff against the defendant . . . for the full amount of the plaintiff’s unpaid judgment against the defendant with all accruing interest and costs.
RCW 6.27.200. What this provision says is that an employer who fails to respond to a garnishment may itself become liable for the full amount of judgment against its employee. Remember, garnishments are court orders and there are consequences for failing to respond. If you get notice that you have not properly responded to a garnishment or that a judgment has been entered against your company for failing to respond to a garnishment, contact an attorney to discuss remedial action.
In responding to a wage garnishment, there are some things an employer should know. First, a wage garnishment served is a lien on the employee’s earnings for 60 days after the day of service. That means that for a period of 60 days, every paycheck issued to your employee needs to have the amount determined by the “First Answer” withheld. The First Answer is due 20 days after the service of the garnishment paperwork. The First Answer form was created by the garnishment statute, and a copy must be served with the garnishment. It is important to read the answer form carefully, and complete the form as thoroughly as possible. After completing the First Answer, the employer must send a copy of the form to: 1) the Clerk of the Court where the garnishment was issued; 2) the attorney for the judgment creditor who is collecting the debt; and 3) your employee. During the entire 60-day effective period of the garnishment, the employer must withhold the amount due to the judgment creditor from its employee’s paycheck.
After 60 days, the judgment creditor’s attorney will serve a “Second Answer.” In response to the Second Answer, the employer must tell the judgment creditor how much was actually withheld during the 60-day period during which the garnishment was effective. Based upon the employer’s response to the Second Answer, the judgment creditor will move for a “Judgment on Answer” that will require the employer to pay the amounts withheld from its employee to the judgment creditor. This is a court order which is enforceable against the employer, so an employer’s failure to withhold and pay over the correct amount will result in the employer having to pay the employee’s judgment out of pocket.
Keep in mind that the garnishment process outlined above is simply a basic description of the process in ideal conditions. There are issues that will arise when an employer faces an employee with multiple garnishments, including garnishments that may have priority over the employee’s wages. The attorneys at Lasher Holzapfel Sperry & Ebberson are experienced in the nuances of garnishment practice, and can help you navigate these difficult questions.
New Regulations on Foreign-Owned Single-Member Limited Liability Companies
In mid-December 2016, the U.S. Treasury Department issued final regulations affecting all foreign-owned single-member limited liability companies. While these regulations have the potential to increase transparency with respect to the movement of foreign funds, they impose new burdens on the foreign owners of U.S. LLCs.
Prior to these final regulations going into effect, the ownership of LLCs by foreign persons was often opaque to taxing authorities. Most of the time, single-member LLCs (whether owned by foreign or domestic persons) are treated as disregarded entities for tax purposes, meaning any income is reported on the tax returns of the LLC owners themselves rather than the LLC. Consequently, the disregarded entities are usually not subject to US tax reporting requirements. Generally speaking, an entity that is not subject to tax filing does not have to obtain an employer identification number (“EIN”), meaning that the owner of that entity does not need to identify himself or herself on the Form SS-4, required to obtain the EIN.
These new final regulations change the treatment of disregarded entities owned by foreign persons from that of a typical disregarded entity to that of a domestic corporation. Consequently, these entities are now subject to certain additional requirements, just as though they were a 25% foreign-owned U.S. corporation. Most notably, these requirements include filing an annual return (Form 5472), and maintaining more substantial record keeping with respect to certain transactions. These requirements apply even in situations where the foreign-owned LLC has no reportable transactions and no U.S. assets or income.
Violations for failure to fulfill these new requirements can be substantial, including a $10,000 penalty against the foreign-owned LLC for each violation. The regulations apply to tax years beginning on or after January 1, 2017 and ending on or after December 13, 2017.
Some commentators have suggested that these new rules are intended primarily to assist other countries in the enforcement of their laws. It is unclear at this point how aggressive the IRS will be in enforcing these new regulations, but foreign-owned U.S. LLCs should consider whether and how these new rules will impact their operations and reporting processes.
Estate Tax Planning in Uncertain Times
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Repeal of the federal estate tax has been a cornerstone of President Trump’s tax reform promises. Given the Republicans’ majority sweep in both houses of Congress this past November, repeal efforts that have stalled in the past are now a viable possibility. Although repeal is likely to be on the table legislatively at some point during Trump’s presidency, we do not know when the legislation will be proposed, what the repeal would include (i.e., would the federal gift and generation-skipping transfer taxes remain in place?) and what tax structure, if any, would replace the current federal estate tax. What does all of this mean for you? With the fate of the current federal estate tax uncertain, the following considerations and planning tips are worth thinking about in 2017:
A repeal would significantly impact those subject to the federal estate tax. Under current law, the federal government imposes a tax of 40% on estates larger than $5.49 million per person, or $10.98 million per married couple. Given such high exemption amounts, only a small percentage of estates are affected by the federal estate tax. But for those families and individuals that are affected, a repeal could yield significant change. Trump has proposed to cut the federal estate tax to $0 and replace it with a 20% capital gains tax applicable to estates above $10 million (with an exemption for family farms and small businesses). If this were to become law, clients who have planned around the estate tax with credit shelter/bypass trusts and trusts designed to optimize the marital deduction (“QTIP” trusts) will need a thorough review and possibly overhaul of their estate and gifting plan to take into account the realities of an entirely new tax regime. As with before, however, a subsequent change in the administration may result in another change to the estate and gift tax laws, so no reactive modifications to an estate plan should be made without careful consideration of any further potential changes to applicable law.
State estate taxes still matter. Despite the talk of federal repeal, the Washington state estate tax is not expected to be repealed anytime soon, especially since Washington has no income tax and collected over $154 Million in estate taxes in 2015. Washington imposes an estate tax (not inheritance, gift, or generation-skipping transfer tax), but unlike the high federal exemption amount, the state exemption is only $2.129 million. Due to this lower exemption amount, Washington’s estate tax often impacts middle class individuals and families, especially those that have life insurance policies, substantial retirement savings, significant value in personal residence, rental real estate, or a family farm that push a decedent’s gross estate over this threshold. Estates greater than $2.129 million face a 10-20% tax rate on amounts above the exemption amount. Therefore, despite the prospects of a federal estate tax repeal, estate tax planning on the state level is still important for Washington residents. Planning with credit shelter and bypass trusts are still viable strategies – and will likely remain so whether or not the federal estate tax is repealed.
Even with a Republican-controlled legislature, a repeal is not certain. Although there is majority support in Congress for a repeal, the legislative process (particularly in the Senate) could still prove to be an obstacle for proponents of the repeal. A super-majority of sixty (60) Senate votes is necessary to overcome a filibuster, although a repeal could still pass the Senate with a simple majority as “budget reconciliation” legislation. If passed as a budget reconciliation action, the repeal would be required to “sunset” (i.e., expire) in 10 years – which in turn would create more uncertainty about the future of the tax and make necessary the burdensome task of planning for multiple tax scenarios. Further, even if the federal estate tax is repealed, it may be replaced with a capital gains tax (Trump’s campaign proposal) or carry-over basis regime, and the federal gift tax and generation-skipping transfer tax might be used as bargaining chips resulting in their continued existence. As mentioned previously, any repeal of the federal estate tax could itself later be repealed and the federal estate tax could change again, with a new administration and/or change in Congressional control.
2017 Planning Tips
Given all of these uncertainties, planning around the estate tax continues to be challenging, but here are a few general planning tips:
(1) For high-net-worth individuals and families, review and flexibility is key. Ask an experienced tax and estate planning attorney to review your current plan in light of the potential for change. Current estate plans should account for the possibility of a full repeal while also taking into account the reality that the federal estate tax, in some form, may be here to stay.
(2) Washington residents with gross estates greater than $2 million should not assume that estate tax is a non-issue and should work with their legal counsel to design a plan that maximizes the use of their state exemptions. Because Washington does not impose a gift tax, gifting strategies to minimize exposure to the Washington estate tax should still be considered in certain circumstances.
(3) High-net-worth individuals contemplating extremely large gifts or irrevocable trusts designed to avoid the federal estate tax would be well advised to work closely with tax-knowledgeable estate planning counsel to ensure that their gifting strategy is still sound and achieves the desired objectives. A “wait and see” approach for these transactions may – or may not – be warranted.
If you would like advice about how the federal estate tax or the potential for its repeal might affect your situation, or if you believe that your estate plan might be impacted by the Washington state estate tax and would like to know more about how to minimize exposure, please feel free to contact me or one of our other estate planning counsel at Lasher Holzapfel Sperry & Ebberson to set up an initial consultation.
Lessons from Brangelina: The Ugly Side of Allegations Made During a Divorce
Last September it hit the social media circuit by storm: Brad Pitt and Angelina Jolie were divorcing. The initial documents filed by Jolie were not pretty. Jolie requested sole physical custody of the couple’s children and made multiple allegations about Pitt’s parenting including claims of child abuse. Pitt responded by requesting an emergency order to seal all documents in the case “in order to protect the children.” Jolie responded that it was simply a “thinly veiled attempt to shield himself, rather than the minor children, from public view.” The tone of the case has lately shifted to being more amicable, but the initial documents and accusations are still visible in the public record and the six Pitt/Jolie children and third parties can access them in the future.
In Washington State all dissolution files are generally public record. Court rules only allow financial and specific health information to be filed “under seal” (meaning not publically accessible). Any requests to the court made during a divorce or other family law proceeding must include declarations from both parties explaining why the request is being made or why it is objected to, and providing background information regarding the case and issues at hand. These filings and declarations are public information and therefore can be accessed by anyone who goes to the courthouse and looks through the file. This creates a bit of a catch-22 situation. While, it is necessary to include detailed information when making requests to the court, a party may also not want to “air dirty laundry” that will then be publically accessible. Before rushing to the courthouse, you should fully consider and discuss your options with your attorney. Is it possible to reach a resolution and enter an agreed order? Is an agreement attainable with help from your attorney or would the other party agree to a mediation to reach a resolution? These alternatives might help keep private information out of the court record and still allow the parties to enter enforceable court orders, but there will always be cases where agreement is not possible. While it is necessary to include a detailed explanation to support your requests to the court, be mindful about the information you share. Is an allegation that your soon-to-be-ex-spouse is bi-polar necessary when you are only addressing financial issues and there is no actual medical diagnosis? Are all the salacious details of an affair necessary information in a no fault divorce state such as Washington?
While most of us will not have TMZ or the paparazzi searching through our court documents, it is a possibility that the children of divorce may research the dissolution matter when they are older and read the allegations and documents filed by their parents. These documents can have a detrimental effect on the children. It is also possible that an employer or potential employer might become aware of information available in your court records, potentially jeopardizing your financial well-being, or that of your ex-spouse on whom you and your children depend for support. Thus, it is important to be mindful about what is filed in the public record.
If you are considering a divorce, please contact Miriam Gordon or any of the other family law attorneys at Lasher Holzapfel Sperry & Ebberson to set up an appointment.
Changes in FLSA Regulations Will Impact Washington Employers
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The Fair Labor Standards Act, commonly referred to as the FLSA, is a federal statute that establishes baseline obligations of employers with respect to minimum wages, overtime pay, record keeping and youth employment, in the United States. Most states and local governments, including Washington and Seattle, have created their own laws that supplement and overlap with the minimum requirements of the FLSA. Employers need to be cognizant of, and comply with, all laws (federal, state, and local) or risk liability to their employees for overtime and wages.
On May 18, 2016, the U.S. Department of Labor announced new rules governing when a salaried employee is considered exempt from the overtime provisions of the FLSA. The new rules primarily relate to those employees that are exempt from overtime on the basis of the executive, administrative and professional nature of their work. These are the traditional white collar salaried employees that many employers rely on to work in excess of 40 hours each week.
The FLSA sets forth a basic three part test to determine whether an employee is exempt from overtime provisions of the FLSA. These three parts are:
1. The employee must paid on a predetermined salary that is fixed, and not subject to reduction based on variations in quality or quantity of work;
2. The employee must be paid a certain minimum salary; and
3. The employee’s job responsibilities must meet the “duties test” for executive, administrative, professional outside sales or computer employees.
The most recent change in the law relates to the second factor in the above test. Specifically, the law raises the minimum salary required before classifying an employee as exempt from overtime from $455 per week to $913 per week. On a per annum basis, this increases the minimum salary from to $23,660 to $47,476 per year. In addition, the rule increases the minimum salary level for “Highly Compensated Employees” (“HCE”) nearly $35,000 from $100,000 to $134,004 per year (an HCE’s duties test is less rigorous than for other exemptions). Finally, the new regulations include a mechanism for automatically raising the minimum salary level every three years (before this rule change the salary minimums had not changed since 2004).
According to the Department of Labor and the White House, the changes in the law will impact 4,230,000 employees nationwide, including 75,574 employees in the State of Washington. For Washington employers, this means that even though certain employees may have had no change in their salary, duties, or work/life balance, those employers are no longer “exempt” under the FLSA, and are entitled to overtime for all hours worked over 40 hours in a week. The FLSA allows employees to collect double the amount of overtime owed to them, as well as their attorneys’ fees and costs. These amounts can add up quickly, and exposure for unpaid overtime can have significant financial repercussions on a business.
It should be part of any employer’s best practices to consistently review how it is compensating its employees to ensure compliance with all federal, state, and local laws The employment lawyers at Lasher, Holzapfel Sperry & Ebberson can help you determine whether your payment practices may be exposing your company to potential liability.
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