Recycle Your Old Cell Phones to Save the Gorillas!
– Posted by
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
– Posted by
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
– Posted by
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 email@example.com 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
– Posted by
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
– Posted by
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
– Posted by
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
– Posted by
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
– Posted by
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.
Trending: Prenuptial Agreements Between Millennials
According to a recent survey of the American Academy of Matrimonial Lawyers (AAML), there is an increase in the number of Millennials requesting prenuptial agreements. This rise in Millennials interested in prenups corresponds with an overall increase in the number of clients of all ages seeking prenups. However, a December 21, 2016 opinion piece in the New York Times, http://www.nytimes.com/roomfordebate/2016/12/21/should-couples-get-prenups-for-their-ideas?, observes that unlike the generations before them, who have traditionally sought to protect current salaries, real estate, personal property, and inheritances, many Millennials are focused on protecting intellectual property, that is, aps, software, ideas, etc., including intellectual property that might not even exist yet.
Although the demand for prenuptial agreements has increased among Millennials, it remains to be seen whether they’ll actually need to enforce these prenups someday. The divorce rate has been declining even as fewer people are getting married and when they do marry, they’re getting married at later ages. We’ll have to see whether the theory that those who marry later in life are more likely to stay married proves to be true.
Prenups aren’t just for married couples anymore. See my February 9, 2016 blog, The Financial Risks of Living Together in Washington, which discusses the potential financial consequences of living with your significant other. Cohabitation can give rise to property rights in Washington State. If you are unmarried and considering cohabiting with your partner, you may wish to consider a cohabitation agreement, which is essentially a prenup for unmarried persons. Additionally, for tips about negotiating a prenup and making sure that your prenup will be enforceable in the event of an ultimate divorce, see my colleague, Christopher Yoson’s September 14, 2016 blog, Negotiating Your Prenuptial Agreement.
If you’re a Millennial living in the State of Washington (or a Gen Xer, Baby Boomer, or frankly a member of any generation) and need advice about a prenuptial agreement or cohabitation agreement, please feel free to contact me or one of the other family law attorneys at Lasher Holzapfel Sperry & Ebberson to set up a consultation.
Beneficiary Designations for Life Insurance & Other Nonprobate Assets: They’re Harder Than You Think
When you are reviewing or revising your estate planning, it is very important to pay very close attention to how nonprobate assets will pass. Getting it done right is harder than you think.
“Nonprobate” assets, like retirement accounts and life insurance proceeds, are those assets that typically pass to intended recipients upon death by beneficiary designation (i.e., a contract with the financial institution) rather than through the decedent’s last will and testament. However, under Washington law, decedents are also allowed to dispose of these assets in their will, despite what the designation may indicate. More specifically, Washington’s “Super Will” statute (i.e., the Testamentary Disposition of Nonprobate Assets Act) requires that the nonprobate asset be specifically described in the will and that a beneficiary designation for that asset is not completed subsequent to execution of the will. RCW 11.11.020. In other words, the provisions in a will that directs the transfer of a nonprobate asset essentially “override” a previously completed beneficiary designation. Be careful, however, because a beneficiary designation completed subsequent to execution of the will overrides the provisions of the previously executed will – even if the subsequent beneficiary designation is later revoked.
Regardless of the manner in which you choose to dispose of a nonprobate asset (i.e., via beneficiary designation or by will), it is critical to ensure that the ultimate disposition of the asset is coordinated with the overall estate plan. For example, if a person’s will leaves the entire estate into trust for a spouse, children or other family members, the nonprobate asset should be structured to pass in a similar fashion (i.e., made payable to the trustee of the same trust) unless there is a specific reason for the asset to pass in a different manner (e.g., made payable to the estate to fund specific bequests). When nonprobate assets are structured to pass to someone in a fiduciary capacity, like a trustee or personal representative of an estate, it is also critical that the beneficiary designation (or will provision) specifies that capacity (e.g. “Jane Doe, as Trustee of the Children’s Trust”).
In light of the above, drafting beneficiary designations can be complicated and must be carefully considered when designing an estate plan.
The potential pitfalls in structuring beneficiary designations were made very clear in the recent Washington Court of Appeals case of Estate of Collister (195 Wn. App. 371 (2016)). In Collister, the decedent, Carol Collister, completed a beneficiary designation (with the insurance company) on one of her life insurance policies by naming her friend Rocky Feller (yes, Rocky Feller) as the beneficiary. That designation was completed in 2009. Incidentally, Feller and Collister had been previously married, but divorced in 2004.
In 2013, Collister executed a will, which named Feller as her Personal Representative and included a directive to distribute the proceeds of the life insurance policy to her two sisters.
Upon Collister’s death in 2014, the sisters petitioned the trial court to order Feller, as personal representative of Collister’s estate, to distribute the proceeds of the life insurance policy to them in accordance with Collister’s will. Feller argued that Washington’s “Super Will” statute prohibits a testator from designating a beneficiary of a life insurance policy via will and, therefore, the proceeds should be payable to him. The sisters argued that, as permitted under Washington case law, the will created a testamentary trust over the life insurance proceeds in favor of them. The trial court agreed with the sisters that such a trust was created and that, accordingly, Feller was obligated to distribute the proceeds of the policy to the decedent’s sisters.
On appeal, the trial court’s ruling was reversed and awarded the proceeds to Feller – but not because of his argument. Interestingly, the Court of Appeals court found that both parties’ positions were flawed. Specifically, the Court of Appeals ruled that Washington’s “Super Will” statute does not prohibit designating the proceeds of a life insurance policy by will – the statute simply does not apply to such designations. The Court of Appeals also ruled that, although you are permitted to direct the payment of a life insurance policy in your will, to do so a decedent must make the policy payable to the Personal Representative of the decedent’s estate. By naming Mr. Feller individually, and not in his capacity as Personal Representative, the directive in the will to make the proceeds payable to the decedent’s sisters failed.
In summary, you must be very careful to ensure that all components of your estate plan are properly coordinated. Be sure that you speak with your estate planning professional when dealing with nonprobate assets and beneficiary designations.
Favorable Tax Treatment Made Permanent (Qualified Small Business Stock)
Current IRS rules that provide tax breaks on gains of sales of qualified small business stock (QSBS) have been made permanent. More specifically, a taxpayer may be able to exclude from personal income tax up to 100% of any gain realized on the sale or exchange of QSBS held for more than five years (subject to certain limitations discussed below). These rules may provide significant tax advantages to holders of QSBS.
The “Protecting Americans from Tax Hikes Act of 2015”, which was passed into law in late 2015, included provisions making certain QSBS tax breaks retroactive and permanent. Additionally, the gain is excepted from treatment as an alternative minimum tax (AMT) preference item. In other words, the gain with respect to QSBS may escape tax for purposes of both regular income tax and AMT.
In order to take advantage of this favorable tax treatment, however, the stock must qualify as QSBS, and the taxpayer must meet certain objective requirements. To qualify, stock must meet all four of the following tests:
(1) the stock must be in a C corporation originally issued after August 10, 1993;
(2) as of the date the stock was issued, the company was a domestic C corporation with total gross assets of $50 million or less (this size limitation only applies at the time the stock was issued, regardless of how large the corporation subsequently grows);
(3) the taxpayer must have acquired the stock at its original issue (not from a secondary market); and
(4) During the period that the taxpayer held the stock, the corporation was a C corporation, at least 80% of the value of the corporation’s assets were used in the “active conduct” of one of more qualified businesses, and the corporation was not a foreign corporation or other prohibited type of corporation.
The foregoing is merely a summary. In other words, it is important to review the Internal Revenue Code and related regulations for more information on these limitations. For example, although the definition of “qualified businesses” excludes many types of professional corporations, most startup companies would generally qualify. Thus, you should consider all options when determining the choice of entity for your startup company.
Even if stock qualifies as QSBS, there may be additional limitations on the ability to exclude gain on sale of such stock. As always, it is important that you consult with your CPA or tax counsel if you would like more information about the QSBS exemptions. Feel free to contact one of our business/tax attorneys at (206) 624-1230, if you would like to discuss further.
Minimum wage. Wage theft. Paid sick and safe time. Fair chance employment ordinance. The City of Seattle has a proven commitment to workers’ rights and a long history of being at the forefront of movements to provide greater protections to employees. The latest movement Seattle is championing is known as “secure scheduling.” The secure scheduling legislation, key points of which a Seattle City Council committee unveiled on August 8, 2016 and which City Council unanimously adopted on September 19, 2016, is intended to protect retail and food-service workers from erratic and unpredictable work schedules. The new law will take effect on July 1, 2017.
This sweeping new law applies to retail employers and fast-food, limited service restaurants and drinking establishments which have 500+ employees worldwide, and to full-service restaurants with 500+ employees and which have 40+ locations worldwide.
Key points of the law require that:
Employers provide employees with a written good faith estimate of the number of hours they will be expected to work at the time of hire.
Employers provide employees 14 days advance notice of schedules.
Employees receive at least 10 hours between shifts, unless they request or consent to having less time between shifts (if the employee requests or consents to this type of shift, the employer must pay them time and a half for the hours worked less than 10 hours since the previous shift).
Employers pay employees one hour of “predictability pay” for employer-initiated changes to the work schedule after it’s posted. The proposed law provides exceptions for employee-initiated shift swaps or shift coverage, or if an employer fills an unexpectedly open shift by using “mass communications” such as text or email to ask employees if they can fill the shift.
Employees who don’t receive all the hours for which they have been scheduled would receive half of their hourly rate of pay for each hour cut.
Employees would receive half their hourly wage for each hour they’re scheduled to work on-call but are not called in to work.
Employers offer additional hours to existing employees before hiring additional employees.
If you have a question about Seattle’s new Secure Scheduling law or any other Seattle or Washington employment laws, feel free to contact one of the employment law attorneys at Lasher Holzapfel Sperry & Ebberson PLLC. We can be reached at (206) 624-1230.
Employers: How to Handle a Writ of Garnishment on One of Your Employees
– Posted by
A writ of garnishment is a legal device used by creditors to collect on judgments. When a writ of garnishment is served on an employer in Washington state, the purpose of the writ is to allow the judgment creditor to collect on an obligation owed by an employee to that creditor. In effect, the writ constitutes a continuing lien on that employee’s earnings, and as the employer, it is your legal responsibility to calculate the exempt and non-exempt portions of that employee’s earnings, and to withhold and pay over the non-exempt portion as required by law. An employer that fails to properly process a writ of garnishment may face liability to the judgment creditor, so it is important that you handle and respond to the writ with due care.
Here are the basic steps you should take when you receive a writ of garnishment directed at one of your employees.
First, it is critical that the staff who handle incoming mail receive basic training that will allow them to identify a writ of garnishment upon receipt. As soon as your business receives a writ, you should make a record of the exact date and time that it was received. A writ constitutes a 60-day lien on an employee’s earnings, and that period begins on the day you receive the writ. Employers should make a reasonable effort to start withholding the employee’s wages right away.
Second, you should examine the writ and accompanying documents. The writ should state the amount that the employee owes and provide contact information for the judgment creditor’s attorney, in case you need to contact them during the garnishment process. A first answer” form should also be enclosed with the writ.
The first answer form will include instructions telling you how to fill it out. In Section 1, you will provide certain background information to the judgment creditor, including whether the employee’s wages are currently being garnished by another creditor, and the employee’s employment status (e.g., if they no longer work for you, state that here).
In Section 2, you need to complete certain calculations showing the amount of income you expect to withhold from the employee. If you’re uncertain about the calculations, you should prepare and submit an additional statement to the judgment creditor explaining how you performed your calculations.
Once you have completed the first answer form, you must mail it to the court, the creditor’s attorney, and the employee who is being garnished. The garnishment paperwork you received from the judgment creditor should include all of the necessary addresses.
The third step in the process begins when you receive a “second answer” form from the judgment creditor. This should arrive near the end of the 60-day garnishment period. The main difference between the first and second answers is that the general purpose of the first answer is to tell the creditor how much the employer expects to withhold under the garnishment, while the purpose of the second answer is to state how much the employer actually deducted from the employee’s earnings. Make sure to show your calculations so that it is clear how you arrived at the amount withheld. As with the first answer, you are required to mail the second answer form to the court, the creditor’s attorney, and the employee who is being garnished.
The final step in this process involves the creditor reviewing your second answer and then asking the court to enter an order requiring you to send the withheld earnings either to the court clerk or directly to the creditor. You will receive instructions telling you how and where to send the payment, and it is important that you follow those instructions carefully. Once you have sent the payment as directed, your involvement in the garnishment process should be complete, however, be aware that, in most cases, one 60-day garnishment cycle will not generate sufficient funds to satisfy the creditor’s judgment against your employee. It is likely you will receive another writ of garnishment in the mail soon, and you will have to start the process all over again, following the same steps outlined above.
This is just an outline of the basic steps an employer should take in responding to a writ of garnishment directed at one of its employees. There are many complications that may arise, including an intervening bankruptcy filing by the employee, or the receipt of two more competing writs of garnishment. If you’re an employer in Washington state and you’re unsure about how to deal with a garnishment related issue, the creditor’s rights and commercial litigation attorneys at Lasher Holzapfel Sperry & Ebberson have the experience and knowledge to help you craft an appropriate response that limits your liability.
How to Prevent Will Contests in Your Estate
– Posted by
It is important to you that your assets are transferred upon your death in an efficient and effective manner. What if a disgruntled heir decides to contest your Will in court? This could derail your final wishes, drain your estate of its value, and permanently damage relationships between family members that you love. Given these risks, special care should be taken in the estate planning process to minimize any such problems or issues.
What is a Will Contest?
A Will contest is a lawsuit in which an “interested person” files a petition objecting to the validity of a deceased person’s Last Will and Testament. In Washington, a Will contest must be filed within four months after a probate is filed, or the Will contest is forever barred. An “interested person” is generally an heir who is directly and negatively affected by the terms of the Will and who would stand to gain should the Will be declared invalid.
A person contesting a Will must base their lawsuit on legal grounds. Merely feeling angry, disappointed, hurt or surprised will not qualify as legal grounds. Generally, legal grounds for a Will contest fall into one of the following categories:
1. The Will was not properly signed and witnessed as required by state law.
2. The person making the Will (the “testator”) lacked testamentary capacity (i.e., was not of sound mind) or suffered from delusions that prevented them from being able to create a valid Will.
3. The testator was unduly influenced by another person to create or sign the Will, such that the true intent of the testator was not achieved.
4. The Will is a forgery or was procured by fraud or trick.
5. The Will being offered for probate is not the decedent’s most recent Will or was revoked prior to the decedent’s death.
If a Will contest is successful, then all or part of the contested Will may be disregarded, and/or a prior Will may be reinstated. If an entire Will is disregarded and if no prior Will is reinstated, then the assets would be distributed to the relatives entitled to take under the state’s intestacy law (as if a Will was never created).
Reducing the Risk of a Will Contest
While there is no guaranteed method of preventing a Will contest, you can certainly take protective measures, several of which are listed below, to reduce the risk of a contest being filed in your estate. In all cases, however, these measures should be undertaken only with the assistance and advice of an experience estate planning attorney who can evaluate the appropriateness of each suggestion in respect to your specific situation.
1. Include a No-Contest Clause in your Will. A no-contest clause (also referred to as an “in terrorem” clause) provides that a beneficiary who challenges the Will forfeits any gift that he or she would have otherwise received under the Will. In Washington, a no-contest clause is enforceable against a contesting beneficiary, unless the beneficiary establishes that the Will contest was made in good faith and there was probable cause.
2. Consider Alternatives to Total Disinheritance. Complete disinheritance of an immediate family member may invite a Will contest. If you intend to disinherit a non-favored child or a child of a first marriage, it may be worth considering passing a smaller legacy to such person rather than outright disinheriting them. Such gift could work in tandem with a no-contest clause, described above, to create a disincentive for the child to contest the Will.
3. State Your Intentions in the Will. If you intend to disinherit a child, spouse, or another person who would normally expect to be included in your Will, clearly state in the Will your intentions to disinherit such person. In other words, do not just omit that person’s name. Depending on the reason for the disinheritance, your attorney may recommend including a clause in the Will or an accompanying letter that explains your rationale in support of your decision.
4. Share Your Intentions Before You Die. Although it is not necessary to let your adult children know the details of your estate plan, communicating your general intentions and the reasons for any provisions that your family might interpret as unequal or unfair can take the sting out of what would otherwise be a surprising and painful disappointment at a time when your family is grieving your death.
5. Document Your Mental Capacity. If you are concerned that someone may try to raise the issue of your mental capacity as grounds for a Will contest, consider obtaining a letter from your doctor before shortly before you sign the Will, documenting that you know your family members, understand the general nature and extent of your property, and are not delusional.
6. Do Not “Do It Yourself.” “Do-it-yourself” estate planning forms have resulted in numerous Will contests being filed across the country, one of which can be read about here. The risks inherent in creating a Will without the help of a competent estate planning attorney are several fold, including faulty execution of the documents, defective drafting, accidental disinheritance, and ultimately the danger that your wishes will not be followed. When you use the services of an experienced estate planning attorney, you ensure that your Will reflects your wishes and that your Will is executed in compliance with applicable state law. Additionally, if issues of mental capacity or undue influence later arise, your attorney can provide support that you signed your Will while of sound mind and without any apparent potential undue influence. All of these benefits reduce the likelihood of a Will contest in your estate.
The Bottom Line
Protecting against a Will contest is a critical part of estate planning, especially if you think that a loved one may be angry or hurt by the provisions in your Will. The first step is to engage an experienced estate planning attorney who can help you create a thoughtful estate plan that ensures your legacy while incorporating appropriate and protective measures, customized to your specific situation. If you would like to discuss your overall objectives and ways in which you can minimize the risks of a Will contest, feel free to contact me or one of our other estate planning attorneys at Lasher Holzapfel Sperry & Ebberson, PLLC.
Interestingly, divorce filings peak in Washington State in the months of March and August—as revealed in a recent University of Washington study. Sociology professor Julie Brines and doctoral candidate Brian Serafini researched divorce filings in Washington State to investigate the effects of recession on marital stability. The pair looked through court records over a 14-year period and found a spike in filings in March and August of each year. Brines stated that this finding follows a “domestic ritual” calendar. People may attempt to give their marriage that “one last try” with a summer trip or holiday vacation, or want to wait until a certain event is over before breaking the news to the family. The study did not take into consideration the actual date of separation of the parties (many times partners will move into separate residences before they file for dissolution) or whether either party consulted an attorney and decided to wait to file. A synopsis of the study can be found here: http://www.washington.edu/news/2016/08/21/is-divorce-seasonal-uw-research-shows-biannual-spike-in-divorce-filings/.
Does the date or timing of filing for divorce matter? One issue Washington courts consider in a dissolution action is the date of separation. This can be defined as the date you and your spouse separate finances, move into separate residences, or file for divorce. The court may also look at when your marriage became “defunct.” A marriage is defunct when both parties acquiesce to a separation or accept the futility of hope for a normal marital relationship. Seizer v. Sessions, 132 Wn.2d 642, 940 P.2d 261 (1997); see also In re Marriage of Nuss, 65 Wn. App. 334, 828 P.2d 627 (1992). There are multiple factors that serve as evidence of a defunct marriage that are analyzed by the court, including whether both parties have demonstrated a marriage is over. The date of separation is also often used by the court to determine the value of community assets and liabilities. The length of marriage is a factor when establishing the duration of spousal maintenance, if applicable, making the date of separation an important marker for maintenance cases. RCW 26.09.090. Income earned after the determined date of separation is characterized as separate property. RCW 26.09.140. However, there are specific rules regarding stock and bonuses. In re Marriage of Short, 125 Wn.2d 865, 890 P.2d 12 (1995). While the Brines and Serafini study identified peak months for divorce filings, the actual date of separation, rather than simply the date of filing, is impactful on the division of property and any maintenance award. While the month a divorce is filed is of no legal consequence, the date of separation can be critically important.
If you are considering a divorce, please contact Miriam Gordon or any of the other family law attorneys at Lasher Holzapfel Sperry & Ebberson, PLLC to set an appointment to discuss separation, timing, and the many other factors to consider in the dissolution process.
If a prenuptial agreement is on your wedding planning checklist, you should ensure that you begin the process well in advance of your wedding date to leave enough time to thoroughly negotiate all of the terms that will be included. A thoughtful and unhurried negotiation can help ensure that the agreement you eventually sign will be enforced years later.
Washington courts use a two-prong analysis to determine the enforceability of prenuptial agreements. The analysis asks first whether a particular agreement was “” fair – i.e., whether it made reasonable provision for the spouse not seeking to enforce it at the time it was executed. If the court finds that the agreement was substantively to the spouse not seeking enforcement, the court will proceed to the second prong of the analysis, which asks whether the agreement was fair. If the court determines the second prong is satisfied - i.e., the agreement was entered into by both parties with a complete understanding of their rights after advice from independent counsel – then even an otherwise unfair distribution of property is valid and binding.
Courts consider several factors in determining whether an agreement fairly provides for the spouse not seeking enforcement, including:
(1) the proportional benefit between the parties;
(2) restrictions on the creation of community property;
(3) prohibitions on the distribution of separate property upon dissolution;
(4) the economic means of each spouse;
(5) preclusion of common law and statutory rights to both community and separate property upon dissolution;
(6) limitations on inheritance;
(7) prohibitions on awards of maintenance; and
(8) limitations on the accumulation of separate property.
The courts generally consider whether (1) each spouse entered into the agreement freely and on advice from independent counsel; (2) full disclosure was made by each party of the assets each owned prior to marriage; and (3) each spouse had full knowledge of their property rights that were altered by the agreement.
It is critical to the enforceability of a prenuptial agreement that the procedural fairness prong of the analysis is satisfied. Each of the parties must take the time to truly understand and negotiate how: (1) current and future property will be owned and allocated; (2) income (including wages) and expenses will be shared; and (3) assets will be divided in the event of a future divorce. Engaging in this process will go a long way in demonstrating to a court that both parties entered into the agreement with full knowledge of the facts and their rights – and the compromises each party made to get to a final “meeting of the minds.”
A thorough negotiation of a prenuptial agreement can provide significant peace of mind and mutual understanding on financial matters before the trip to the altar. Financial disagreements are a significant source of marital friction and divorce.* If financial issues can be resolved and respective priorities understood before the marriage, it may increase the chance of marital success - and decrease the need for an enforceable prenuptial agreement. Either way, taking the time to negotiate and understand all of the terms that will be included in the prenuptial agreement at least three months prior to the wedding is essential.
The judge has signed your final decree of dissolution and you are now officially divorced. You probably feel a sense of relief, along with a slew of other emotions, and you are ready to start the next chapter of your life. Before you put your divorce behind you, there are few things you should do after your final divorce pleadings are entered:
Review all of the final pleadings with your attorney. While you reviewed the final documents prior to signing them, you should check these once again to make sure you implement each provision of your final documents. For example, what financial obligations do you have? How will you handle your taxes? Do you need to ensure your ex-spouse has removed you from the home mortgage? If you have remaining questions, ask your attorney!
Close joint accounts or remove your spouse from the account. If you were awarded a joint financial account in the dissolution, contact the financial institution to remove your ex-spouse from the account. Make sure to do this for all bank accounts and credit cards. It is important to confirm you are no longer liable for any credit cards your ex-spouse was awarded as part of the dissolution and that your ex no longer has access to credit cards you were awarded. You may also wish to request a copy of your credit report to uncover any accounts that are open and active under your name if this was not done during the dissolution process.
Change your name. If you requested a name change in your Decree of Dissolution, make sure you notify the necessary agencies or entities of your name change. This may include the Social Security Administration, Department of Motor Vehicles, Passport Office, IRS, Voter Registration, and your financial/banking institutions.
Change your beneficiary designations. Check all insurance policies, including life and disability insurance, all retirement accounts (IRA, 401(k), etc.), and bank/investment accounts for the designated beneficiary. Take all necessary steps to change the beneficiary. However, be mindful of any specific provisions in your final pleadings that may require you to maintain your ex-spouse or children as a beneficiary, such as your life insurance policy.
Change your passwords. Did you and your ex-spouse use any common passwords or does your ex know the passwords for any of your online accounts, including social media? Make sure to change all passwords on your email, social media and online accounts.
Check your health insurance. If your spouse was providing your health insurance, you will no longer be covered post-dissolution. Make sure you know when your coverage ends and be sure to sign up for a new policy to prevent a gap in coverage. If you are not employed or are unable to get insurance through your employer, research the Washington Health Exchange at www.wahbexchange.org.
Finalize any property transfers. Were you awarded the house in the divorce? Make sure all quitclaim deeds and any other required real estate documents are signed and recorded to exchange title of real property. Be sure to execute all paperwork needed to transfer title for any automobiles awarded to you or your spouse in the dissolution. While not as common, do you need to transfer any burial plots purchased during the marriage? Follow the terms of your Decree of Dissolution and make sure all personal property is transferred to the proper owner.
Re-finance mortgages. If you were awarded real property or any significant assets or liabilities in the dissolution, make sure that you take the necessary steps to remove your ex-spouse from any obligations associated with those assets and liabilities if required by your Decree of Dissolution. If you are not the spouse responsible for the obligation, follow up with your ex to ensure the obligation is re-financed and your name is removed from the obligation if specified in the Decree of Dissolution. You do not want to run into this issue down the road when you try to qualify for a mortgage or other loan.
Taxes. Make sure you know how you are filing your taxes for the current year, and the following years, and what deductions, exemptions or dependencies you can claim. Are you claiming exemptions for your children? If you paid the mortgage of the family home for a portion of the previous year, is one party claiming all of the mortgage payments? Discuss this with your attorney if you are uncertain.
Finalize split of the retirement accounts. Did you and your ex-spouse divide a retirement account? If so, make sure you follow the necessary process for division, possibly including the need for a Qualified Domestic Relations Order to provide your or your spouse’s financial institution with instructions on how to transfer the retirement fund.
Meet with a financial advisor. Your income and lifestyle is likely to change after your divorce. It is prudent to meet with a financial advisor to establish a budget, discuss your investments, run new tax projections, and/or ensure that you are adequately preparing for retirement.
Create a tracking system. Will you and your ex-spouse be allocating expenses for the children such as childcare, extra-curricular and/or educational expenses? Make sure you understand if you have to first agree to the expenses and then create a system to track the expenses and reimbursements. Be sure to save all receipts or proofs of payment as you may need them in the event of a future dispute regarding an expense.
Update your estate documents. If you haven’t already done so, after your dissolution decree is entered, make sure you change or update your will or estate planning documents. If you have not previously prepared a will, it’s a good time to do so. Our estate planning attorneys at Lasher Holzapfel Sperry & Ebberson are happy to can assist you with your estate plan.
Keep all documents in a safe place. Keep a copy of all of your original dissolution papers together with your important documents in a safe and secure place such as a safe deposit box. Make sure you have copies of the final entered pleadings accessible for future reference.
While it may seem like a lot to do after you have completed your divorce, taking the above steps will protecting you financially. Please feel free to contact Miriam Gordon or any of the other family law attorneys at Lasher, Holzapfel, Sperry, & Ebberson if you have any questions.
New Seattle Rules for Single Occupancy Restrooms
– Posted by
In May 2016, the Obama Administration, by way of the Departments of Education and Justice, provided schools nationwide with guidelines regarding bathroom use by transgender students. These guidelines are a piece of a larger legal dialogue regarding the rights of transgender individuals in the United States. We recently blogged about Washington State laws which protect the rights of transgender persons (see June 8, 2016 blog). Many Seattle businesses may not know that in addition to existing state laws, the City of Seattle has also adopted legal guidelines regarding the use of public bathrooms in Seattle, and has implemented a unique enforcement mechanism to ensure compliance with city laws. Seattle’s Public All-Gender Restroom Ordinance (SMC 14.07), which applies only to single stall restrooms, allows use of single occupant restrooms by any person, regardless of sex or gender identity, and prevents those restrooms from being restricted to a specific sex or gender identity. Seattle’s Public Accommodations Ordinance (SMC 14.06) also clarifies the rights of individuals to use gender-specific facilities that are consistent with their gender identity.
With regard to single occupant restrooms, Seattle Municipal Code 14.07.020 provides:
Single-occupant restrooms shall not be restricted to a specific sex or gender identity and shall use appropriate signage to indicate such facilities are designated for use by any person, regardless of sex or gender identity.
A single-occupant restroom is: “any toileting facility that is designed for use by one person at a time.” This requirement applies to:
any place, licensed or unlicensed, where the public gathers, congregates, or assembles for amusement, recreation or public purposes, or any place, store, or other establishment that supplies goods or services with or without charge to the general public.
This includes all restaurants, bars, theaters, and sports stadiums. The ordinance also specifically lists “barber shops and beauty shops” as places of public accommodation. Based on the wide ranging definition of public accommodation, if you operate a business that provides restrooms to your customers, the City of Seattle considers this ordinance applicable to your business.
In addition to requiring that all single stall restrooms be gender neutral, the Seattle Code requires business owners to “use appropriate signage to indicate such facilities are designated for use by any person regardless of sex or gender identity.” SMC 14.07.020(A). What exactly does this mean? The Seattle Office for Civil Rights has provided examples of appropriate verbiage such as “all-gender restroom”, “gender neutral restroom,” “unisex restroom,” “toilet,” and “WC/Water Closet.” The City has also provided some specific examples of appropriate signage:
Failure to follow these requirements can result in an investigation by the Seattle Office for Civil Rights, and possible fines if the violation remains ongoing.
The City of Seattle is also embracing technology in its effort to enforce these new regulations by enlisting the Twittersphere’s help to identify those businesses violating the ordinance. The City of Seattle has created a hashtag, “#AllGenderRestroomSEA,” and anyone can tweet that hashtag with a photo of the offending signage and name and location of the business to report violations of the ordinance.
Liability Dangers for Corporate Officers and Directors
– Posted by
If you’re an officer or director of a Washington business, you need to be aware of specific liability dangers that could create personal liability for you and place your personal assets at risk. As a general rule, a corporation’s officers and directors are not responsible for corporate obligations. But there are specific liability dangers that may impact officers and directors, especially when the corporation is struggling financially. Four of the most common liability dangers for officers and directors are unpaid state sales tax, unpaid federal withholding taxes, unpaid employee wages, and distributions to corporate shareholders while the corporation is insolvent.
In Washington, certain sales taxes are considered “trust fund” taxes. This means that the business is obligated to collect the taxes from its customers, and to hold the taxes in trust for the state until such time as they are paid over by the business. The state retail sales tax (RCW 82.08) is a good example of this. Not only is failure to pay the sales tax over to the state a gross misdemeanor, but the statute also provides that the seller is personally liable to the state for the amount of the tax. RCW 82.08.050(2) and (3). It is therefore critical that officers and directors prioritize timely and accurate payment of all sales tax over to the state.
Unpaid federal withholding taxes are perhaps the single most common liability creator for corporate officers and directors, and the consequences are often severe. Pursuant to 26 U.S.C. § 6672(a), there is a 100% penalty based on the amount of the unpaid tax obligation, and the corporate liability becomes a personal liability for all “responsible persons”—a category that includes officers and directors. Unpaid federal trust fund taxes are also non-dischargeable under the Bankruptcy Code. 11 U.S.C. § 523(a)(1). This means that even if the corporation ceases operations, liquidates it assets, and the officers and directors all file for bankruptcy, the “responsible person” liability will remain for the officers and directors until the obligation is paid off or otherwise settled with the Internal Revenue Service.
Officers and directors may also be liable for a corporation’s unpaid employee wages in Washington. The statute creating this liability provides for double damages, attorney fees, and costs, creating the potential for substantial personal liability. RCW 49.52.050 and 49.52.070. If a corporation is approaching insolvency or otherwise struggling financially, officers and directors should ensure that the corporation continues to meet its wage obligations if they want to avoid being named in a subsequent wage claim.
One final liability danger for officers and directors comes in the form of distributions to shareholders while the corporation is insolvent. As a general rule, a Washington corporation may not make a distribution to shareholders unless it retains sufficient assets to pay all of its creditors. RCW 23B.06.400(2)(a) and (b). Distributions made in contravention of this law may result in personal liability for officer and directors. If you’re an officer or director of a Washington corporation under financial strain, it is critical that you understand the extent and nature of the corporation’s assets and liabilities before making any distributions to shareholders that could render the corporation insolvent.
If you’re the officer, director, or owner of a business in Washington and you’re concerned about your potential personal liability for business obligations, the business and commercial litigation attorneys at Lasher Holzapfel Sperry & Ebberson have the experience and knowledge to help you find the best path forward.
At the beginning of this year, Washington State took steps to streamline and standardize a variety of administrative requirements amongst all limited liability entities created under Washington law. Effective January 1, 2016, Washington adopted the “HUB” provisions of the Uniform Business Organizations Code (“UBOC”), national guidelines that change—sometimes significantly—a variety of administrative requirements related to the operation of corporations, limited liability companies, partnerships, and cooperative associations within the state. While the intent of the UBOC is to simplify and standardize these requirements for those tasked with the organizational upkeep of such entities, in the short term these changes may necessitate adjustments to the administrative procedures used to establish, oversee and dissolve entities within Washington.
Technically speaking, UBOC removes many of the separate administrative provisions related to each specific entity type in the Revised Code of Washington (“RCW”) and create a new RCW chapter (§23.95) that consolidates those administrative requirements and makes them universally applicable to business corporations, nonprofit corporations, limited liability partnerships, limited partnerships, limited liability companies, and general cooperative associations.
Some provisions of note:
Article 2 of the UBOC addresses filing requirements. Entity names must be written in English letters or Arabic or Roman numerals, the filing document may provide for an effective date up to ninety (90) days after the date of filing, and such filing document may be withdrawn by a written statement of withdrawal prior to going into effect. Additionally, this Article provides that the role of the secretary of state is entirely ministerial. In other words, there is no discretion to refuse to file an entity filing that satisfies the filing requirements. Finally, this Article sets out the information required in the report to be filed with the state on an annual basis, and provides the secretary of state the power to determine filing fees.
Article 3 discusses various naming restrictions, including entity-specific limitations intended to reduce confusion and encourage consistency within entity types.
Article 4 discusses registered agents. The UBOC permits both commercial and non-commercial registered agents, though each has different filing requirements. This Article also discusses the procedures with respect to changing registered agents or registered agent information, the duties of registered agents, and the procedures for accepting service of process.
Article 5 sets forth registration requirements for out-of-state entities, and defines in some detail the activities that do not constitute doing business within the state. It also provides the attorney general with the ability to maintain an action to enjoin a foreign entity from doing business within the state in violation of these provisions.
Finally, Article 6 discusses the ability of the secretary of state to dissolve an entity, and the procedures required of such entity to dispute the dissolution or apply for reinstatement, including recourse to judicial review.
Taken on their own, none of the changes made by the UBOC are significant departures from prior state law or should require undue effort to implement. However, taken together, the changes discussed here may necessitate some modifications to long-standing procedures for entity administration of which you should be aware. For more information about how UBOC may impact your business administration, please feel free to contact me at firstname.lastname@example.org.
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…
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…
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…