Wealth Law Blog : Oregon Asset Protection Lawyers & Attorneys : Samuels Yoelin Kantor Seymour & Spinrad Law Firm : OR Estate Planning, Fiduciary Litigation

In the August 7, 2009, BNA Daily Tax Report, it was noted that Rep. Brady has proposed a permanent repeal of the estate tax.  Do you remember that old Saturday morning cartoon, I'm Just a Bill?  Well, this bill is going to continue to sit on Capitol Hill and will never become law.  You heard it here first.

So, what is to become of the repeal of the estate tax?  Most of those in the know seem to say that we are going to stay with the current $3.5 million exemption.  They are probably right.  However, I think it is dangerous to count on that happening.  Let me spell out for you a less probable, but possible scenario.

 Under current law, in 2010, the estate tax essentially goes away.  Then, in 2011, it comes back with a vengeance, at a $1 million exemption (thank you Senator Bird).  When this process was set up eight years ago, it was thought that there was no way a tax increase would be allowed, so the repeal would go on, regardless of the Bird Rule.  However, now we are in an economic crisis, and the government needs money. 

Many believe that the congressional leadership don't want to see 2010 with the unlimited exemption, so we can expect finality this year.  It is possible, however, that the they will just punt this year.  With health care taking up the entire agenda lately, the congressional leadership could just extend the $3.5 million exemption for one year while they consider the matter.  They would likely get broad suppport for this extension.  Then, next year, they could decide that Bush's plan was best after all, and just let the Bird Rule apply.  We would be back at a $1 million exemption without a vote for a tax increase.

You may be thinking the congressional leadership wouldn't risk this because it affects too many of the voters, but keep two things in mind.  First, because of the recession, less people would be affected as less people will have taxable estates.  And second, the government needs money to finance the change America voted for.

Now, I agree this is not the most probable scenario.  But, it is at least possible, and because it is at least possible, we should consider it in our estate tax planning. 

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Most clients who come to us for asset protection are looking for an offshore trust or maybe even a domestic asset protection trust. These are both viable options to protect one’s assets. However, there are a number of simpler options that one should consider first. 

• Liability insurance is relatively inexpensive and can cover many personal liability issues that may arise.
•  Life insurance and annuities can be good investments and are protected from creditors.
•  Money contributed to retirement plans are protected assets and allow for tax free savings, a double benefit.
•  529 plans (college savings plans) are also protected assets, as well as they also grow tax free.
•  A Qualified Personal Residences Trust protect a person’s house from creditors, and also passes the house to the next generation with minimal gift tax consequences.
•  How one titles property, depending on the laws of your particular state, can protect that property from certain creditors.
•  When your child turns 18, have them buy their own car rather than drive one provided by you.
•  Put investment real estate in separate limited liability companies.
•  Ask your parents to keep any assets you receive from them in trust for your life.

These are merely an example of several items to consider. Asset protection is a continual process, much like estate planning, to keep your hard earned assets in you and your families hands.

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As a civil fiduciary litigator - I handle trust disputes, will contests, civil financial elder abuse claims, undue influence claims, capacity cases, etc. – I read Janine Robben’s article in the Oregon State Bar Bulletin with keen interest: Keeping an Eye Out for Elders.

What wasn’t addressed is that Oregon has one of the most broadly written statutes for civil financial elder abuse in the nation and bystander liability can occur when a person “knowingly acts or fails to act under circumstances in which a reasonable person should have known” that another person was permitted to financially abuse a vulnerable adult. ORS 124.100(5).

With this language, plus a seven year statute of limitations from discovery and the opportunity of an award of treble damages and attorneys’ fees, it is likely more and more people will be hauled into court, because proving that someone did not “know or should have known” can be a difficult task and often is a question to be resolved by the fact finder. This increases potential liability for those who routinely deal with “vulnerable adults” (which by definition in ORS 124.100(1)(a) includes anyone 65 years of age or older – regardless of their mental or physical health) as well as those that happen upon a situation in which they knew or should have known that another is taking advantage of a vulnerable adult.

So proceed with caution.

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In a few short months, after the Dog Days of summer have gone and the sweltering humidity of the Washington D.C. begins to subside, Congress will begin to get serious about finishing work on tax legislation that will make substantial changes to our current tax code. I’ll leave to the politicians to discuss the wisdom, or lack thereof, of these changes. However, one thing is certain – tax changes are on the way!

I have no crystal ball. However, as Congress debates health care legislation and begins to embrace the red ink from the fiscal stimulus legislation in the last year, significant changes to the Tax Code are as certain as January snow in Denver. For those whose time has come to pay their “fair share” of taxes, here are the ten changes that we’re most likely to see when the sun rises on New Year’s Day 2010:

1. Tax Rates. The “Greenbook” report released by the Obama Administration in May states that the current 33% and 35% tax rates will increase to 36% and 39.6%, respectively. These rates would affect those individuals with incomes exceeding $200,000 for single persons and $250,000 for married couples. While Congress still needs to make the final decision, the proponents of these increases tend to argue that these “reforms” merely represent a return to the Tax Code of the Clinton Administration.

2. Capital Gains. Currently, the maximum tax rate on recognized capital gains is 15%. Under current law, these changes expire after 2010, with the maximum rate scheduled to increase to 20%.  For the same group of high earners (singles making more than $200,000 and married couples making over $250,000), the 20% bracket would return early, most likely with the 2010 tax year.

3. Qualified Dividends. Certain “qualified” dividends received by individual taxpayers from corporations are currently taxed at a 15% maximum rate. Like the capital gains tax increase referenced above, the maximum tax on these “Q Dividends” would be increased to 20% as well. Interestingly, the Obama Administration did not advocate a return to the Clinton years when dividends were taxed in the same manner as ordinary income. My bottom line on this one – don’t count on it. An increasingly budget-conscience Congress will see it as “low hanging fruit.”  Look for the return of ordinary income tax rates on dividends.

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Recently, the Oregon Legislature passed a tax amnesty program with the hope of raising $16.2 million in additional revenue. (See Revenue Impact of Proposed Legislation (pdf)) The amnesty applies to corporate income and excise tax, personal income tax, inheritance tax, and transit district (self-employment) taxes. Any Oregon taxpayer with any of these underreported taxes or unfiled tax returns for any period prior to January 1, 2008 will be eligible to apply. (For a copy of the bill see SB880-B (pdf))

• Short time period: The tax amnesty program is only open for 50 days, beginning on October 1, 2009 and closing on November 19, 2009.
• Minimal Benefit: The only benefits being offered are the waiver of one half of the interest and all penalties. Not much of an incentive.
• No Taxes Waived: All the taxes due and the reduced interest must either be paid in full within 60 days of the application or be paid under an installment plan on or before May 31, 2011. Failure to complete an installment plan voids the amnesty benefits.
• Gotcha Penalty: Anyone who is eligible for this program, but fails to apply will be subject to an additional 25% penalty. This penalty can apply to tax adjustments discovered after November 19, 2009. Also any taxpayer who has received a notice of delinquency or notice of assessment from the Oregon Department of Revenue for any year that would be eligible for the amnesty program cannot participate.

This program is a "cruel joke" because:

• The amnesty program is only open for 50 days.
• The amnesty offer is minimal. There is no provision to compromise taxes.
• Anyone who is currently delinquent with Oregon taxes is probably not eligible.
• An eligible taxpayer who chooses not participate will have an additional 25% penalty added on.
• If there is a tax adjustment after the amnesty program has closed it is possible that the additional penalty can be assessed even though the tax payer was not aware of additional tax liability during the 50 day election period.

In conclusion it is hard to see that this program will help either the state of Oregon or its taxpayers.

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