Dennis Reinholtsen

Digital Assets and Estate Planning

It is important to recognize and identify digital assets in your estate planning.  Digital assets include digital files (stored through a cloud service or stored locally), websites, email, social media and other online accounts. You should consider preparing a current list of your online accounts and other digital assets to include with your estate planning documents. You should also consider providing your personal representatives (successor trustee, executor, DPOA agent) access to your passwords or the location of your passwords.

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End of Life Option Act

Please note that the End of Life Option Act was recently passed by the California legislature took effect on June 9, 2016.  Until January 1, 2026, this act authorizes an adult who meets certain qualifications and who has been determined by his or her attending physician to be suffering from a terminal disease as defined in the act, to request medication prescribed for the purpose of ending his or her life. The act establishes procedures for making these requests, forms to request aid-in-dying medication and, under some circumstances, an interpreter declaration.

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Social Security Benefits vs. Retirement Benefits

If you are divorcing in Humboldt County and have a retirement plan, please remember that federal law bars a “set-off” from your spouse’s interest in Social Security benefits from your spouse’s community property interest in your retirement plan.
 
Pension/retirement benefits are community property under California Law. However, Social Security is deemed separate property under federal law. Since federal law preempts state law, this may lead to “an inequity” between the spouses.
 

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End of Life Option Act

The California Legislature recently passed Assembly Bill X215, commonly called the End of Life Option Act. Governor Brown signed the new law on October 5, 2015. It will become effective 91 days after the adjournment of the 2015-2016 second extraordinary session.  The act authorizes an adult who meets certain qualifications, and who has been determined by his or her attending physician to be suffering from a terminal disease, to make a request for a drug prescribed for the purpose of ending his or her life.

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Is the Stepped-Up Basis at Death Going Away?

President Obama in his press release in advance of his annual State of the Union address in January of this year recommended elimination of the stepped-up basis at death. If this were to incur, it would impose a capital gains tax at death.  In order to avoid this alleged loophole, the President’s proposal was to treat bequests and gifts (other than to charitable organizations) as realization events. In other words, an event that would cause a recognition of gain.

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Elder Abuse Claims in Transactions

As our population ages, it is only natural there are more transactions where one of the parties is a senior citizen.  Parties to a transaction need to remember that the Elder Abuse Dependent Adult Civil Protection Act (EADACPA) applies to transactions with seniors.
If it is believed that an elder has been taken advantage of in a transaction, it may lead to an elder abuse complaint being brought on behalf of the senior.  

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Durable Powers of Attorney

Planning for a client’s incapacity is an important part of estate planning. Every estate planning client should have a Durable Power of Attorney if they have someone they trust enough to name as an agent. The main purpose of a Durable Power of Attorney is to ensure that an agent is ready to act if needed. Having a Durable Power of Attorney will normally avoid the expense and potential conflict of a conservatorship of a person’s estate.

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Arbitration Provisions in Employment Applications

California employers need to be careful when including mandatory and binding arbitration provisions and other similar provisions in their employment applications.

In a recent Ninth Circuit case – Schavarria v. Ralph’s Grocery Company (9th Cir. 2013) 733 F 3rd, the Court upheld the district court’s finding that Ralph’s arbitration clause in its employment application was procedurally unconscionable and substantively unconscionable.

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Inherited IRAs - No Bankruptcy Exemption

Under current bankruptcy rules, “retirement funds” are exempt property in bankruptcy, and cannot be reached by a debtor’s creditors.

In a recent case, In Re: Clark, an appellate court held that the federal exemption for retirement funds does not apply to inherited IRAs.

Inherited IRAs are retirement funds of a decedent that are inherited by a decedent’s beneficiary.

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How to Include Pets in Your Estate Planning

Humboldt County residents who value their pets should make plans to care for them in their estate plan.  If you should become incompetent before you die, a properly prepared durable power of attorney and revocable living trust can be used to provide care for your pets. Upon your death, your revocable living trust or will can provide for your pets’ long term care.

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Agreements Not to Solicit Employees

Recently, a good friend of mine who used to practice law in Humboldt County, called me to tell me he was retiring from a business management position in Oregon. He wanted to discuss his severance package which included an agreement not to solicit his former employer’s employees.
All I could relate to my friend was the current state of the law in California. The question is whether an agreement not to solicit employees is subject to the same limitations provided in California Business and Professions Code §16600 dealing with non-compete agreements.

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Electing S-Corporation Status

A very important financial decision for Humboldt County corporations is whether to elect federal income tax treatment under IRC subchapter S.  S-Corporation treatment is similar (but not identical) to partnership treatment. All the corporation’s shareholders are bound by an election into a S-Corporation.  A S election has the effect of making the corporation a pass-through entity for federal and California tax purposes, but it does not change the nature of the business as a corporation for state corporate law purposes.

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Property Tax Impacts of Revocable Trust Transfers

What impact is there on your property tax when your Humboldt County real property is transferred into or out of a revocable trust?  There are two general rules that apply; however, there are a number of exceptions to these general rules.  The two general rules are:

1. The transfer by the Trustor, or any other person, of real property into a trust is a change in ownership in such property at the time of the transfer;
2. The termination of a trust, or portion thereof, constitutes a change in ownership at the time of the termination of the trust.

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LLC Taxes - "Check the Box" Regulations

For Federal tax purposes, the Internal Revenue Service has formulated “check-the-box” regulations for classifying business organizations. This allows unincorporated businesses to choose to be taxed as either a corporation, a sole proprietorship or a partnership. These “check-the-box” regulations have replaced the previous tests which tried to determine whether a business had a majority of corporate characteristics which would require it to be taxed as a corporation. If it did not have enough corporate characteristics, it would be taxed as a partnership.

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Trade Secrets

If you are a business in the Humboldt, Del Norte, Mendocino area, do you have trade secrets and, if so, do you know how to protect them?

The Uniform Trade Secrets Act (UTSA) governs claims of trade secrets misappropriation.

According to the UTSA, a trade secret is:

Information, including a formula, pattern, compilation, program, devise, method, technique or process that:

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Recent Developments in Estate Planning

There were relatively few pieces of legislation passed by the legislature or cases decided by the California courts in 2011 that are important to estate planning.  The piece of legislation with the greatest impact was Assembly Bill 1305 which will allow small estates with probatable assets with values up to $150,000 to avoid the probate process. The bill increases the values in the succession and transfer provisions under sections 13100 and 13151 of the Probate Code from $100,000 to $150,000.

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AFR Rates and Beneficiary Business Purchases

The Applicable Federal Rate (AFR) is a rate published monthly by the IRS for federal income tax purposes.

The IRS will treat any “loan” with a below market interest rate (below the AFR) as a gift of the foregone interest from the lender to the borrower.  The amount of the foregone interest will be treated as though it was transferred from the lender to the borrower as a gift and retransferred from the borrower to lender as income on the last day of the calendar year.

How may this apply to the purchase of your Humboldt County business by your beneficiaries?

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Business Succession Planning in Humboldt County

Do you own a family business in Humboldt County?   Be it in Eureka, Arcata or Southern Humboldt, succession planning for a family business raises a number of issues.

You should plan for the succession to your business over a long period.   Primary concerns include determining your children’s interest in the business and their ability to run a business.

You may want to transfer an interest in the business during your lifetime.  This strategy may be particularly useful if you believe your business is substantially undervalued at the time of your transfer.

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Advantages of a Family Owned Business

When business and estate planning professionals discuss family businesses, discussions usually center on the challenges faced by the typical family business.  In addition to the estate tax and income tax considerations, determining who should succeed to the ownership and management of the business, and when that succession should occur, we are also often discussing the potential for family conflicts within the business.

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Federal Tax Information

While concentrating on the uncertainty about estate tax thresholds for 2011, most Humboldt County residents have overlooked the income tax ramifications of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

This legislation gave tax payers a 2-year income tax reprieve by extending into 2011 and 2012 the lower income tax rates and many of the other tax incentives that were enacted in 2001 and 2003. These were commonly called the Bush Tax Cuts.

In 2013:

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Sale/Purchase of Business in Humboldt

If you are considering purchasing a business or selling a business in Humboldt County, there are a number of important questions that should be considered before you enter into the transaction:

1.         What is the price and how was the price determined?  Is the price based on the seller’s opinion?  Is the price based on the opinion of a business valuation expert or accountant, and, if not,  should one be hired or consulted regarding the sales price?

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Income Taxation of Trusts and Estates

Please remember if you are the successor trustee of a decedent’s estate you will have the responsibility of filing the decedent’s final federal income tax return for the tax year ended on the date of the decedent’s death.  If the decedent was married at the time of death, the successor trustee may file a joint return with the surviving spouse for the decedent and the surviving spouse.  If the surviving spouse remarries before the end of the year of the decedent’s death, a joint final return may not be filed.

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Financial Elder Abuse in Humboldt County

Humboldt County’s elderly and dependent adults need to be aware of the protections from elder abuse, including financial elder abuse, provided by California Law.   The California Legislature, through the Elder Abuse and Dependent Adult Civil Protection Act (“EADACPA”) has provided the framework for protecting against the financial abuse of an elder or dependent adult.

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Forms of Business Organization

If you are an entrepreneur who wishes to start up a business in Humboldt County, one of the first questions you will face is what form of business organization should you choose for your business endeavor:

Traditionally, there have been three major forms used to structure a business enterprise:

1)  the sole proprietorship;

2)  the partnership, including the limited partnership; and

3)  the corporation.

Recently, two other business forms have come into widespread use – the limited liability company and the limited liability partnership.

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ANOTHER REASON TO AVOID PROBATES

For years estate planners have been extolling the virtues of a revocable trust primarily to avoid the need for a probate of a decedent’s estate.   Now we have another reason to recommend a revocable trust to our client: the number of probate filing fees have significantly increased.

A provision of 2008’s Filing Fees legislation has significantly increased the number of probate filing fees for many probate proceedings.

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