Utah Business Law Lawyer & Attorney : Strong and Hanni Law Firm : Business Planning, Formation and Consulting

Immigration related liabilities are an increasing concern for employers. In 2006, the number of employers and employees arrested in immigration raids quadrupled. We anticipate that immigration enforcement will continue to increase.

On December 12, 2006, Immigration and Customs Enforcement conducted one of its largest raids in history by arresting 1,282 workers at six Swift & Company meat processing plants, including one in Hyrum, Utah. Due to the arrests, Swift lost 40% of its labor force and temporarily suspended operations at all six of its plants. The one-day raid resulted in approximately $20,000,000 of lost production.

One might ask how Swift could not have suspected that much of its labor force was undocumented. However, Swift, fearful of being penalized for hiring undocumented workers, had intensely scrutinized the documents of its workers – so much so that in 2001 Swift was forced to pay a $200,000 settlement to the Department of Justice for excessively scrutinizing the documents of individuals who looked or sounded “foreign.” Accordingly, employers are caught between two Federal agencies with opposing interests: ensuring that all workers are authorized for employment versus protecting those who are lawfully here from discrimination.

The Immigration Reform and Control Act of 1986 requires all employees to fill out an I-9 Form available at www.uscis.gov for all employees hired after November 6, 1986, regardless of their immigration status. The form consists of two portions. In Part 1, the employee attests, under penalty of perjury, that he or she is a citizen, lawful permanent resident, or alien authorized to work temporarily. In Part 2, employers are required to record that they have examined original documents from a specified list verifying the employee’s identity and eligibility to work. Employers must accept the documents if they appear “reasonably genuine” and relate to the person presenting the documents.

The I-9 must be completed within three days of starting work. The employer must keep the form on file for three years from the date of hire, or one year after the last day of work, whichever is later. Employers are not required to complete I-9s for independent contractors, but remain liable if they know that contractors are using unauthorized aliens to perform labor or services.

The Immigration Reform and Control Act of 1986 also prohibits any person or entity from knowingly hiring or continuing to employ an unauthorized worker. “Knowledge” may be either actual or constructive. Constructive knowledge is knowledge which may fairly be inferred through notice of certain facts and circumstances which would lead a person, through the exercise of reasonable care, to know about a certain condition. Failure by an employer to complete the I-9 would be an example of constructive knowledge on the part of the employer. 

With the congressional debates continuing to include immigration reform as a “hot topic”, work-site enforcement will continue to intensify. We believe that any new immigration reform bills will likely impose a higher standard of due diligence on employers. With the Government’s renewed enforcement efforts, simple precautionary measures, such as internal audits and strict compliance with I-9 related regulations, are now more important than ever.

Written by H. Burt Ringwood

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          If you are 70½ years old and have an IRA retirement account, Congress has given you an unusual charitable contribution opportunity during 2007.   IRA’s are wonderful private retirement plans, but withdrawals after the owner’s death are taxable income to the recipient.   State and federal income tax will be paid at the receiver’s income tax rate and reported on the receiver’s tax return.   Further, if your estate is subject to death taxes, your estate must also pay death taxes on the same IRA money that is subject to income tax.   In many scenarios, those IRA dollars can be taxed at a combined rate approaching 80% of the total IRA balance, to satisfy income and death taxes.

          As a result, if you already have sufficient income and assets for your retirement, you may find that taxable IRA monies present a perplexing problem of double taxation.   One partial solution has been to withdraw and spend those IRA monies during retirement, paying the taxes as you go, rather than using other assets for living expenses. However this approach increases your income tax during retirement years. Another solution has been to give those IRA monies to charity at your death by naming a charity as the beneficiary of the IRA.    The IRS has now provided a third alternative.

Only through December 31, 2007, an IRA owner who is at least 70½ years of age, can direct his or her IRA to cut a check directly to a charity for up to $100,000 and the gift will satisfy the IRA owner’s minimum withdrawal requirements up to $100,000 (which will not be taxable to the owner) and a spouse can make a like distribution from a spousal IRA account with the same results   By so doing, the owner (and spouse) will satisfy the minimum withdrawal requirements for 2007 (without incurring income tax liability) will reduce the total amount of IRA funds exposed to double taxation, can make available up to $200,000 from cash flow for other uses and can help a charity of choice with a significant gift.

Written Scott R. Jenkins

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As many of our clients know, the current estate tax exemption in the United States is $2,000,000 (this $2,000,000 exemption is scheduled to change in future years). This means that if a U.S. citizen dies in 2007 with a gross estate (i.e., roughly your net worth) of less than $2,000,000, then no estate taxes are owed and no estate tax return need even be filed with the IRS. 

The maximum estate tax rate for a person dying in 2007 is 45%. This means that after the $2 million exemption is applied, your taxable estate would be subject to this wealth transfer tax equal to 45% of the value of those assets.

If an estate is larger than $2,000,000, we want our clients to know that it is possible to effectively “zero-out” your estate tax bill. Depending upon the net worth involved, advanced planning techniques necessarily involve some degree of complexity and a higher risk of IRS audit. Advanced estate planning often also involves life insurance in order to replace estate taxes paid. Some of our clients have opted for simplicity at the price of paying more estate taxes. 

We strongly recommend that basic foundational estate planning documents be put into place to ensure that husband and wife each take full advantage of the $2,000,000 estate tax exemption. These foundational documents include separate trusts for husband and wife, separate “pourover” wills for husband and wife, and other collateral documents. Many of our clients with net worth larger than $2,000,000 have executed these important foundational documents. With these documents and appropriate asset titling in place, a married couple can leave up to $4,000,000 to their children free of any U.S. estate tax. 

We have clients with net worth in excess of $4,000,000 who have not yet gone beyond the basic foundational documents in order to “zero out” their future estate tax bill. These additional techniques involve strategies such as the following: ownership of life insurance in an irrevocable life insurance trust or in an LLC owned by the children; forming a family foundation and transferring assets to it; engaging in other charitable giving techniques such as charitable remainder trusts; forming family limited liability companies and gifting away interests in it; combining various types of trusts such as grantor retained annuity trusts, qualified personal residence trusts, etc.

If you have a desire to zero-out your net estate tax bill, we would be happy to sit down with you and explore these additional estate planning strategies.

One important component of almost every estate tax savings plan is to shrink your estate through a regular, annual gift-giving program to your children and other descendants. The annual gift tax exclusion (i.e., the amount you can gift each year to each donee) is $12,000. In addition, each U.S. citizen has a lifetime gift tax exemption of $1,000,000. This is over and above the annual exclusion. Gifting away $1,000,000 worth of assets now is a good way to leverage the shrinking of your taxable estate, since a gift today also carves out of your estate the future appreciation or growth in value on the assets that you gifted away.

If you would like assistance in any of these areas, please feel free to contact any member of the Strong & Hanni Business and Estate Planning Group.

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Frequently we are asked by clients whether they should have a Will or a Trust. This article briefly describes these two estate planning tools and some of the issues raised by the client inquiries.

A Will "speaks" at a person’s death. It is a blueprint for the probate that will follow by designating who will be in charge, his or her authority, formalities to be observed, who will be the guardian of your minor children and who will receive your property. If you don’t have a Will, the state legislature decides these matters for you through the intestacy laws of the states where you live and where you own property, which may be very different from what you desire. If you own property in more than one state, probate proceedings will be need to be conducted in those states as well. A Will cannot avoid guardianship or conservatorship proceedings, and does not provide a method of managing your assets when you reach the point in your life where you cannot manage them any longer.

A Trust is a different way of owning title to your assets and is created by an agreement entered into by a grantor (person who creates the Trust) with a trustee (manager of the Trust) for beneficiaries (people who use and enjoy Trust assets). Many people who create Trusts initially serve in all three positions. When they become unable to manage their assets, the person they have designated as successor trustee takes over. Often this is a gradual process that is facilitated through the use of powers of attorney signed when the Trust is created. People with a Trust still have a Will, which transfers any assets that are not in the Trust to the Trust at the death of the grantor. It is important to transfer all of your assets to the Trust if you want the successor trustee to be able to manage them if you become ill, or if avoiding probate in all of the states where you own property was a goal you had when you created the Trust.

The state and federal legislatures frequently change the laws and tax provisions which affect all of us, including Wills and Trusts. We recommend that estate planning be reviewed whenever there is a significant change in your life or in the law, and at least every five years. In recent years, the Utah legislature has changed and added new laws regarding personal representatives of estates and trustees. Most people do not want some of these rules to apply to them or their family members. However, you must add special language to your Will or Trust to have the law not apply.

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The Electronic Discovery Amendments to the Federal Rules of Civil Procedure went into effect December 1, 2006, and placed new requirements on companies faced with the prospect of litigation. As a result, the standard by which a court will evaluate a company’s document retention policy during litigation has been substantially raised. A company can no longer ignore electronic evidence. The Amended Rules require companies to have policies that address the day-to-day handling of electronic documents that would make these documents accessible during litigation and/or explain their destruction. In particular, a company must:

·be able to produce its electronic information in native format or a reasonably usable format;

·have a reasonable document retention policy to take advantage of the safe harbor provision of the Amended Rules and avoid being sanctioned by the courts in the event certain electronic documents have been destroyed;

·establish procedures to address the need to halt the destruction of documents when it has notice of a dispute;

·understand the flow of its electronic data retention system and location of electronic documents to be able to fully and properly respond to discovery requests; and

·be proactive in finding and retrieving electronic documents prior to the start of litigation to avoid claims of spoliation by the opposing party.

A company with a sound document retention system in place may limit its liability and risk of loss due to the inadvertent destruction of electronic documents. Failure to address the issues above, however, could result in major monetary consequences for your company. As a result, whether or not you are currently facing litigation, it is essential to evaluate your company’s document retention policy and determine if it complies with the requirements above. Strong & Hanni has analyzed the Amended Rules and the impact they will have and can help you update your current policies and determine what steps should be taken to bring your company’s practices into compliance.

For more information, please contact a member of our Business Group or email the group at business@strongandhanni.com.

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Strong & Hanni's Business, Real Estate, Securities, Tax and Estate Planning Group launches the Utah Business, Real Estate and Estate Planning Blog.  This will be a resource for legal updates and news dealing with Business, Real Estate, Securities, Tax and Estate Planning issues.

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