Posts in: September

Did you complete Your IRA Beneficiary Form Properly? IRA Beneficiary Planning 101

September 28, 2015 Estate Planning, Retirement Planning Comments Off on Did you complete Your IRA Beneficiary Form Properly? IRA Beneficiary Planning 101

Two of the main benefits of setting up an IRA or other retirement account are its tax-preferred treatment and its protection from creditors.  There are exceptions to this and depending on the type of retirement account and where you live, there will be varying levels of creditor protection and tax benefits, but these are two of the main reasons why someone would spend years saving and building their retirement account.  The question then becomes what happens to these benefits when you die?  In other words, how will your retirement account be taxed in the hands of your loved ones and will these funds be protected from their creditors?

These are very important questions and the answers will depend in large part on how you fill out your retirement account beneficiary designation form.  This form will typically allow you to name a primary beneficiary which is your first choice to receive the funds upon your death and a secondary beneficiary which would be the backup in the event your primary beneficiary dies before you.

There are many options for whom to name as primary beneficiary and secondary beneficiary, but the common method is to name your spouse if you are married as the primary beneficiary, and then either name a trust if you have one, or your children if you have children as the secondary beneficiary.  While this may be a good general rule to follow, there are many factors which should be considered before deciding who to name as primary and secondary beneficiary. Once all of the appropriate factors have been considered, then you can decide how to fill out your beneficiary designation form.  Much of it will come down to deciding whether to name individuals or trusts, or a combination of both.  With that, here are some items to consider when naming an individual or trust as a beneficiary on your beneficiary designation form:

If you name an individual on your beneficiary designation form:

  1. Taxes: In terms of how your retirement account will be taxed in the hands of your loved ones after you die, depends  on who receives your account. That’s one of the problems with naming an individual is that they get to make the decision.  If they’re in a tough situation financially, they may cash out your retirement account immediately without regard for the hefty taxes that can result.  On the other hand, even if your loved one does not need the funds immediately and wants to save on taxes, unfortunately, the time will come when required minimum distributions (RMD’s) must be taken out.   Given that reality, typically the goal is to minimize the taxes due by having the RMD’s paid out over the longest period of time allowable under the Tax Code.  This option is sometimes referred to as the Stretch Option.  This option is generally available to both a spouse or non-spouse.  Mat Sorensen has written an excellent article on the options available to a spouse or non-spouse beneficiary, which you can read here.  Basically, a spouse who wants to stretch out the taxes due can rollover these amounts to their own retirement account or setup an inherited IRA, but a non-spouse who wants to stretch out the taxes due can only setup an inherited IRA. One of the ways to “force” your loved ones to take advantage of the Stretch Option is to name a trust as the beneficiary on your beneficiary designation form.  Then upon your death, the retirement account funds would go to the trust so that eventually the funds would be passed to your loved ones, but only upon the terms and conditions of the trust.   However, one of the risks of naming a trust on your beneficiary designation form is if it doesn’t meet all of the necessary requirements, you will forfeit the Stretch Option and the retirement funds will be distributed within 5 years. We’ll discuss the trust requirements later in this article.
  1. Creditor Protection. If you name your spouse on the beneficiary designation form, and they elect to rollover your retirement account to their own IRA, that amount will continue to receive creditor protection.  But if your spouse or other loved one decides to cash out your IRA, that amount will have lost all of its creditor protection.  Significantly, even if your loved one elects not to cash out your retirement account but instead decides to have your retirement funds rolled over into an inherited IRA, such an account is more vulnerable to creditors than a non-inherited IRA, i.e., the retirement account during the retirement account owner’s lifetime.
  1. Other Considerations. If you are currently married and this is not your first marriage and you have children from a prior marriage or relationship, be careful to name your spouse because this means that if you die, and your spouse rolls over your retirement account to their own IRA, for example, they are under no obligation to name your children from a prior marriage as beneficiaries on your spouse’s beneficiary designation form.  In order to prevent that, you may need to figure out another option, including but not limited to naming a trust as the beneficiary on your beneficiary designation form.  However, one of the risks of naming a trust on your beneficiary designation form is if it doesn’t meet all of the necessary requirements, you will forfeit the Stretch Option and the retirement funds will be distributed within 5 years.

If you name a trust on your beneficiary designation form:

  1. The risk of naming a trust on your beneficiary form is if it doesn’t meet certain requirements you and your loved ones will forfeit the Stretch Option.  The consolation prize is that your loved ones will have 5 years to have your retirement account fully distributed, but depending on the size of your retirement account, and the income tax bracket of your loved ones, this can nevertheless result in a significant tax bill.  The requirements that your trust must comply with in order to not forfeit the Stretch Option can be found here.  Basically, the trust must be considered what is sometimes referred to as a “see through” trust.  The reason for this nickname is because in order to take advantage of the Stretch Option, there must be an individual or individuals whose life expectancy can be used to determine the amount of the RMD’s to be paid over time.   In other words, the IRS must be able to “see through” the trust and identify the beneficiary or beneficiaries of the trust.  These requirements beg the question, what kind of trust needs to be setup in order to meet these requirements?  The two most common types of trusts that are discussed in this situation is the IRA Trust and the Family Trust or Revocable Living Trust.  An excellent article written by Mat Sorensen on myths and facts about the IRA Trust can be found here.   If properly drafted, both the IRA Trust and a Family Trust/Revocable Living Trust can satisfy these requirements.  However, there are many reasons why it would be preferable to name an IRA Trust and not a Family Trust/Revocable Living Trust, and vice versa.  In short, if your IRA has over $500K of value and if you want any restrictions on the use of the IRA funds upon your passing, a separate IRA Trust would be a benefit. Such a topic will be the subject for another blog, but regardless, you will absolutely want to have your trust reviewed by a competent professional before naming it on your beneficiary designation form to make sure you don’t unintentionally forfeit the Stretch Option.
  1. Creditor Protection. One of the main benefits of naming an IRA Trust as beneficiary on your retirement account beneficiary form is that when you die your retirement account funds will be protected from the creditors of your loved ones.  Depending on the circumstances and how the Family Trust/Revocable Living Trust is drafted, the same may also be true.
  1. Other Considerations. One of the benefits of a properly drafted trust that meets the requirements of the Stretch Option is that instead of having the age of the oldest beneficiary used to calculate the RMD’s under the Stretch Option, each beneficiary can use their own age and thus allow the younger beneficiary’s to further maximize the Stretch Option.  This is accomplished by having the trust properly drafted to create sub-trusts for each beneficiary. Therefore, it may be advisable to prepare a customized beneficiary designation form and provide it to your retirement account administrator to sufficiently address these sub-trusts and their respective beneficiaries.

Naming beneficiaries on your beneficiary designation form can be one of the most important decisions you make in your estate plan and part of that is to understand the tax treatment and creditor protection of your retirement account after you die.  Please consult with a competent attorney or tax professional to make sure it gets filled out to properly reflect your objectives and to determine whether it’s preferable to setup an IRA Trust, a Revocable Living Trust/Family Trust, or both and how to properly incorporate them into your IRA beneficiary planning.

Kevin is an attorney with Kyler Kohler Ostermiller & Sorensen, LLP (“KKOS Lawyers”) in its Phoenix, AZ, office and has extensive experience helping hundreds of clients with IRA and estate planning needs. He can be reached at kevin@kkoslawyers.com or by phone at (602) 761-9798.

What is a Fictitious Business Name or “DBA”?

September 22, 2015 Business planning, Corporations, Law, Small Business Comments Off on What is a Fictitious Business Name or “DBA”?

One may ask…”What’s in a Name”? Well, to a business owner it can be one of the most important assets for creating sales, branding and reaching that target market.

A Fictitious Business Name (also known as a “DBA” which stands for “Doing Business As”) is a name a person (or entity) uses to conduct business that is something other than his/her/ its legal name. It gives the business owner an opportunity to lock down the name and start branding it without the fear someone may steal it.

A DBA is also used by individuals or entities that want to use a more “professional” sounding name for marketing purposes, or individuals or entities that want to venture into new lines of business, but don’t yet want to incur the expenses of setting up an entirely separate entity. Essentially, the fictitious business name is a simple and cost effective way to get “your name out there” without significant up-front costs.

For example, suppose John Doe is a real estate agent. He can create a fictitious business name for his real estate agent business (e.g. Simply Marvelous Realty). He could create another fictitious business name for his escrow business (e.g. Simply Marvelous Escrow), and another fictitious business name for his mortgage business (e.g. Simply Marvelous Lending), all without the need to create separate entities for each business. In addition to having different names that are more appropriately associated with each line of business, John could have separate accounting and bank accounts for each of these business names

Both individuals and entities (e.g. corporation, LLC, LP, etc.) can have any number of fictitious business names associated with it. However, the key is that, although you may have different fictitious business names registered to an individual (or entity), that one individual (or entity) to whom the different fictitious names are registered is ultimately liable for the debts and liabilities for all the fictitious names registered in his/her/its name.

In other words, there is no separate liability or asset protection between different fictitious business names registered to a single person or entity. Therefore, in the example above, although Simply Marvelous Realty, Simply Marvelous Escrow, and Simply Marvelous Lending are separate DBAs with separate bank accounts, since they are all registered under John Doe, any liabilities or debts created in ANY of these businesses would ultimately be the responsibility of John Doe, and the funds in Simply Marvelous Escrow bank account could be levied due to a judgment relating to Simply Marvelous Realty or Simply Marvelous Lending.

If the fictitious business name is registered to an entity, although use of the entity will generally shield the individual owner of the entity from personal liability for the debts and liabilities of each business using a fictitious name registered to the entity, that one entity would still be responsible for all of the debts and liabilities for all fictitious names registered to that entity.

Therefore, do not think you can get separate liability protection by establishing multiple DBAs.   In general, the only way to separate out the debts and liabilities of different businesses would be to set up different entities for each business.

The rules and procedures for registering a fictitious business name varies depending on the county or state. Most of this information, procedures and forms can be found online with the county recorder’s office or state that processes fictitious business names. KKOS Lawyers can also assist you with filing and registering a fictitious business name.

Lee Chen is an associate attorney at the Irvine, California office of Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) and helps clients daily around the country with business planning and entity selection. He can be reached at lee@kkoslawyers.com or by phone at (888) 801-0010.

Don’t lose Your Trademark: 3 Additional Filing You Must Know!

September 7, 2015 Law, Small Business Comments Off on Don’t lose Your Trademark: 3 Additional Filing You Must Know!

You’ve registered a trademark with the USPTO, but have you made subsequent Section 8 (after 5 years) and Section 9 filings (after 9 years) to maintain your trademark? If not, the USPTO will cancel your trademark. This article summarizes the three key trademark maintenance requirements every business owner should know.

The idea of taking the time and effort to maintain the property we own certainly isn’t a foreign concept.  We know we need to perform maintenance and repairs on our personal residences and other real estate holdings in order to preserve their value.  We change the oil and get regular tune-ups to make sure our cars are running smooth.  Our clients even know that it is important to perform maintenance on a business entity to preserve its corporate veil protection.

However, when it comes to items of intellectual property, such as registered trademarks, I am consistently surprised by how many owners are blissfully unaware of the need to perform any maintenance.  Nevertheless, just like you dutifully take your car into Jiffy Lube every 3000 miles, and put a fresh coat of paint on your little rental property every few years, you must take steps to maintain your registered trademark … or risk losing your rights altogether.

There are three key maintenance steps that every trademark owner should be aware of.

1. Section 8 Filing – “Declaration of Continued Use” or “Declaration of Excusable Nonuse”

The federal government likes to see that registered trademarks are being used.  The reasoning behind this is that the government doesn’t want to prohibit a name or logo that is the subject of a registered trademark from being used in the marketplace if the trademark owner itself is not using that name or logo in the marketplace.  In order to police this, the United States Patent and Trademark Office (“USPTO”) periodically requires trademark owners to file a Declaration of Continued Use or Declaration of Excusable Nonuse (both known as “Section 8 Filings”).

The initial Section 8 Filing is due between the 5th and 6th years after the date your trademark was registered.  For example, if the registration date of your trademark is January 1, 2010, then your initial Section 8 Filing is due between January 1, 2015 and January 1, 2016.  The filing fee is $100 per class of goods or services covered by the trademark.  You can file up to six months late, but the USPTO will charge a late fee for this indulgence.  Please also note that if you fail to make your Section 8 Filing within this time, your trademark registration will be cancelled.  There is no opportunity to “reinstate” or “revive” your trademark.  You will need to file a completely new application to register the trademark again.

If you are still using the trademark in commerce when the first Section 8 Filing comes due, then you will file a Declaration of Continued Use.  If you are not using the trademark in commerce when the first Section 8 Filing comes due, but you still plan on using the trademark, then you will need to file a Declaration of Excusable Nonuse.

In general, for your nonuse of your trademark to be considered “excusable,” the nonuse must be temporary, and you will need to clearly demonstrate how circumstances have prevented use of the mark in commerce and what efforts you are making to resume use.  Note that nonuse due to the decreased demand for a product does not by itself constitute “excusable nonuse.”

Subsequent Section 8 Filings are due between the 9th and 10th years after the registration date, and between every 9th and 10th year after the registration date thereafter.  So, again, if the registration date of your trademark is January 1, 2010, then your subsequent Section 8 Filings will be due between January 1, 2019 and January 1, 2020, then again between January 1, 2029 and January 1, 2030, and so on.  The same six month grace period applies to subsequent Section 8 Filings.

2. Section 9 Filing – “Application for Renewal”

The second trademark maintenance requirement to be aware of is the Application for Renewal (a.k.a. the “Section 9 Filing”).  This filing is due between the 9th and 10th years after the registration date, and between every 9th and 10th year after the registration date thereafter, with the same six month grace period as the Section 8 Filing.  This filing schedule will coincide with your second and each subsequent Section 8 Filing.  Realizing this, the USPTO has created the handy “Combined Declaration of Use in Commerce & Application for Renewal of Registration of a Mark Under Sections 8 & 9” which will allow you to complete your Section 8 and Section 9 Filings together.  The filing fee for the Section 9 filing is $300 per class of goods or services covered by your trademark, which makes the filing fee for the combined Section 8 and Section 9 form $400 per class of goods or services.  As with Section 8, failure to make your Section 9 filing within the specified time period will result in the cancellation of your trademark registration.

3. Section 15 Filing – “Declaration of Incontestability”

The third trademark filing to be aware of is the Declaration of Incontestability (a.k.a. the “Section 15 Filing”).  Unlike the Section 8 and Section 9 Filings, the Section 15 Filing is not mandatory.  It is completely optional, and your trademark registration will not be cancelled if you fail to file it.

The Section 15 Filing is a sworn statement claiming “incontestable” rights in the mark for the goods or services specified.  An incontestable registration is conclusive evidence of: 1) the validity of the trademark; 2) the registration of the mark; 3) the owner’s ownership of the mark; and 4) the owner’s exclusive right to use the mark in association with the goods or services.  The practical effect of this is that in litigation involving an incontestable registration, it is conclusively presumed that the registered mark is valid – i.e., that it is either inherently distinctive or has acquired secondary meaning.  As such, a defendant accused of infringing an incontestable trademark cannot defend itself by claiming that the mark is merely descriptive and lacks secondary meaning.  This can be a huge advantage in going after anyone who infringes against your trademark.

In addition to the fee, the Section 15 Filing must contain the following:

  • The registration number and the date of registration; and
  • A statement that:
  • the mark has been in continuous use in commerce for a period of five years subsequent to the date of registration, on or in connection with the goods/services recited in the registration and is still in use in commerce;
  • there has been no final decision adverse to the owner’s claim of ownership of the mark for the goods/services, or to the owner’s right to register the mark or to keep the same on the register; and
  • there is no proceeding involving the claimed rights pending in the USPTO or in a court of law and not finally disposed of.

A Section 15 Filing cannot be made until the trademark has been in continuous use in commerce for at least five consecutive years subsequent to the date of registration.  This means the earliest you could make a Section 15 Filing for your trademark would be exactly five years after the date it was registered. The filing fee for a Section 15 Filing is $300 per class of goods or services covered by the trademark.

Please reach out to me by phone or email if you are concerned about the maintenance of your trademark, or if you would like to discuss how registering a trademark can protect the brand identity you have worked so hard to establish in your business.

Jarom Bergeson is an associate attorney with Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) in its Cedar City, Utah office and has extensive experience in helping client register their trademark and protecting their brand identity. He can be reached at jarom@kkoslawyers.com or by phone at (888) 801-0010.

Arbitration versus Court- You have Options!

September 1, 2015 Asset Protection, Law, Litigation, Uncategorized Comments Off on Arbitration versus Court- You have Options!

Many people, especially in real estate or other commercial settings, sign agreements agreeing to arbitration without having an understanding of the implications and what that means.   The Constitution guarantees you the right to a trial by a jury of your peers. This is fairly unique to the United States at least for non-criminal matters. The idea of a trial by jury is to have cases decided by cross section of the community and to allow community norms and values to play a part in deciding cases.

However, when you agree to arbitration, you are essentially waiving your right to a trial by jury, and instead, agreeing to have your dispute decided by an arbitrator or a dispute resolution company which could be, but does not always have to be a retired judge, attorney or referee. Many feel there are two important benefits to consider.

  1. Lower cost. Although arbitration is generally considered to be less expensive, that may not always be the case since in an arbitration, the costs of the proceedings and arbitrator are usually paid by the parties, whereas in court, the taxpayers pay most of the salaries of the court and staff.
  2. Faster speed. One important distinction to keep in mind is the informality of the arbitration process. On the one hand, arbitrations can proceed much faster than most court proceedings since there are less procedural requirements and less chance for court congestion. Certain procedures that take weeks or months in court might only take a few days or a week in arbitration.

On the other hand, others feel there are two important drawbacks and sometimes it is best to file in court and use the typical litigation process.

  1. Procedures for fairness and equity. Many of the court procedures and rules have evolved over hundreds of years and are specifically designed to ensure fairness in the litigation process, full disclosure of information about the strengths and weaknesses of each party’s case, and notice and opportunity to present your case.
  2. Opportunity for Appeal. Perhaps most importantly, there are processes in court to help to ensure that if an error is made in the process, there is a method for having the case reviewed by a different court, typically an appeal. By contrast, in arbitration, the decision of the arbitrator is generally final and there is usually no right to an appeal, even if the arbitrator does not follow the law. For that reason, who you pick as an arbitrator can be a crucial decision since the arbitrator you choose will generally have the final say and will rarely be reviewed by the Courts.

Choose your Arbitrator carefully. The choice of an arbitrator or dispute resolution company is entirely up to the agreement of the parties and so if you are entering into an agreement that contains an arbitration clause, it behooves you to understand who would be the arbitrator or dispute resolution company that would decide any disputes and to research their rules, background and policies.

Many critics believe that large awards are less common in arbitration and that arbitrators tend to go with what they think is more “fair” rather than proceed according to the letter of the law. Regardless of whether you favor having your case decided by an arbitrator or by a jury, there are important pros and cons to each forum which you should be aware of when deciding whether to have your agreement or dispute submitted to arbitration.

Lee Chen is an associate attorney at the Irvine, California office of Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”). Lee’s practice areas include advising clients on the formation of business entities, partnerships, and general tax planning relating to business entity formations. Lee also provides advice on structuring real estate investment deals and asset protection issues arising from investments in real estate. He also regularly advises and assists clients in IRS matters including audits, collections, installment agreements and offers in compromise. You can reach him at 888-801-0010 or lee@kkoslawyers.com.