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

From time to time, we will publish blurbs on recent local court opinions and state legislation:

Senate Bill 238

Oregon Senate Bill 238 enacts the Uniform Adult Guardianship and Protective Proceedings Jurisdiction Act. It is broken into five different articles that provide a uniform procedure for people to follow when a guardianship or conservatorship case may involve multiple states.

ARTICLE ONE:  The first article sets out basic definitions as well as several provisions that permit Oregon courts to work with courts in other jurisdictions in conservatorship and guardianship matters (hereinafter collectively referred to as “protective proceedings”). It gives courts permission to speak with courts of another state regarding protective proceedings. It also gives Oregon courts the ability to cooperate with protective proceedings being held in other states by holding evidentiary hearings, ordering an evaluation of a respondent, releasing medical records, and multiple other functions that could be achieved by a local court more easily than a foreign court. Last, it provides that testimony for a protective proceeding may be taken in another state and that an Oregon court must cooperate in setting a location for the testimony.

ARTICLE TWO:  Article two addresses how courts should determine the proper jurisdiction for a protective proceeding. Jurisdiction can be granted in a protective proceeding for a laundry list of reasons, but the main purpose of this article is to create a system where only one protective proceeding is ongoing and to set out basic rules for courts to use to decide which court should proceed and which court should dismiss. This article also creates the ability for an Oregon court to exercise “special jurisdiction” in an emergency, when property is in the state of Oregon, or to appoint a guardian or conservator for an incapacitated or protected person when a party is transferring a petition from another state. Last, this article allows a court to decline jurisdiction because there is a more appropriate forum for the protective proceeding.

ARTICLE THREE:  The third article sets out procedures for transferring a protective proceeding to a court in a different state. On the court’s own motion or by a party’s petition, the court may make a provisional order transferring the case. The article lists multiple factors the court should consider when making such a determination. The order is provisional because it is dependent upon the other state accepting jurisdiction over the protective proceeding. The second part of article three sets out the procedure for Oregon courts to use to determine if it should take jurisdiction over a case being transferred to it by another state.

ARTICLE FOUR:  The registration and recognition of protective orders from other states is set out in article four. A registered order allows all powers of the registered order to be recognized in the state of Oregon, except any authority that may be prohibited under Oregon law. 

ARTICLE FIVE:  Article five makes several minor amendments to ORS 125.015, 125.025, and 125.215. These three sections deal with jurisdiction, and article five makes them subject to the new jurisdictional provisions set out in articles one through four. 

Taken as a whole, Senate Bill 238 is an extremely comprehensive and expansive jurisdictional statute to which special attention should be paid when bringing a protective proceeding.

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Lori Singleton-Clarke, a nurse from Maryland, accomplished two rare feats last month. She represented herself before the U.S. Tax Court and won. On January 11, 2010, a Wall Street Journal article featured Ms. Singleton-Clarke who successfully defended her $15,000 deduction for her M.B.A. school tuition.

After 24 years as a distinguished career as a nurse, Ms. Singleton-Clarke wanted to improve her health care risk management skills and earn a masters degree so that she would have greater credibility with highly educated doctors.  So she enrolled in an MBA Health Care Management program, and she successfully completed the program approximately three years later. 

The IRS audited her income tax return and disallowed the $15,000.00 deduction she had claimed for her tuition. After a number of conferences with the IRS and endless paperwork, the matter came before a tax court judge in November, 2008. 

• Ms. Singleton-Clarke did not have the money to hire a lawyer.
• She represented herself, a rather daunting task in the face of two IRS attorneys and IRS several assistants. 
• She held her ground, and carefully explained the time line of her career and her reasons for pursuing the MBA program.

The Tax Court finally issued its decision on December 2, 2009, and upheld the deduction of her educational expenses.  The court found that the MBA program was not a new trade or business for  Ms. Singleton-Clarke, but rather helped her improve her skills in her current employment of nursing.

Some of the key factors in the court’s decision were the facts that Ms. Singleton-Clark was already established in the nursing profession and the MBA was a general course of study the would not lead to a professional license or certification.

The deduction of educational expenses is always a challenge. In light of our current high unemployment economy, this is an important decision since it may encourage taxpayers learn how to prepare to substantiale deduction their education expenses in the pursuit of  additional education to maintain and improve their skills. 

[For a copy of the decision click here] Please note that the decision cannot be relied on by other taxpayers, but it does provide a good discussion of the regulations and applicable tax cases.

Congratulations Ms. Singleton-Clarke!

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From time to time we will publish recent cases and legislation: 

House Bill 3077 (pdf)

House Bill 3077 completely revamps the spousal elective share statute in Oregon. Oregon is one of several states to enact a more modern elective share statute which attempts to account for the increasingly prevailing use of trusts and other mechanisms that avoid probate and thereby limit the funds that a spouse can reach through an elective share statute. First, the statute sets out the “augmented estate” which includes probate and nonprobate assets of the decedent as well as the surviving spouse’s assets. Then, the spouse can elect to take a percentage of the augmented estate. The percentage the spouse can receive is based on how many years the couple was married, ranging from 5% for marriages under 2 years to 33% for marriages that continued for 15 years or more. The remainder of the Bill addresses procedural requirements for making an election as well as the effect such an election has on other gifts in the decedent’s will. 

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 Late in 2009, the IRS announced that the annual gift tax exclusion will remain unchanged in 2010 at $13,000. Under the Tax Code, this amount is adjusted based upon the Consumer Price Index. The annual gift tax exclusion amount was last changed at the beginning of 2009 when the amount increased from $12,000 to $13,000. 

If a gift is less than the exclusion amount, then (i) no gift tax will be due, (ii) no gift return must be filed, and (iii) the donor’s lifetime gift-tax exemption (currently $1 million) is not reduced. This is one of the few “free Bingo spots” in the Tax Code.

The gift tax exclusion amount applies on a per-donor, per-donee basis. This means that a married couple can make gifts to a single donee equal to $26,000. For example, a married couple with two children can make gifts totaling $52,000 per year. 

For cash gifts, the amount of the gift is equal to (not surprisingly) the amount of cash given. However, for gifts of property (both real property and personal property), the value of a gift for this purpose is based upon the fair market value of the property on the date the gift is made. Often, gifts of property have significant estate planning benefits (more on these issues in a later blog article).

I welcome your comments and questions!

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On January 1, 2010, the federal estate tax was repealed for one year (2010) unless and until Congress decides to change the law. We don’t know how long the repeal will last, but the fact that the federal estate tax has been repealed for some part of 2010 complicates estate planning for everyone.

Several members of Congress have indicated that these complications will be resolved quickly, but I remain skeptical. Currently, there are four possible outcomes:

• First, Congress quickly enacts an extension of the 2009 law ($3.5 million exemption and full basis step-up) retroactively. How many times have we seen Congress act quickly when the Democrats and the Republicans are so polarized?
   
• Second, Congress passes a permanent extension of the 2009 law, but makes it prospective only. This is the bill that was passed in the House, but 60 Senators have to agree. If it is prospective only, gap legislation will also have to be passed to cover the period when repeal was in effect.     

• Third, Congress enacts a more permanent reform with a higher exemption amount, and it will likely be prospective only. Some senators would like to raise the exemption to $5 million and add some other changes to permanent legislation. Other senators would prefer the next option of the return to the $1 million exemption. At this point neither side has the 60 votes necessary. The longer Congress takes to pass a reform bill, the more likely it will not be retroactive.
  
• Fourth, Congress does nothing and the $1 million exemption returns in 2011.  Unfortunately, political and fund raising motives may result in this outcome.

In the meantime, taking advantage of the estate tax and generation skipping tax repeal will be an important planning opportunity for high net-worth individuals and their advisers. Accountants, attorneys and financial advisors will need to learn the details of the new modified carry-over basis rules since they are applicable to all estates. 

This truly is a mess.  Hopefully, Congress will act responsibly to clean it up.

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From time to time, we will publish blurbs on recent local court opinions and state legislation:

Oregon Senate Bill 371

Senate Bill 371 contains multiple, somewhat unrelated, amendments to ORS 130, which relates to trusts. 

The first significant amendment adds modification of the terms of a trust (including extending or reducing the period the trust operates) to the list of actions that may be taken through a nonjudicial settlement agreement.

For all actions that can be taken by use of a nonjudicial settlement agreement, section 6 of bill 371 creates a procedure by which any interested person may file the a settlement agreement with the court. The amendment requires notice to all interested persons and an objection period of 120 days. If no objections are filed, the settlement agreement is binding. If there are objections, a hearing is held. An agreement will be approved unless (1) the agreement does not have all the required signatures; (2) the agreement is not allowed under the statute, or (3) the agreement is not equitable.

Another substantive amendment made by Senate Bill 371, Section 9 amends ORS 130.170 to state that “a trust is not a charitable trust if the trust contains contingencies that make the charitable interest negligible.” Another somewhat cryptic amendment appears in Section 16, which amends ORS 130.500 stating “A revocable trust remains a revocable trust for the purposes of ORS 130.520 to 130.575 even though a trust cannot be revoked because: (a) the settlor becomes financially incapable; or (b) an event occurs that by the terms of the trust prevents the revocation of the trust.”

Another major amendment made by Senate Bill 371 adds subsection 10 to ORS 130.710. It provides that a trustee does not need to provide a beneficiary with notice of the right to a trustee’s report or send a trustee report to the beneficiary until six months after the trust becomes irrevocable if the beneficiary’s only interest in the trust is a distribution of a specific item of property or a specific amount of money. It further states that the trustee must provide notice of the right to a trustee’s report if at the end of the six months the beneficiary has not received the distribution

The last amendment made by Senate Bill 371 creates a new party in trust administration called an “adviser.” An adviser can be appointed in a trust instrument to assist the trustee in making decisions regarding distributions, or sales of assets. The adviser will only have power to act as defined in the trust instrument. If the trustee follows the direction of the adviser, the trustee cannot be held liable for any loss as a result of relying on the adviser’s advice. Furthermore, the trustee does not have a duty to monitor the adviser.  

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From time to time we will publish recent local cases or legislative bills:

Man murdered his mother, stepbrother, and his mother's boyfriend.  Jury found him not guilty by reason of insanity.  The mother's estate then received money from a wrongful death case.  In re Estate of Kissinger ruled the slayer could not inherit from his mother's estate because the Washington slayer statute applied and the slayer was treated as having predeceased his mother.  RCW 11.84.010.    

Comment:  It's good when the law aligns with common sense; just because the jury finds you not guitly by reason of insanity does not mean you still get to inherit for your misdeeds.   

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On December 16, 2009, the Wall Street Journal reported that the Democrats’ attempt to extend the Federal Estate Tax exemption of $3.5 million into 2010 has been blocked by the Republicans. Senator Max Baucus is quoted as saying, “We clearly will work to do this retroactively, so that when the law is changed, it will have retroactive application.” 

The Republicans believe that the repeal should be allowed to take effect as provided under current law, and Senator John Kyl (R, Arizona) stated, “The problem doesn’t have to exist. They’ll just leave the existing law alone and let the rate go to zero, where everyone wants it anyway.”

 Thus, as the law stands today, Federal Estate Tax will be

• zero in 2010;
• with certain exceptions the tax basis step-up will be repealed for 2010;
• The estate tax exemption will return to $1,000,000 in 2011.

It is an interesting and continuing revelation about the extent of the massive gridlock in the current Congress when the Democrats could not even muster enough votes to pass a mere extension of the $3.5 million exemption for the first three months of 2010.

It remains to be seen whether or not enough votes can be mustered to make any estate tax changes in 2010. If the Senate could not pass an estate tax bill with a 60 vote majority, I am skeptical that it will get accomplished in 2010. 

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I am a civil trial attorney.  More specifically, I am a fiduciary litigator.  The problem is most people don't have a good working knowledge of what that means, since there are no popular television series about attorneys that handle litigation for individual trustees, corporate trustees, beneficiaries, and personal representatives, including trust and estate litigation, will contests, trust disputes, undue influence, capacity cases, claims of fiduciary breach, financial elder abuse cases, and guardianships and conservatorships.

Sometimes I tell people my job is to manage family dysfunction and I'm really just a very expensive form of therapy. 

In a Business Journal article about probate attorney Tom Rickhoff from San Antonio, author Sandra Lowe Sanchez quoted him as describing his job as, “An endlessly fascinating study of human motivation." 

Mr. Rickhoff may have summarized my job better than I ever have..... 

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