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

As a board member for the non-profit Housecall Providers Inc. ("HPI") in Portland, Oregon, I recently had the good fortune to meet with Oregon Senator Ron Wyden when he was meeting with the organization to discuss the Independence at Home Act ("IAH").  

 HPI is living proof how in-home primary care can deflect ever growing medical costs.  As HPI explains, "In-home medical care allows for proactive management of chronic health conditions that would otherwise result in costly emergency care and hospital admissions."  

The federal governement is finally catching up with this non-profit, as IAH launches a new chronic care coordination benefit in a three-year demonstration project for primary in-home care of Medicare beneficiaries who have difficulty getting to and from a physician's office - which HPI has been successfully providing for 18 years.

The statistics evidence the need for such a program when Medicare beneficiaries with multiple chronic illnesses:

• see an average of 13 different physicians
• fill 50 different prescriptions a year
• account for 76% of all hospital admissions
• account for 88% of all prescriptions filled
• account for 72% of physician visits
• are 100 times more likely to have a preventable hospitalization than someone with no chronic conditions

It will be interesting to see how this new federal program develops.  Hopefully they learn from the efforts of the good people at HPI. 

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Taufen v. Estate of Kirpes, 155 Wash App 598, 230 P2d 199 (2010)

Decedent’s estate included a joint checking account which named Decedent and Mr. Yochum as joint owners. Although Decedent made no mention of survivorship when she opened the account, the banker unilaterally elected to add a right of survivorship without discussing the matter with Decedent. Upon Decedent’s death, Mr. Yochum transferred the balance of the account to the estate after he was informed that the money in the joint account belonged solely to Decedent’s estate. Thereafter, he sued the estate for the account proceeds.

In recognizing that the essential issue before the court was whether Decedent intended to create the account with a right of survivorship, the court first acknowledged that there is a rebuttable statutory presumption that funds belonging to a deceased depositor which remain in a joint account with a right of survivorship belong to the surviving depositor unless there is clear and convincing evidence of a contrary intent. When the presumption is overcome, however, it ceases to exist and cannot be further considered.

The court determined that, although the signed account card created a rebuttable presumption of intent to create a right of survivorship, the estate met its burden of production by providing evidence that: 1) Decedent only instructed the banker that she wanted to open up a joint account, 2) Decedent never instructed the banker that there was to be a right of survivorship, 3) It was the banker who elected to create a joint account with a right of survivorship, and 4) the designation of a right to survivorship was never discussed with Decedent. Thus, the statutory presumption of intent disappeared, and judgment was entered in favor of the estate.

LESSON: The presumption of a joint bank account may be overcome with the right evidence.
 

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Heirs and personal representatives of estates frequently ask: “Why can’t we use the free market analysis report from the local real estate agent to determine the fair market value of the real property in the estate?” 

A free market analysis by a local real estate agent is a valuable service, if you are thinking of listing the property for sale. However, we do not recommend it for estate valuation purposes.

Generally, the income tax basis for any real property owned by a decedent receives a tax basis adjustment equal to the fair market value of the property as of the date the decedent died. This valuation rule is slightly different for 2010 estates, although Congress is expected to make some changes in the next few months. Those rules will be discussed in a later blog article. 

The date of death fair market value information is important for several reasons. 

• First, this is the value that generally must be reported if an estate tax or inheritance tax return is required to be filed. 
• Second, this is the information that determines the adjusted income tax basis for the real property of the decedent. 
• Third, if the estate has multiple beneficiaries, the value of the real property may play a role in determining how much distribution each beneficiary is to receive. 
• Last, if the asset is subject to probate, it is information that must be reported on the probate inventory. 

Even though a free market analysis may provide a market value very similar to an appraisal report, there are a number of reasons why the analysis will not be sufficient. 

• First, the market analysis is generally based on current market data and is not specifically focused on the fair market value as of the date of death. 
• Second, the agent providing the free market analysis is generally not licensed as an appraiser; and, therefore, is not in a position to defend the values provided in the market analysis in the event an auditor or a disgruntled heir questions the market analysis. 
• Third, because the free market value analysis is not a qualified appraisal, government auditors are likely to reject the report as not being qualified, and thus if the value is challenged in an audit, the personal representative will need to get an appraisal anyway.
• Last, disgruntled heirs could claim that the personal representative did not fulfill his or her fiduciary duty to the heirs of the estate by failing to obtain a qualified appraisal.

During the current economic downturn, the income tax savings will likely be reduced. As a result, disgruntled heirs could be further disgruntled. In this circumstance, a qualified appraisal is essential.

For these reasons, we generally recommend that the representative of the estate obtain appraisal reports from qualified appraisers for all estate real property. In the case of residential property, the cost is a few hundred dollars. In the case of commercial property, it is a few thousand dollars. Since most, but not all, properties have a higher value, the potential income tax savings is well worth the appraisal expense. 

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In Part 1 of my last article, Estate Planning and “Virtual Assets,” I discussed the complex issues relating to estate planning and “Virtual Assets,” which include financial accounts, email accounts, social media sites, and other personal or family information. All of these assets are typically accessed over the internet with a username and password. Here are two additional recommendations with respect to Virtual Assets:

1.   Consider Who Should Receive Your Virtual Assets. If a virtual asset is a bank or investment account, your will or trust should (presumably) control who will receive these assets at your death. However, what about access to family photos or genealogical information? One might want to specifically instruct your executor or trustee to replicate and distribute these items so that they pass to multiple intended beneficiaries.  

2. Use Caution in Using Commercial Services to Hold Your Virtual Assets. A new cottage industry has sprung up to provide a type of “online safe deposit box” to store your virtual assets and provide a means by which designated individuals can gain access to your virtual assets. A few words of caution are in order. First, be careful and make sure you’re dealing with a reputable company. Giving someone the keys to your digital existence would be a goldmine for someone bent on stealing your identity. Second, remember that giving someone access to information about an asset is not the same as giving that asset to that individual. Your will or trust should ultimately control who should inherit your assets, not an online service provider. There may be complex legal and tax issues that need to be taken into account in designating beneficiaries of virtual assets. For example, one online service provider refers to an “electronic will.” In most states, a will requires certain formalities (typically a written instrument signed before two witnesses), and the absence of these formalities can render one’s good intentions legally invalid.

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For many, our primary means of communication is email, often through multiple email accounts. We “tweet” about the latest happenings through our Twitter accounts. We keep in touch with friends and colleagues through social networking sites such as Facebook and Linkedin. We store family photos and other important information on a growing array of online sites. We access our financial assets, such as bank accounts and brokerage accounts, over the internet. We pay our bills electronically. We own internet domain names. In the aggregate, these “virtual assets” have tremendous aesthetic and financial value. 

Yet, when we die or become incapacitated, what happens to these assets? Who can gain access to this “virtual existence” when we’re gone?

The answer is a very complex. Most of these virtual assets are controlled by a license agreement with the provider of the online access. Such license agreements vary from provider to provider. Without careful planning, chaos may rein. Here are some key recommendations to consider:

1.      Integrate Virtual Assets into Your Estate Plan. Wills, trusts, and powers of attorney have been around for centuries. In appointing an executor, trustee, or agent under a power of attorney, you are appointing a representative that you trust to take control of your assets and follow your legal instructions. Whether dealing with virtual assets or an office building, you should appoint individuals in these roles that are both trustworthy and competent to carry out these instructions.

2.      Create a Virtual Asset Instruction Letter. A “Virtual Asset Instruction Letter” or “VAIL” will list all of your online accounts and assets, and will provide web addresses, user names, and passwords to give your designated representative the ability to identify and access these accounts. Place the VAIL in a safe location, such as a safe deposit box, that can only be accessed by your legal representative. In addition to a written list, you might consider saving the VAIL to a flash memory drive or CD which can make your representative’s access to these accounts more efficient. For assets such as email accounts, your VAIL may instruct your representative to delete the account after a period of time. Most such accounts will simply terminate after a certain period of inactivity.

Check back with WealthLawBlog.com in a few days to see additional recommendations relating to virtual assets.

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From time to time we will publish local opinons of interest:

Background:  

Plaintiff, director of a charitable organization (Wintercross) and the entities controlled by the organization (Jensen), engaged in self-dealing in the course of making investments on behalf of the organization.  Plaintiff failed to pay the mandatory charitable contributions, which resulted in tax penalties. During this time, however, Plaintiff maintained possession of items of personal property that could have been distributed to another qualifying entity, thus reducing or eliminating tax penalties. Plaintiff also structured the sale of an apartment complex that both she and Jensen had an ownership interest in such that she received cash and Jensen carried the balance of the deferred purchase price.  Then, when the purchaser was unable to pay, Jenson faced 100% of the loss.  Finally, acting against the advice of an accountant, Plaintiff invested the proceeds of that sale in a second apartment complex.  The value of the complex decreased substantially and resulted in a loss of millions in assets.  And, upon Jensen’s management and/or acquisition of each apartment complex, Plaintiff purchased a home that adjoined such complex.  Plaintiff then allowed maintenance personnel to occupy the home.  Although Plaintiff arranged for the complex to pay for both the mortgage and utilities associated with the home, title to the home remained with Plaintiff. Finally, Plaintiff used Jensen’s assets to pay for her attorney fees associated with this proceeding. 

Holding:

Plaintiff abused her authority as a director and officer of Wintercross and was removed, with millions awarded for damages. Although Plaintiff did not directly divert Wintercross assets to herself, she used her control to benefit personally when such benefits should have been allocated to Wintercross. Plaintiff did not act prudently when she: (1) refused to follow the advice of the accountant; (2) failed to make sensible investments, resulting in substantial loss; (3) failed ensure that the mandatory minimum charitable distributions were made; and (4) used the organization’s assets to fund a personal proceeding. The court determined that Plaintiff’s claim of ignorance was ill-founded and did not create a defense to her liability because she took on the responsibility of handling the affairs of Wintercross, and in doing so, engaged in self-dealing.

Ellis v. Department of Justice and Wintercross Foundation

Clatsop County Circuit Court Case No. 09-2215

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Dan Duncan was the son of an oil-field roughneck. From humble beginnings, Mr. Duncan started his own oil and gas business in 1968 with $10,000 and a truck. Over the years, Duncan grew that business into a prosperous venture which is now known as Enterprise GP Holdings L.P., a publicly traded company (Ticker EPE). At his death on March 28th of this year, Duncan had an estimated net worth of $9 billion and was ranked No. 74 on Forbes list of the world’s richest individuals. It appears that Duncan is the first American billionaire to pass his wealth free of the estate tax since the modern estate tax was originally imposed in 1916.

As we have previously discussed in WealthLawBlog, the federal estate tax is on a one-year hiatus in 2010. In 2009, the first $3.5 million in net worth was exempt from the estate tax, with a top tax rate of 45%. In 2011, the estate tax returns with only a $1 million exemption and a top rate of 55%. Hence, if Duncan had died three months earlier or nine months later, his estate would have been liable for billions in federal estate taxes. 

However, Duncan’s death is not entirely tax free. One quirk in the 2010 estate tax law is an anomaly referred to as “carryover basis.” Generally, under the modern estate tax regimen, while estates are subject to the estate tax, the assets that are subjected to the tax receive a “step-up” in their tax bases equal to the value of such assets as of the decedent’s date of death. This means that the heirs receiving these assets can sell those assets and pay capital gains taxes on only the appreciation in the value of those assets exceeding the stepped-up bases. In 2010, assets receive no step-up in basis except for a limited step-up of $3 million for assets passing to a surviving spouse and $1.3 million for assets passing to other heirs.

In the case of Duncan’s estate, except for these limited exceptions to the step-up basis rule, Duncan’s heirs will inherit the assets in Duncan’s estate with carryover tax bases. If the Duncan heirs sell these assets, then they will pay capital gains taxes on the difference between the sale price of the assets and Duncan’s original basis. Based upon the presumption that much of Duncan’s estate consists of his company shares with a very low basis, the ultimate capital gains taxes payable by Duncan’s heirs could be substantial. Nevertheless, even if the taxes are paid at the increased capital gains rate for 2011 of 20% (increasing to 23.8% in 2013), these taxes are certainly much less than the estate tax rates of 45% to 55%. 

The bottom line: death and taxes are still inevitable. It’s only their timing and severity that varies.

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ABC News reports on an amazing woman that left her hometown millions, after quietly tucking away her modest wages and making savvy investments.

Creating a lasting legacy through charitable giving is a tremendous accomplishment.  Calling your estate planner and making sure your ducks are in a row is part of that process.  Too often people dread facing their own mortality in properly preparing an estate plan, but it's not nearly as challenging when you find good people to work with.  Take the time to do it right.

As Winston Churchill said, "We make a living by what we get, but we make a life by what we give." 

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Senate Bill 1045, which will take effect on July 1, 2010, prohibits Oregon employers from using the credit history of an applicant or employee in making employment-related decisions. The law does, however, provide some exceptions to the ban on an employer’s use of an employee’s credit history. First, the law is not applicable to employers who are financial institutions, law enforcement agencies, or public safety agencies. Second, the law does not apply to employers who are required by state or federal law to use an employee’s credit history for employment purposes. Finally, and most relevant to private employers, an employer may obtain and use an employee’s credit history if such information is “substantially job-related.”

The Oregon Bureau of Labor and Industries (“BOLI”) has recently issued administrative regulations that clarify the provisions set forth in SB 1045. The regulations significantly limit the definition of “substantially job-related” to certain positions. The first position identified is one that requires access to financial information beyond that which is customarily provided in retail transactions that are neither loans nor extensions of credit. The regulations define “financial information customarily provided in retail transactions” as information related to the exchange of cash, checks, and credit or debit card numbers. That means that employers cannot justify the need for a credit history solely based on an employee’s access to cash or run of the mill consumer transactions – as of July 1, 2010, the bar is set much higher for an employer to justify the use of a credit history. The other position provided for in the regulations is less controversial – one in which the employer is required to obtain credit history as a condition of obtaining insurance or a surety or fidelity bond.

If an employer determines that a position qualifies for a credit history check under the “substantially job-related” exception, the regulations impose a disclosure requirement. Specifically, an employer must provide, in writing, the reasons for the investigation of an applicant or employee’s credit history. The regulations do not set out what information an employer should provide.

Thus, in the event that an employer desires to perform a credit history check on an applicant or employee, they must use the “substantially job-related” exception cautiously. Additionally, the employer should prepare a standard notice form, and provide that form to any applicant where the credit history is “substantially job-related”. The form should provide an area where the employer can describe its justification for the credit check. Employers should also be aware of their obligations under the federal Fair Credit Reporting Act, which requires disclosures in advance of obtaining a consumer report; and also require certain notifications to an applicant or employee in the event the employer uses a consumer report to make a hiring or promotion decision.

What is apparent is that the Oregon legislature and governor have chosen to cut back the ability of employers in Oregon to use credit history in employment decision-making. Employers should make sure that they have a very good reason (that is – one that complies with the law) for wanting a credit history, and proceed cautiously in order to comply with Oregon and federal law regulating this subject.
 

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