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

Caution! The estate tax has a hole in it. Not to worry – a bit of legislative spackle is on the way. 

The estate tax (with its current $3.5 million exemption) is just a few months away from expiring – albeit for one year. Then, if Congress fails to act, the estate tax will reappear in 2011 with a $1 million exemption. This odd scenario exists because of the 10-year expiration of the 2001 tax bill passed early in the Bush Administration.

A recent article in the publication The Hill quotes experts and Congressional staffers saying that Congress will enact a one-year “patch” which will extend through 2010 the current $3.5 million estate tax exemption and tax rate of 45 percent. The congressional staff members indicate that because Congress is busy dealing with healthcare reform, a long-term decision for the estate tax will have to wait until 2010.

Both the Obama administration and Senate Finance Chairman Max Baucus have proposed making the $3.5 exemption and 45 percent top rate permanent. However, Republicans and some conservative Democrats have suggested a $5 million exemption and a top rate of 35 percent. With such splits present not only between the parties but also with the Democratic majority, a one-year “spackle” approach might lead to the scenario described in the blog article by my co-blogger and law partner, Ted Simpson. Under this scenario, election-year gridlock and inaction by Congress could lead to the return of the $1 million exemption in 2011. Spackle may have its limits.

I welcome your comments and questions.

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

Tupper v. Roan, 227 Or App 391, -- P.3d – (2009)

Background: As part of a divorce decree, the decedent promised to obtain a life insurance policy for the benefit of his wife as trustee for his child. Decedent never did this. Instead, he obtained a life insurance policy naming his girlfriend as the beneficiary. The ex-wife sued the girlfriend asking the court to impose a constructive trust on the portion of life insurance ($100,000 of the $600,000) that decedent promised to obtain.

Holding: In order to obtain constructive trust over the life insurance policy, the ex-wife must prove that the decedent gave the beneficiary property that originally belonged to the children and that the beneficiary knew or should have known of the wrongfulness of the decedent’s actions. The ex-wife must show the beneficiary is unjustly enriched. The fact that the divorce decree included a provision that stated the ex-wife would have constructive trust of any life insurance policy if he breached his obligation was unenforceable against the girlfriend because she was not a party to that agreement.

Note:  If not for the fact that the decedent was indeed deceased, his ex-wife would have killed him.

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

Oregon House Bill 2009 (pdf)

The governor of Oregon signed House Bill 2009 on June 26, 2009. Since this bill included an emergency clause, it is effective immediately.   Along with creating a new agency, the Oregon Health Authority, it amends several sections of the Oregon probate code. 

Below is a list of the eight sections of the probate code that HB 2009 amended and a brief summary of the changes.

1.     Bill Section 76 amends ORS 113.085. The Oregon Health Authority (OHA) is now fifth in line to be named personal representative if the decedent received medical assistance pursuant to ORS 414.

2.     Bill Section 77 amends ORS 113.105 and provides that if the OHA is the personal representative, it does not need to post a bond.

3.     Bill Section 78 amends ORS 113.145 and requires the personal representative to mail the OHA a copy of the death certificate as well as the same information that the personal representative is required to mail to the heirs and devisees under ORS 113.145(1) (title of the court, name of the decedent, personal representative’s contact info., whether there was a will, etc.). This mailing requirement is the same mailing that we send to the Department of Human Services under ORS 113.145. This is a requirement regardless of whether the personal representative believes that the estate owes any debt to the OHA or not. 

4.     Bill Section 79 amends ORS 114.525. The small estate affidavit must now include the following language:  "A copy of the affidavit showing the date of filing will be mailed or delivered to the Department of Human Services and the Oregon Health Authority.”

5.     Bill Section 80 amends ORS 114.535. If the OHA files a small estate affidavit, this amendment allows the OHA to issue certified copies of the small estate affidavit.

6.     Bill Section 81 amends ORS 115.125 and makes the OHA ninth on the list of debt priority.

7.     Bill Section 82 amends ORS 116.093. If the OHA is a creditor of the estate and not paid in full, the personal representative must mail a copy of the final account to the appropriate department of the OHA and proof of mailing must be filed in the estate proceeding before the approval of the final account.

8.     Bill Section 83 amends ORS 116.253. This section deals with property when it escheats to the state. Specifically, the amended subsection applies to property that escheats from inmates of a state mental institution. Under the amendment, the OHA will have the authority to determine the amount of the reasonable unpaid cost of care that may be offset against the escheated property.

In addition to amendments to the probate code, HB 2009 makes two minor amendments to the trust code. ORS 130.370 is amended to require a trustee to notify the OHA in the same manner the trustee notifies other parties that might have a claim against the trust estate.  ORS 130.425 is amended to make the OHA ninth on the list of priority of payment to creditors.

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On September 21, 2009, the IRS announced a one-time extension of the special voluntary disclosure program to October 15, 2009.  Until this announcement the program was set to close on September 23, 2009.

Taxpayers who elect to participate in this program and disclose hidden accounts will have to pay taxes, interest and some penalties.  Taxpayers who don't participate are likelty to face harsher civil penalties and possible criminal prosecution.

Some taxpayers have accounts over which they have signature authority but no financial interest, or a financial interest in a foreign commingled fund.  The deadline for these taxpayers has been extended to June 30, 2010. 

There are two reporting requirements for each year that have to be met.  One is the amended federal income tax return and the other is Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1) which must also be filed.  Unless all foreign bank accounts have a combined value of less than $10,000, this report is an annual requirement in addition to the federal income tax return.

If you have offshore accounts of any kind, you should take this opportunity to review your tax returns for 2003 through 2008 and any reports that you have filed to determine whether or not you are fully compliant. 

The IRS also announced that there would be no further extensions.

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

Brown v. Hackney, -- P.3d --, 2009 WL 1394832 (Or App 2009)

Background: Brother of the decedent, a beneficiary through intestate (without a will) succession, challenged the payment of the personal representative from funds acquired through the settlement of a wrongful death action initiated by the personal representative.

Holding: The personal representative may be compensated based on the proceeds of a wrongful death settlement. ORS 116.173 bases personal representative compensation on the “whole estate” which is greater than the intestacy “estate.” The decedent’s “whole estate” is “comprised of all property both within the jurisdiction of the probate court as well as property outside the jurisdiction of the probate court.”

Comment:  This fight was over an amount of $5,200.  $5,200!  Really!?!  Can't we negotiate matters like grownups, instead of taking them up to the court of appeals? 

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

Harris v. Jourdan, 218 Or App 470, 180 P.3d 119 (2008)

Background: Will contest involving a decedent that executed multiple wills. Each will was a drastic departure from the previous will. One beneficiary of a previous will challenged the probate of the most recent will based on undue influence. Will proponent claimed that beneficiary of prior will did not have standing to challenge the will because she, in fact, had procured the previous will through undue influence.

Holding: Beneficiary of prior will is not required to demonstrate that prior will could survive a will contest in order to have standing to contest the will that is currently in probate.

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Effective September 28, 2009, a new bill passed by the 2009 Oregon legislature imposes a new tax on what a legislative staff summary refers to as a “specified group of health insurers.” In particular, the new law assesses a 1% tax upon the gross amount of premiums earned by health insurance providers. The stated purpose of the new tax is to provide health insurance to low income children – a commendable objective.

As the popularity of insurance companies is probably not high, most people might not have a great deal of sympathy for the plight of the newly taxed. However, the tax has already begun to “trickle down” to the rest of us. I've recently read a copy of a letter from a CEO of a major Oregon health insurance provider to a customer. Noting the new tax’s impending effective date, the letter pleasantly informs the small business insurance customer that “your premium rates will be adjusted to reflect the new 1 percent tax.”

However, the “trickle” does not stop with the small business. The owner of that business will now need to make a difficult decision as to whether to raise prices, absorb the cost, cut costs of other employee benefits, or pass the additional costs on to employees. You get the idea – the tax lands upon small businesses and their employees at a time when many such businesses are stretched to the breaking point (assuming they’ve made it this far in the recession).

Is this really the intended consequence of the new policy? I welcome your comments and questions.
 

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Is your family fighting over who should or should not get dearly departed Dad’s property? Are you fairly certain a trustee is lining his own pockets, rather than aiding the beneficiaries? Did a caretaker unduly influence your ailing mother so he inherited the vast estate? Then you need to talk with a fiduciary litigator: You need someone on your side that can walk you through the legal and emotional challenges of fiduciary litigation. You need someone that possesses these traits:

1.       Communication Skills. 

Litigation is stressful. Litigation involving other family members or family money is especially stressful. If you find an attorney that primarily works with corporate clients, he may lack the ability to communicate with you about the many steps involved with litigation, having become too comfortable with a standard business cost-benefit analysis of litigation. For example, if litigation is unfamiliar to you, you will need to hear the same advice repeatedly, so you need someone to communicate clearly – and patiently.

2.       Empathy.

Venting is an important part of the grief process, as well as the litigation process, as can be ranting, crying, or beating your head against the wall in frustration. If you find your attorney only wants to discuss the law, then you need a different attorney. The law is applied to the facts, and to know the facts, the attorney must know you. And to know you is to listen to you and empathize.   Fiduciary litigation creates more than an attorney-client relationship; it bonds you together, so choose someone with whom you connect.

3.       Strong Legal Team.

Certainly you want your fiduciary litigator to know the law, but the universe of law encompassing fiduciary litigation can be large. There may be good solo practitioners out there that handle fiduciary litigation, but more often than not there can be complex real estate, tax, or other legal issues intertwined with the trust or estate dispute that requires the fiduciary litigator to reach out to those who specialize in those areas. The best solution is to locate a fiduciary litigator that has a firm with other attorneys that can collectively provide their expertise for such situations. This is particularly true when the vast majority of cases settle short of conventional trial, so the involvement of tax law specialists on complicated settlements is often needed.

4.        Confidence.

To effectively persuade a judge or jury, one needs to be confident. But there is indeed a fine line between being a confident attorney and a/an [insert your favorite expletive here]. Sadly, those that gleefully leap over that line are what give trial attorneys a bad name. But the confidence of which I speak is not limited to the courtroom. A good fiduciary litigator needs to have the confidence to be able to tell her client the weaknesses or risks with the case, as well as the potential for recovery. It takes confidence to be honest with the client.

This is a short checklist, but it covers the important points. Simply put, spend some time to interview your fiduciary litigator, because you do not want to settle for the least expensive attorney or the one that you heard was a “bulldog.” You want one that meets your needs and makes a real and personal connection with you. Such attorneys do exist.    

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Washington State Substitute House Bill 1103 - 2009-10, effective July 26, 2009, prevents an abuser from inheriting property or receiving any benefit from the estate of a vulnerable adult who was the victim of financial exploitation by the abuser.

This may be a trend other states are keen to follow.

Generally speaking, “no slayer or abuser shall in any way acquire any property or receive any benefit as the result of the death of the decedent.” That is, an abuser is treated the same as a slayer with respect to the distribution of the decedent’s estate, although the court has equitable discretion and may consider, among other things:

• Elements of decedent’s dispositive scheme;
• Decedent’s likely intent given the “totality of the circumstances”; and
• The degree of harm.

A criminal conviction conclusively determines an abuser, but civil conviction must be by clear, cogent, and convincing evidence.

In many sad cases, financial exploitation is obvious, and the punitive impact of this new law certainly should apply. However, how will this impact other cases where the facts are not so easy to resolve? If there is insufficient evidence for a criminal conviction, but the fact finder proceeds to a determination in civil court, could this new law unnecessarily punish those that failed to have the foresight to properly document every gift from the dearly departed? How many keep written documentation of a gift, particularly from a family member? And when that elderly person becomes more mentally and physically frail, at what point does the average person have the medical or other specialized training to determine whether there is exploitation? The often dysfunctional response to grief and inheritance can lead to unwarranted allegations of who loved the decedent more and who sucked the funds (and life) right out of dear ol’ mom or dad. It can turn ugly, quickly. Is it “financial exploitation” or is it “but Mom always paid for everything, because I’ve never stood on my own two feet in my life?”

The new Washington law provides an escape in that a defendant may avoid liability if the court finds by clear, cogent, and convincing evidence that the decedent knew of the financial exploitation and subsequently ratified it. Maybe that’s enough room for those unjustly charged to avoid liability. Maybe not.

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At the risk of dating myself, I grew up watching Gilligan’s Island on television. As I did not grow up in a wealthy household, my youthful image of a “rich” person was Thurston J. Howell, III, the extremely wealthy and rather lazy member of the marooned “Gilligan” castaways. 

Demographic statistics (and my own anecdotal experience) tend to show that wealthy individuals in the United States do not resemble Thurston Howell. Rather, many are owners of small and entrepreneurial businesses. This conclusion has certainly been supported by the research of Dr. Thomas J. Stanley, co-author of the bestselling book The Millionaire Next Door. Dr. Stanley’s central finding is that wealthy individuals in America acquire their wealth through hard work, careful savings, and living a lifestyle well below their means. Often these individuals are “self-made” business owners whose hard work and good ideas have brought them economic success.

As I mentioned in my previous post, Congress is currently considering proposals to increase the top two tax brackets from their current 33% and 35% tax rates to 36% and 39.6%, respectively. Congressional leaders have proposed additional surtaxes that will be "layered" on top of the new higher tax rates.  Newly developed data from the Joint Committee on Taxation indicates that 55% of the tax from the higher rates will be borne by small business owners with income over $250,000. These same small businesses create 70% of all new private sector jobs in the United States.

I am neither an economist nor a politician. However, I am concerned that all too often, those seeking to soak ol’ Thurston Howell may really be hurting the owner of the corner store down the street, not to mention the employees that work at that store. Is that the intended consequence of the new tax policy?

I welcome your thoughts and comments!

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Recently, UBS announced that it had agreed to release the names of 4,450 of its account holders to the IRS. This is unsettling news for taxpayers with undisclosed foreign accounts. However, the IRS currently has a Voluntary Disclosure Program to encourage tax payers with unreported foreign accounts, unfiled tax returns, under reported income or frivolous tax deductions to participate and avoid further penalties and criminal prosecution. 

• Taxpayers must apply to the IRS before the IRS contacts the taxpayer. 
• On August 25, 2009, the IRS announced that UBS account holders would be eligible until the IRS received the information. Apparently, UBS is notifying its account holders before turning the names over. See IRS Voluntary Disclosure: Questions and Answers

This is crunch time!  UBS account holders are not the only taxpayers with unreported foreign accounts who should be concerned. The disclosure program is about to terminate. 

• Taxpayers have only until September 23, 2009 to participate in the program. 
• Voluntary disclosure will allow a taxpayer to avoid criminal prosecution and the assessment of significant IRS penalties. A taxpayer will still have to pay the income taxes, accrued interest and some penalties.  
• Taxpayers only have one opportunity to make a submission, and failure to qualify for the program, depending on the facts, may lead to criminal prosecution.

If you are interested in a confidential discussion with an attorney about this important opportunity, you may call us at 503-226-2966.

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Two recent and sad stories involving financial abuse of the elderly have come to light locally. The first story is the tale of Evelyn Roth, an 83-year-old esophageal cancer patient who signed a power of attorney for her cousin and niece, who then liquidated her assets. The now-indicted relatives, Virginia Kuehn and Kathleen Jingling, told investigators the “doctors guaranteed us she would die by August.” (Another example of the problem with medical care in America? You can’t rely on the doctors’ guarantee? I think not.) As poor Roth stated, “The only thing is, I didn’t die in time.”

What is it about people that when they are given a little bit of power (through a legal document like a power of attorney, through a joint bank account set up just to “help” with paying bills, or through a fiduciary position like a trustee), and a little bit of money, that their brains short-circuit and they start spending it as if it were their own? It’s not their money! There is no entitlement! There is no “well, nobody is going to know, so I’ll just take a bit from here or there!” As Roth’s cousins are learning, it’s not only unethical, it’s also illegal.

Gayla Ross just learned from a jury verdict in Washington County, Oregon, that she may have time in prison to contemplate her bad acts in taking $1 million from her 87-year-old mother, Clara Philpot, to finance Ross’ luxury home - and Philpot has been diagnosed with Alzheimer’s disease since 2002. As the court-appointed guardian stated, ‘It took Gayla less [than] two months to squander a lifetime of work.”  

Now the mortgage company is also in the cross-hairs, as the guardian proceeds with a lawsuit on behalf of Philpot. 

Be alert. With the aging population and an economy that may well bring out the worst in some people, financial elder abuse is a serious concern. 

Seek protection:

• Get an attorney to prepare for estate planning, power of attorney, trust, or other legal needs well in advance of it ever becoming a problem;
• Hire a criminal or civil attorney to recover losses;
• Call the Oregon statewide hot line to report abuse: 1.800.232.3020;
• Report abuse at  Aging and Seniors and People With Disabilities.

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