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

Since January 2010 Oregon tax professionals have been asking the Oregon Department of Revenue which income tax basis rules apply to 2010 Oregon Estates. 

Generally, this has been a pretty easy question to answer.  The traditional rule has been that most assets belonging to a decedent receive a tax basis step-up equal to the fair market value as of the decedent’s date of death. 

However, the Federal income tax basis rules are different this year. For 2010 estates the traditional rule does not apply. Generally the 2010 Federal rules are:

1.     First, determine the modified carry over basis (“MCOB”) of each asset held by the decedent. The MCOB is the lower of decedent’s actual basis or fair market value as of the date of death for each asset. 

2.     If the value of decedent’s assets exceeds the MCOB, then an additional basis increase of up to $1.3 million may be allocated to these assets.

3.     If the decedent is married and the value of decedent’s assets exceeds the MCOB, then the assets passing directly to the surviving spouse or into a qualified trust for the benefit of the surviving spouse, up to an additional $3 million can be added to the basis.

The Oregon Department of Revenue recently released Oregon Revenue Bulletin 2010-07 announcing that the Oregon income tax basis rules of 2010 Oregon estates will follow the Federal rules that are applicable this year.

For estates that have asset values in excess of what can be covered under these basis adjustment rules, the 2010 Oregon rule can result in a double tax.  First, the Oregon inheritance tax due 9 months after the date of death, and then an Oregon income tax based on the same asset value later on when the asset is sold. This double tax problem occurs with the larger estates becuase they will not receive a full income tax basis increase on the assets that are part of the Oregon estate.

The Oregon Inheritance Tax Workgroup of the Oregon Law Commission is looking into this matter, and there may be corrective legislation, but it will not be enacted until some time in 2011. 

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QUESTION: When an annual report or proposed distribution is provided to the beneficiary of a trust, can the statute of limitations be signficiantly reduced?

ANSWER: Likely, but the limitation for bringing an action based on an annual report is only applicable where the final report discloses specific information, including the existence of a potential claim.

DISCUSSION:

A. Proposal for Distribution
Upon the termination of a trust, the trustee may send out a proposal for distribution to the trust beneficiaries. ORS 130.730(1). If a beneficiary wishes to object to the proposal, he or she must notify the trustee of the objection within thirty days after the proposal was sent so long as the proposal notifies the beneficiary of the right to object.

Absent objections, the trustee should be able to treat the period beyond 30 days as a safe harbor for distribution purposes. Although the time limitation included in ORS 130.730(1) is not specifically referenced in the provision limiting actions against a trustee (ORS 130.845), the comment to ORS 130.845 provides that the limitations that it imposes are not the only means from barring an action by a beneficiary. Oregon Uniform Trust Code and Comments at 388. The comment states, for example, that claims may be barred by consent, release, and principles of equity under the common law of trusts. Id.

B. Trustee’s Report
A trustee must send a trustee report to the beneficiaries of the trust at least annually. ORS 130.710(3). This report must include information such as trust property and liabilities, the market values of trust assets, and receipts and disbursements of the trust. Id. Moreover, ORS 130.820, which relates to limitations of actions against a trustee, states that a beneficiary may not commence an action against a trustee more than one year following the date on which the beneficiary was sent a report that discloses the existence of a potential claim and that informs the beneficiary of the time allowed for commencing a proceeding. ORS 130.820(2). But that statute is very specific. ("A beneficiary may not commence a proceeding against a trustee more than one year after the date the beneficiary or a representative of the beneficiary is sent a report by certified or regular mail that adequately discloses the existence of a potential claim and that informs the beneficiary of the time allowed for commencing a proceeding. A copy of this section must be attached to the report. The report must provide sufficient information so that the beneficiary or representative knows of the potential claim or should have inquired into its existence.") Accordingly, a standardized annual report with a statement that the beneficiary will have one year to bring a claim based on the matters covered by the report will not be adequate. Id. Thus, if there is no potential claim to be disclosed, the one year limitation period will not apply. Rather, the six year statute of limitations for actions against a trustee contained in ORS 130.820 will apply.

C. Statute of Limitations
Two Oregon cases discuss the statute of limitations in the context of actions by beneficiaries against trustees. In Condon v. Bank of California, 92 Or App 691, 694-95, 759 P2d 1137 (1988), and McDonald v. U.S. National Bank, 113 Or App 113, 830 P2d 618 (1992), the beneficiaries sued the trustees for negligence in the administration of the trust. In both cases, the courts enforced the two year statute of limitations for negligence, although they also held that the discovery rule was applicable. 92 Or App at 694; 113 Or App at 115. (Note that these cases were decided prior to the enactment of ORS 130.820.)

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Insurance. We often view insurance the same way we view estate planning – “I’ll get around to that when I have time.” Yet life has a way of keeping us so busy that our spare time rarely gets allocated to such mundane topics. However, we must look at insurance for what it really is – a hedge against the unpredictable events that could damage our family’s financial security. 

In assessing this issue, I looked to my local insurance agent, Lauri Woolard of State Farm Insurance. Lauri has been in the “trenches” of the insurance world for nearly two decades, and has experienced first-hand the insurance issues that challenge most people. For this article, I asked Lauri what she thought were the top 5 insurance “mistakes” that people make. These top 5 mistakes are:

   1.   Not Keeping Insurance Current. Over the course of a year or two, things change and your insurance coverage can become inadequate or outdated. On an annual or bi-annual basis, you should meet with your insurance professional for a “checkup” to make certain you and your family are properly protected. 

   2.   Failing to Buy a Personal Liability Umbrella Policy. This type of policy – also called a PLUP – typically adds additional liability coverage to other insurance policies, such as automobile or homeowner’s policies. The liability limits in these policies are often in the $300,000 range, which may be woefully inadequate if you find yourself responsible for causing serious injuries to others. By extending your liability limits with a PLUP, you can protect your personal assets from liabilities and lawsuits that are more than the limits of your primary coverage. For the peace of mind a PLUP provides, it’s a great value.

   3.   Not Buying Adequate Private Life Insurance. If you have dependents or debts, you should consider buying adequate life insurance in the event of your untimely demise. The “right” amount of life insurance varies from individual to individual. This is a question that an insurance professional can help you answer. A common misconception is that life insurance provided through a group plan at one’s place of employment is both adequate and portable. Typically neither is true. Many group term life plans only provide a nominal amount of coverage (e.g. $10,000). In addition, many such group life insurance policies are not portable if you leave your job.

   4.   Failing to Purchase Disability Income Insurance. In the U.S.A., 30 percent of workers will be disabled for more than three months, 20 percent of workers will be unable to work for at least a year due to an injury, and 14 percent of Americans will be disabled for more than five consecutive years. If you are medically disabled and can no longer work, disability income insurance provides you with income to pay your bills and support you and your family. Yet, a surprisingly small number of Americans (approximately 30 percent) actually purchase this form of insurance. 

   5.   Failing to Consider Long-Term Care Insurance. Almost half of individuals in the U.S.A. will require some form of long-term care during their lifetimes. With the general aging of the population as well as medical advances that sustain lives, this percentage is rapidly increasing. However, most individuals do not have sufficient assets to fund both their retirement and fund their potential long-term care costs. Purchasing long-term care insurance may be an essential ingredient to your financial security.

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