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

It is not hard to find reasons to be nervous about the economy and the health of our retirement nest eggs these days. The equity markets continue their multi-year run of historically high volatility, the national unemployment rate only recently dropped into the single digits and the explosion of home foreclosures continues its downward pressure on housing prices.

Another bleak subject in today's headlines is the record number of U.S. citizens and companies filing for bankruptcy protection. According to a report earlier this month from the Administrative Office of the U.S. Courts, there were over 1.5 million bankruptcy cases filed in the Federal Courts in fiscal year 2010, up over 13% from 2009 (and five times the number of cases reported in 1980)

During a bankruptcy proceeding, the petitioner prepares a schedule of his or her assets and then the court oversees the liquidation of the assets based on the type of bankruptcy filing. Two of the most common types of filings are a Chapter 13, where a petitioner (usually a corporation) agrees to a payment plan that will reimburse creditors for a portion of the money owed them, and a Chapter 7, where the court will discharge an individual’s debt and the person will essentially start a new financial life. During these proceedings, certain assets of the debtor are protected from creditor claims, these are called exempt assets.

It is important to note that in determining the exempt/non-exempt status of assets, the court must look to both federal and state rules. It is the federal rules which outline the bankruptcy proceeding, yet state laws can also come into play when they involve state protective statutes, state trust statutes, real estate statutes, etc. In the case of the Chapter 7 filings, there are some recent state court decisions that throw into question exactly which assets are exempt from the bankruptcy judgment and these cases are illustrative of the measures that creditors are going to in an effort to reach debtors’ assets in these turbulent financial times. This case law, along with different state exemption laws, should give pause to individuals that are inheriting IRAs and planning on utilizing the stretch-out provisions to take payments over their own life expectancy (called the stretch IRA strategy).

The first two cases are In re Chilton (where a Texas bankruptcy court found that inherited IRAs are not entitled to protection) and In re Nessa, where a Minnesota bankruptcy court came to the opposite conclusion. Further, in In re McClelland, an Idaho court allowed for a state exemption to stand, yet courts in California, Oklahoma and Texas (among others) have disallowed these protections. Finally, in Robertson v. Deeb, a Florida court allowed the state exemption to apply, but then ruled that Inherited IRAs were not protected under the Florida rule due to the changes that happen to an IRA (from a tax standpoint) at the moment it is inherited. These cases illustrate the different impact that state statutes - and the strength of individual arguments in these state courthouses – have on the protections available to an individual inheriting one of these accounts.

The case law is largely silent on this issue in Oregon and Washington, however analyzing the statutes suggests that inherited IRAs may be better protected here than in other parts of the country. 

In Oregon, we look to ORS 18.358(e)(2) which says “a beneficiary’s interest in a retirement plan shall be exempt, effective without necessity of claim thereof, from execution and all other process, mesne or final.” This language would seem to exempt inherited IRAs entirely, however it is worth noting that in Robertson v. Deeb the court spent a good deal of time analyzing the statutory language in Fla. Stat. 222.21(a)(2008) to determine exactly what the Florida legislature meant by the word ‘beneficiary’. Under such analysis, ORS 18.358 may leave the door open to creditors attacking inherited IRAs because the statute defines a beneficiary only as, “a person for whom retirement plan benefits are provided and their spouse”. A court may interpret this language to exclude individuals that inherit IRA accounts and, if that is the case, the statutory protections may not apply.

In Washington, the controlling statute offers more protections. RCW 6.15.020 specifically lists IRA (and Roth IRA) accounts as types of ‘employee benefit plans’ and then declares, “The right of a person to a pension, annuity, or retirement allowance or disability allowance, or death benefits, or any optional benefit, or any other right accrued or accruing to any citizen of the state of Washington under any employee benefit plan, and any fund created by such a plan or arrangement, shall be exempt from execution, attachment, garnishment, or seizure by or under any legal process whatever.”

From a planning standpoint, the levels of protection available to these Inherited IRAs are uncertain and under a lot of scrutiny in courtrooms today. On first reading, the Revidsed Code of Washington offers more concrete protections than the language in the Oregon Revised Statutes, however we have now seen courts across the country develop very different interpretations of the federal and state protections allowed to petitioners’ interests in these inherited accounts. The bottom line? One way to shield these assets from claims, regardless of the state you live in, may be to place these inherited assets into a trust. Consult an estate planning attorney to see if this option may be right for you. 

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A Canadian trusts and estate attorney, Megan F. Connolly, identified an alarming statistic in her blog from Alzheimer's Disease International: An estimated 35.6-million people worldwide suffer from dementia and by 2030, the number is expected to double to more than 65.7-million.

The Globe and Mail reports the astounding cost of medial care includes $96-billion in direct medical care, $255-billion for residential care such as nursing homes, and $253-billion in unpaid labour by family caregivers and that by 2030, total costs will surpass $1.1-trillion annually.

Of course, the medial expense is only part of the tremendous burden, as the toll upon the victims and their families is without measure. 

The legal challenges caused by this growing population will only increase, as predators await their opportunity to take from the unprotected.  (See prior Wealthlawblog.com postings.)   

Prepare yourself and prepare those that you love.  Put finances in order.  Make your contingency plans.  Call your estate planning attorney.   

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The 2010 edition of Oregon Super Lawyers came out today, and we’re pleased to announce that seven attorneys from Samuels Yoelin Kantor Seymour & Spinrad LLP have received recognition.

Merritt Yoelin, Stephen Kantor, and Steve Seymour have been named as 2010 Oregon Super Lawyers.

Four more of the firm’s attorneys have been named Rising Stars, the state's top list of up-and-coming attorneys: Timothy Resch, Eric Wieland, Betsy Cooper (formerly Betsy Gregory), and Irina Batrakova.

This year’s edition of Oregon Super Lawyers also includes a feature article on Timothy Resch, who served as a trial attorney with the Office of the Prosecutor for the International Criminal Tribunal for the former Yugoslavia. The Tribunal was established by the United Nations and was the first international war crimes tribunal held since the Nuremberg Trials following World War II.

While Tim was serving this four-year commitment, he was assigned to three cases. The most prominent defendant was Momćilo Krajiśnik, right hand man to former president of the Bosnian Serb republic, Radovan Karadžić.

Read more about Tim’s experience at The Hague on the Oregon Super Lawyers website.

You can also find more information about SYKS&S 2010 Super Lawyers in our newsroom.
 

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QUESTION: Can a trustee require a beneficiary to sign a receipt and release form?

ANSWER: Under Oregon law, it is likely that trustee can require a beneficiary to sign a receipt and release form so long as the beneficiary does not have a valid reason to object to the signing. (See prior Wealthlawblog.com article.)

DISCUSSION:

Case law suggests that a trustee may insist that a beneficiary execute a release where doing so is reasonable under the circumstances. See Masters v. Bissett, 101 Or App 163, 790 P2d 16 (1990).

In Masters, for example, the trustee conditioned the distribution of trust assets upon the beneficiaries’ execution of a document that would release him from any further claim arising out of the administration of the trust. Id.at 171. The beneficiaries, however, refused to sign the release because they were aware that the trustee had paid himself fees that he was not entitled to under the trust agreement. Id. The court determined that the demand for release was unreasonable under the circumstances. Id. The fact that the court considered whether the demand was reasonable, however, suggests that a trustee may compel a beneficiary to sign a release where it seems fair to do so.

Likewise, in First Midwest Bank/Joliet v. Dempsey, 157 Ill App 3d 307, 509 NE 2d 791 (1987), a trustee bank refused to distribute the trust property after the beneficiary refused to sign a receipt and release form in order to conclude the bank’s accounting. Id.at 310. The court concluded that the trustee’s action in withholding distribution to the beneficiary after the trust had terminated was proper. Id.at 315. One of the trustee’s privileges is to be compensated in its position as trustee, and it has a right to a determination of the propriety of its accounts before making a final distribution. Id. Thus, the trustee’s refusal to distribute the trust property without first receiving a receipt and release form was not willful and was within its rights as trustee. Id.

In contrast, other jurisdictions have held that a trustee’s refusal to release funds held by the trust until the beneficiary signs a release constitutes duress or coercion. See Ingram v. Lewis, 37 F2d 259, 263 (10th Cir. 1930) (stating that “it is legal duress for a trustee to refuse to turn over property to his beneficiary rightfully entitled thereto, except upon condition of signing a release.”); Kinney v. Lindgren, 26 NE 2d 471, 474 (Ill 1940) (holding that a release is ineffective if the trustee demands the release as a prerequisite to making a distribution to which the beneficiary is otherwise entitled).

Additionally, Oregon does not have a statute that prohibits the trustee from insisting that a beneficiary sign a release. In California, this action is specifically prohibited by Cal. Prob. Code § 16004.5(a). Because Oregon expressly allows for receipt and release forms, and because Oregon does not have a statute prohibiting the trustee from requiring the beneficiary to sign this type of form, there is indication that a trustee may compel this action.

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QUESTION: When can a receipt and release form for a trustee be invalidated by a beneficiary?

ANSWER: A receipt and release form is generally valid and may protect the trustee from liability but it may also be invalidated if it was induced by improper conduct on behalf of the trustee or where, at the time of the release, the beneficiary did not know of his or her rights or know of the material facts relating to any breach.

DISCUSSION: A beneficiary’s release of a trustee in Oregon from liability for breach of trust is valid so long as it does not violate the provisions of ORS 130.730 or ORS 130.840.

These statutes provide that a trustee is not liable to a beneficiary for a breach of trust if the beneficiary consented to the conduct, released the trustee from liability, or ratified the transaction. ORS 130.730(3)(a)(b); ORS 130.840(1)(2). Such provisions are intended to address the circumstance in which the trustee is reluctant to make a distribution until the beneficiary approves, but where the beneficiary will not approve unless the assets are distributed to him. 

A release will be invalid, however, if it was induced by improper conduct on behalf of the trustee or if the beneficiary was unaware of his rights or of material facts relating to the breach. ORS 130.730(3)(a)(b). Factors considered in determining whether the release was valid include: 1) adequacy of disclosure; 2) whether the beneficiary was financially or legally incapable; 3) whether the beneficiary was represented; and 4) whether the trustee engaged in improper conduct.

ORS 130.835 provides that an exculpatory clause included within a trust is unenforceable if it relieves a trustee from liability for a breach committed in bad-faith or  with reckless indifference to the purposes of the trust or interests of the beneficiaries. ORS 130.835(1)(a). Moreover, if the trustee drafted the clause, it is presumptively the result of abuse and is thus invalid. ORS 130.835(2). However, this presumption disappears if: 1) the settlor was represented by independent counsel who reviewed the exculpatory clause; or 2) the trustee proves that the clause is fair under the circumstances and that the clause’s existence and contents were adequately communicated to the settlor. ORS 130.835(2)(b). 

In considering whether an exculpatory clause within a trust is fair, courts consider: 1) the extent of the prior relationship between the settlor and the trustee; 2) whether the settlor received independent advice; 3) the sophistication of the settlor with respect to business and fiduciary matters; 4) the trustee’s reasons for inserting the clause; and 5) the scope of the particular provision inserted.

Exculpatory clauses contained within trusts will be enforced so long as they are fair and do not eliminate the trustee’s liability completely. Mest v. Dugan, 101 Or App 196, 199-200, 790 P2d 38 (1990).  

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