Basic Estate Planning and Administration 2013

Cosponsored by the Estate Planning and Administration Section

Friday, November 22, 2013 8:30 a.m.–4:30 p.m.

Oregon Convention Center Portland, Oregon

5 General CLE or Practical Skills credits, 1 Ethics credit, and 1 Access to Justice credit BASIC ESTATE PLANNING AND ADMINISTRATION 2013

SECTION PLANNERS

Holly N. Mitchell, Duffy Kekel LLP, Portland Jack V. Rounsefell, Attorney at Law, Gresham Robin A. Smith, Attorney at Law, Portland Katharine L. West, Wyse Kadish LLP, Portland Eric J. Wieland, Samuels Yoelin Kantor LLP, Portland

OREGON STATE BAR ESTATE PLANNING AND ADMINISTRATION SECTION EXECUTIVE COMMITTEE

Marsha Murray-Lusby, Chair Jeffrey M. Cheyne, Chair-Elect D. Charles Mauritz, Past Chair Matthew Whitman, Treasurer Erik S. Schimmelbusch, Secretary Amy E. Bilyeu Eric R. Foster Janice E. Hatton Amelia E. Heath Melanie E. Marmion Holly N. Mitchell Jeffrey G. Moore Hilary A. Newcomb Timothy O’Rourke Ian T. Richardson Kenneth Sherman Margaret Vining

The materials and forms in this manual are published by the Oregon State Bar exclusively for the use of attorneys. Neither the Oregon State Bar nor the contributors make either express or implied warranties in regard to the use of the materials and/or forms. Each attorney must depend on his or her own knowledge of the law and expertise in the use or modification of these materials.

OREGON STATE BAR 16037 SW Upper Boones Ferry Road P.O. Box 231935 Tigard, OR 97281-1935

Basic Estate Planning and Administration 2013 ii TABLE OF CONTENTS

1. The New Client Interview ...... 1–i — Philip N. Jones, Duffy Kekel LLP, Portland, Oregon — Holly N. Mitchell, Duffy Kekel LLP, Portland, Oregon

2. How Elder Law Attorneys and Guardians Can Resolve Crises and Enhance the Lives of Vulnerable Elders—Presentation Outline ...... 2–i — Kevin Burke, Senior Managing Fiduciary, Beagle Burke & Associates, Portland, Oregon

3. Conflicts, Competence, and Client Development in Estate Planning and Administration ...... 3–i — Peter R. Jarvis, Hinshaw & Culbertson LLP, Portland, Oregon

4. The Complexities of Modern Relationships: Planning for Unmarried Partners 4–i — Melanie E. Marmion, Fitzwater Meyer Hollis & Marmion LLP, Portland, Oregon

5. Tips and Traps in Preparing an OR706 Oregon Estate Tax Return ...... 5–i — Jeffrey M. Cheyne, Samuels Yoelin Kantor LLP, Portland, Oregon

6. Introduction to International Successions: Mexico—Presentation Slides 6–i — Raoul Rodriguez-Walters, CFP (US Designation), International Financial Planner, MexicoAdvisor, Portland, Oregon

7A. SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action by Trustee; Abatement ...... 7A–i — Hilary A. Newcomb, HAN Legal, Portland, Oregon

7B. New Changes to the Oregon Trust Code: A Practical Approach ...... 7B–i — Eric J. Wieland, Samuels Yoelin Kantor LLP, Portland, Oregon

Basic Estate Planning and Administration 2013 iii Basic Estate Planning and Administration 2013 iv SCHEDULE

7:30 Registration

8:15 Section Annual Meeting

8:30 The New Client Interview F Educating new clients about estate planning and estate taxes F Incorporating clients’ goals into their estate plan F Counseling blended families with potential conflicts of interest Philip N. Jones, Duffy Kekel LLP, Portland

9:00 How Elder Law Attorneys and Guardians Can Resolve Crises and Enhance the Lives of Vulnerable Elders F How medical, psychological, and legal crises interrelate F How person-centered care planning can encourage positive legal outcomes F Case histories Kevin Burke, Senior Managing Fiduciary, Beagle Burke & Associates, Portland

10:00 Break

10:15 Conflicts, Competence, and Client Development in Estate Planning and Administration F Does it matter that we no longer have a duty of zealous representation? F What can I do when another lawyer tries to “steal” my marginally (if at all) competent client? F What can I ethically do to find and develop new clients? F How the estate plan you draw today may limit your ability to represent clients tomorrow Peter R. Jarvis, Hinshaw & Culbertson LLP, Portland 11:15 The Complexities of Modern Relationships: Planning for Unmarried Couples F Family and estate planning issues F Financial and tax concerns F Case examples Melanie E. Marmion, Fitzwater Meyer Hollis & Marmion LLP, Portland

12:15 Lunch

1:15 Tips and Traps in Preparing an OR706 Oregon Estate Tax Return F Top 10 mistakes that the Oregon Department of Revenue sees F OSMP election vs. state QTIP election F Nonresident estates with Oregon property F Natural resource credit update F Other OR706 estate forms Jeffrey M. Cheyne, Samuels Yoelin Kantor LLP, Portland

Basic Estate Planning and Administration 2013 v SCHEDULE (Continued)

2:15 An Introduction to International Successions: Mexico F Wills and fideicomisos F Intestacy F Probate F Estate taxes F Planning tips for international clients Raoul Rodriguez-Walters, CFP (US Designation), International Financial Planner, MexicoAdvisor, Portland 3:15 Break 3:30 Changes to the Oregon Trust Code: A Practical Approach F Types of beneficiaries and applicable fiduciary duties owed to each F Nonjudicial settlement agreements F Notice of proposed actions F Abatement Hilary A. Newcomb, HAN Legal, Portland Eric J. Wieland, Samuels Yoelin Kantor LLP, Portland 4:30 Adjourn

Basic Estate Planning and Administration 2013 vi FACULTY

Kevin Burke, Senior Managing Fiduciary, Beagle Burke & Associates, Portland. Mr. Burke is the director of the person-centered team at Beagle Burke & Associates. Since cofounding the firm in 2001, he has worked on hundreds of complex guardian and conservatorship cases. His specialties include investigating elder financial abuse, designing and implementing in-home care plans, and working with divided families. In 2007, he participated in the advisory committee to the Oregon Department of Consumer and Business Services that set the rules for private fiduciaries serving as trustees in Oregon. This year, he testified to a legislative committee in favor of HB 3129, since passed into law, which provides for the first statutory certification of guardians and conservators in Oregon. He is a past president and current board member of the Guardian Conservator Association of Oregon.

Jeffrey M. Cheyne, Samuels Yoelin Kantor LLP, Portland. Mr. Cheyne represents clients with estate, tax, business, and real estate planning needs. Mr. Cheyne is a board member of the Portland Tax Forum, the chair-elect of the Oregon State Bar Estate Planning and Administration Section, and a Fellow in the American College of Trust and Estate Counsel. From 2009 through 2011, he served on the Oregon Inheritance Tax Workgroup of the Oregon Law Commission drafting and coordinating the transition legislation from the Oregon inheritance tax to the Oregon estate tax, which passed in the 2011 Oregon legislative session. He recently served on a workgroup of the Oregon State Bar Estate Planning and Administration Section that drafted legislation for the 2013 Oregon legislative session authorizing personal representatives, trustees, and guardians to have access to the digital accounts and digital assets of the deceased and the disabled. He recently coauthored the “Oregon Estate Tax” chapter in the Oregon State Bar’s Administering Oregon Estates and is currently editing the “Estate Planning and Elder Law” chapter in the soon-to-be-published update of Oregon Statutory Time Limitations by the Professional Liability Fund. Mr. Cheyne is licensed in California, Oregon, and Washington.

Peter R. Jarvis, Hinshaw & Culbertson LLP, Portland. Mr. Jarvis practices primarily in the area of attorney professional responsibility and risk management. He advises lawyers, law firms, and corporate legal departments in legal ethics, risk management, and disciplinary defense matters, and he serves as an expert witness in such matters. He is admitted to practice in Oregon, Washington, California, Alaska, and New York. He is a former board member and past president of the Association of Professional Responsibility Lawyers. Bar committees on which he has served include the Washington State Bar Association’s Committee on the Future of the Profession, the Washington State Bar Committee to Define the Practice of Law and the Rules of Professional Conduct Committee, and the Oregon State Bar Legal Ethics Committee. Mr. Jarvis has participated in continuing legal education seminars for law firms and corporate legal departments and numerous public legal ethics/risk management seminars. He has also authored or coauthored many articles and chapters on attorney professional responsibility and risk management issues.

Philip N. Jones, Duffy Kekel LLP, Portland. Mr. Jones’s practice focuses primarily on estate planning, trust and estate administration, trust and estate litigation, and tax controversies. He is a Fellow of the American College of Trust and Estate Counsel and a member of the Estate Planning Council of Portland. He served as an Adjunct Professor of Law at Lewis & Clark Law School from 1993 through 2012, where he taught Estate & Gift Taxation and Federal Tax Procedure. He is the author of numerous articles in the Journal of Taxation and other publications. Mr. Jones is admitted to practice in Oregon and Washington.

Basic Estate Planning and Administration 2013 vii FACULTY (Continued)

Melanie E. Marmion, Fitzwater Meyer Hollis & Marmion LLP, Portland. Ms. Marmion’s practice focuses on all aspects of estate planning and administration, including planning for high–net worth clients, complex trust administration, preparation of estate tax returns, and planning for people with special needs. Ms. Marmion serves on the Oregon State Bar Estate Planning and Administration Section Executive Committee. She is the author of several published articles, including “Selected Tax Issues for Special Needs Trusts” (Estate Planning and Administration Fall 2011 Newsletter), and she routinely speaks on a variety of estate planning and tax issues. Hilary A. Newcomb, HAN Legal, Portland. Ms. Newcomb practices in the areas of trust and estate litigation, probate and trust administration, estate planning, and guardianships and conservatorships. She brings prior experience in the areas of taxable estate planning, charitable foundations, business formation, trust and estate dispute resolution, and trial practice. Ms. Newcomb has also volunteered as a prosecutor for the Multnomah County District Attorney’s Office. She is a member of the Oregon State Bar Estate Planning and Administration Section Executive Committee, the Estate Planning Council of Portland, and the Special Advocates for Vulnerable Oregonians (SAVO) Finance Committee. Raoul Rodriguez-Walters, CFP (US Designation), International Financial Planner, MexicoAdvisor, Portland. Mr. Rodriguez-Walters holds a degree in Economics from the University of Texas. Upon graduation, he worked as a stockbroker in the International Department of Acciones y Valores in Mexico City. His clients included the United Nations Joint Pension System, the California Public Employees Retirement System, and the Mexico Fund. From 2002 to 2005, he traveled the world representing the United States as a technical expert in his field, helping craft an international standard for the financial planning profession. Working together with other technical experts and negotiators from 18 countries, the international standard was finally published in 2005 as ISO 22222. This document has since served to guide several countries in their efforts to regulate independent financial advisors. Mr. Rodriguez-Walters has been widely quoted in the U.S. and Mexico on international financial planning matters. He has also written and spoken extensively on issues related to U.S.-Mexico and international personal financial issues. In 2009, he cowrote the chapter on estate planning in Mexico for the law book International Successions, published by Oxford Press. In addition to being a Certified Financial Planner, Mr. Rodriguez-Walters serves as a Registered Tax Preparer, member of the Financial Planning Association, founding member of the Cross-Border Financial Planning Alliance (www.crossborderplanning.com), and a partner in the joint venture of Rodriguez and Shah (www.americanexpats.net). Eric J. Wieland, Samuels Yoelin Kantor LLP, Portland. Mr. Wieland practices in the areas of estate planning, business planning, taxation, and trust and estate administration. He is a member of the American Bar Association and is licensed to practice law in Oregon and Missouri. Mr. Wieland holds an LL.M. in Taxation from the University of Washington School of Law.

Basic Estate Planning and Administration 2013 viii Chapter 1 The New Client Interview

Philip N. Jones Duffy Kekel LLP Portland, Oregon

Holly N. Mitchell Duffy Kekel LLP Portland, Oregon

Contents Wills, Trusts, and Estate Planning ...... 1–1 Estate Tax Changes ...... 1–1 Wills ...... 1–1 Probate ...... 1–2 Avoiding Probate ...... 1–2 Should Probate Be Avoided? ...... 1–4 Choosing an Executor or Trustee 1–4 How to Minimize or Eliminate Estate Taxes ...... 1–4 State Estate Taxes ...... 1–6 Charitable Giving ...... 1–6 Gift Taxes ...... 1–6 Generation-Skipping Tax ...... 1–7 Community Property ...... 1–7 Conclusion ...... 1–8 Sample Estate Planning Questionnaire—Married ...... 1–9 Sample Estate Planning Questionnaire—Single ...... 1–13 Sample New Client Letter and Conflicts Memorandum ...... 1–17 Chapter 1—The New Client Interview

Basic Estate Planning and Administration 2013 1–ii Chapter 1—The New Client Interview

WILLS, TRUSTS, AND ESTATE PLANNING The purpose of this paper is to describe the two most common decisions that are made in connection with estate planning. The first decision is whether to use a will or a revocable trust. The second decision is how to minimize or eliminate estate taxes. These are very complex subjects; although these subjects (and their various exceptions) cannot be covered completely in this short paper, the basic concepts can be explained. Please use this paper as a brief introduction, but please do not attempt to make estate planning decisions without the assistance of a competent professional. The information in this paper is based primarily on Oregon law, but most of it is applicable to the state of Washington as well. Estate Tax Changes On January 1, 2013, Congress passed legislation that made permanent many of the estate tax laws that were then scheduled to expire. In particular, the federal unified credit exemption was set at $5,250,000 for 2013, with future adjustments from time to time based on inflation. In addition to the federal estate tax, Oregon has enacted a state estate tax, which operates separately from the federal estate tax. Since 2006, the Oregon exemption has been $1,000,000. The Oregon tax was modified extensively effective January 1, 2012, but the exemption remains at $1,000,000, and it is not scheduled to change. As of 2013, the federal marginal estate tax rate is 40%, and the Oregon rate ranges from 10% to 16%, depending on the size of the estate. The examples in this paper are based on the law as it is in 2013, with the federal unified credit exemption at $5,250,000 and the Oregon exemption at $1,000,000. As you read this paper, please keep in mind that the federal unified credit may be changing in the future. In future years, please give us a call if you would like to receive an updated version of this paper. This paper will discuss estates of various sizes and the tax consequences of dying with an estate of various sizes. As you read this paper, you should keep in mind the approximate size of your estate. When estimating the size of your estate, life insurance and retirement accounts should be included, along with real estate, investments, and other assets. Wills A will directs distribution of probate property. Probate property is any asset you own by yourself, in your name alone. If you own your car, your house, or your investments in your name alone, without your spouse’s name on the title, or without anyone else’s name on the title along with yours, then the property is probate property, because a court will need to change the ownership after you die. The easiest way to define probate property is by listing the kinds of property that are not probate property. 1. Jointly Held Property. This property passes automatically to the joint owner, without the need for a probate. 2. Insurance. The death benefits of a life insurance policy usually pass to the designated beneficiary, without the need for a probate. 3. Retirement Benefits. These benefits usually pass to the designated beneficiary, without the need for a probate. 4. Trusts. Assets held in a trust pass to the beneficiaries named in the trust, without the need for a probate. A will governs probate property; it usually doesn’t govern or have any influence on the nonprobate property described above. For example, a will usually doesn’t have any influence on the

Basic Estate Planning and Administration 2013 1–1 Chapter 1—The New Client Interview

distribution of jointly held property, insurance proceeds, retirement benefits, or assets held in a trust. If all of your property is in one of those forms of ownership, then your will won’t affect any of your property, and you might not even need a will. But most people do need a will, just in case it turns out after they die that they owned some property in their individual name. So even if you use a trust, or some other probate-avoidance device, you still need a simple will as a precaution. What if a decedent has probate property but left no will? If so, then the laws of intestate succession generally provide that the property will be distributed to the decedent’s spouse and/or his or her children. But having a will (or not having a will) doesn’t create probate property where none otherwise existed; the existence of probate property depends entirely on the name in which your property is held. As a result, one of the most important steps in estate planning is to make a list of all of your assets showing which assets are owned by the husband, or by the wife, or jointly by both husband and wife. In other words, if you’d like to know if part of your estate will need to be probated, don’t look at your will or trust to find out; look to see whose name is on each of your assets. If your name alone is on some of your assets, then those assets will usually need to be probated, unless those assets have beneficiary designations in place. Probate Probate is a court-supervised distribution of property. The property is distributed according to your will or, if you don’t have a will, according to the intestacy statutes, which are discussed above. How much does probate cost? The fees paid to the probate court are usually less than $700. The personal representative (also known as the executor) is entitled by law to receive a fee of about 2% to 2.5% of the value of the estate, but if a family member serves as personal representative that fee is often waived. Attorney fees vary depending on the complexity of the estate, but they are usually based on an hourly rate. Depending on the size and complexity of the estate, an attorney’s fee might be in the neighborhood of 1% or 2% of the estate, but it is often less than 1%, particularly for a large estate. If you use a trust to avoid probate, the total cost of administering your estate will sometimes be less than if you use a will, but often the costs will not be significantly less. For example, a personal representative’s fee need not be paid when a trust is used, but your trustee is entitled to collect an annual trustee’s fee, which is usually about 1% of the value of the trust. Because that fee can be collected annually, the trustee’s fee could exceed the fee that would have been paid to a personal representative. And although the assets of a trust will not need to be probated, professional advice from an attorney and an accountant will often be needed in order to comply with federal and state tax laws and to make certain that title to the various assets are properly transferred to the beneficiaries or heirs. In general, smaller trusts will be less expensive to administer than a probate estate, while larger trusts will be approximately as expensive to administer as a probate estate, due to the need to comply with federal and state tax laws, as discussed below. (In Oregon, trusts and estates in excess of $1,000,000 will need to comply with the Oregon estate tax. In Washington, estates in excess of $2,000,000 will need to comply with the Washington estate tax. Except as noted, the examples provided below do not reflect the Oregon estate tax or the Washington estate tax.) Avoiding Probate If you decide to avoid probate, it can be done in several ways. Keep in mind that each of these techniques is simply a way to get property out of the individual name of the owner before he dies. The two most common methods of avoiding probate are holding property jointly with a spouse or placing property in a revocable trust. Placing all of your assets in joint name with your spouse will avoid probate when you die, because your spouse will become the sole owner of the property upon your death, without the need for any legal proceedings. That technique is a very simple and inexpensive way to avoid probate,

Basic Estate Planning and Administration 2013 1–2 Chapter 1—The New Client Interview

but it has some disadvantages. First, it creates significant estate tax problems if a husband and wife together own assets in excess of $1,000,000. Second, it will not avoid probate when your surviving spouse dies. Third, it will not avoid probate if you and your spouse were to die at the same time. For small estates, however, joint property may be a simple and inexpensive alternative to probate, depending on your individual situation. Placing your assets in a revocable trust, also known as a living trust, will also avoid probate. Keep in mind that a revocable trust usually will not accomplish its purposes unless all of your assets are placed in it, because assets inadvertently omitted from the trust will often require a probate. A revocable trust will also help eliminate the need for a conservator (similar to a guardian) if you were to become ill. In order to understand how a revocable trust accomplishes those goals, it is necessary to understand the three stages that a revocable trust passes through during its existence. The first stage occurs while you are alive and healthy. During that time, you are the trustee of the trust, you are free to use your assets in any way you see fit, the trust can be freely amended or revoked, and the trust need not file separate income tax returns. The second stage begins when you have become ill and are no longer able to manage your business affairs. During that second stage, a successor trustee (a family member or a bank, typically) assumes control of the trust and uses the assets of the trust to provide for your care and support. This is one of the advantages of a revocable trust: If you had not placed your assets into a trust, a conservator would usually need to be appointed by a court to manage your assets, although a power of attorney can also be used. The third stage of the trust begins on your death. At that point, the successor trustee assumes control of your assets and is required to pay any bills, debts, income taxes, and estate taxes. After those amounts are paid, the remainder of the assets is paid to your beneficiaries according to the terms and conditions specified in your trust. In other words, your trust would contain the same dispositive language that a will might contain, but because the assets are already held in the name of the trust, a probate would not be necessary. Keep in mind that a revocable trust does not eliminate or reduce estate taxes any more than a properly drafted will does. If a trust is properly drafted, it can reduce estate taxes to the same extent that a properly drafted will does. And a revocable trust does not offer any protection from your creditors, nor does a will. A revocable trust has two disadvantages, however. First, a revocable trust is usually more complex and more expensive to create than a will, because title to all of your assets will need to be changed. Second, a revocable trust will not be completely effective unless all of your assets are placed in the trust, because assets left out of the trust will need to be probated. As a result, a person with a revocable trust needs to be very diligent about placing all of his or her assets in the trust; every time a new asset is purchased (a house, a car, or an investment), it needs to be placed in the trust, or a probate may result when you die. (To help alleviate this problem, a person who uses a revocable trust almost always signs a short “pourover” will, which is intended to catch any assets that inadvertently were omitted from the trust. The will then “pours” those assets over to the trust, but a probate is often required in order to do so.) Don’t confuse revocable living trusts with living wills; a living will (now known as an advance directive) deals with medical issues, such as whether you want to be kept on life support when you are terminally ill.

Basic Estate Planning and Administration 2013 1–3 Chapter 1—The New Client Interview

Should Probate Be Avoided? The basic pros and cons of wills and trusts are described above. You need to weigh those pros and cons with the help of a competent legal advisor to determine if you should avoid probate. The answer will depend on your individual situation. Having a probate or not having a probate doesn’t affect taxes, because wills and trusts are taxed in the same manner at the same estate tax rates. Avoiding probate can reduce administration expenses and attorney fees, however, but generally only in smaller estates. As mentioned above, the costs are about the same in medium and larger estates. The decision whether to avoid probate should be made with the help of an advisor who is familiar with your individual situation and your individual goals. Here are some general rules of thumb to help you decide whether to use a will (which usually needs to be probated) or a revocable trust (which usually avoids probate). F If you are older and single, a revocable trust is often a good idea because it will help avoid both probate and a conservatorship. F If you are younger and married, a will is usually better, since it’s less expensive to prepare and you won’t need to keep all of your assets in a revocable trust for the rest of your life. In addition, your spouse could be given a power of attorney, which could be used instead of a conservatorship. F If you are older and married, the decision is often a toss-up, but the desirability of a revocable trust tends to increase the older you are. F If you have numerous different assets and a large estate, a revocable trust might be expensive to set up and difficult to manage. If you have only a few basic assets, a revocable trust might be moderately easy to set up and live with. F If you own real estate in another state, such as a vacation home or investment property, a revocable trust will have the advantage of avoiding a probate proceeding in that other state, in addition to avoiding probate in your home state. Most important of all, the decision whether to use a will or a revocable trust should be based on your individual situation. Simply put, trusts are better in some situations, while wills are better in others. Considerable controversy and publicity have been generated by some attorneys who believe that wills should be used in all cases and by other attorneys who believe that trusts should be used in all cases. In deciding between a will and a trust, you should find an attorney who is willing to give you unbiased advice as to which is better in your particular situation, free of any preconceived notions of which is best. Choosing an Executor or Trustee Regardless of whether you use a will or a trust, you should select your personal representative (executor) or trustee carefully. The two most common choices are to use either a family member or a bank trust department. A bank has the advantage of providing neutrality in the event of a dispute among family members, and a bank also has the advantage of providing experience and expertise in probating estates and administering trusts. A family member, on the other hand, will usually be willing to serve without compensation, but a family member will need to rely more heavily on the advice of professional advisors, such as attorneys and accountants. How to Minimize or Eliminate Estate Taxes The following discussion focuses on the federal estate tax and its exemption of $5,250,000. It demonstrates that, with careful planning and implementation, a married couple with assets of $10,500,000 can avoid the federal estate tax entirely. However, the Oregon estate tax will likely still apply. Because the Oregon exemption is $1,000,000, a married couple with assets of $2,000,000 can

Basic Estate Planning and Administration 2013 1–4 Chapter 1—The New Client Interview

avoid the Oregon estate tax, if they plan carefully and properly implement their plan. In general, the same techniques used by a couple with $10,500,000 to avoid the federal estate tax can be used by a couple with $2,000,000 to avoid the Oregon estate tax. The two most important aspects of the estate tax are the unified credit exemption and the marital deduction. The unified credit exempts from tax the first $5,250,000 of each estate in 2013, and possibly slightly more in future years. In other words, persons with estates of less than $5,250,000 will pay no federal estate taxes, but persons with estates of more than $5,250,000 will be taxed on the portion of their estates in excess of $5,250,000. The marital deduction provides that any amount left to a surviving spouse will pass free of tax. Because the marital deduction is unlimited in amount, a person of great wealth can entirely eliminate estate taxes by leaving all of his estate to his widow. Unfortunately, the widow’s estate will then pay a very heavy estate tax when she dies, because she will then be holding the entire wealth of the family. The most common method of dealing with that problem is known as the credit shelter trust. Assume, for example, that a married couple each owns assets of $5,250,000 (for a total of $10,500,000) and the husband dies first. If the husband leaves the entire estate to his widow, his estate will not be taxed (due to the marital deduction), but the wife’s estate will eventually pay an estate tax of about $2,045,800 when she dies holding $10,500,000. That tax can be eliminated through the use of a credit shelter trust. When the husband dies, his will (or his revocable trust) can provide that $5,250,000 will be left to a credit shelter trust. Most credit shelter trusts provide that the income generated by the trust will be paid to the widow, but the principal of the trust will not be paid to the widow unless necessary for her health, education, maintenance, or support. Typically, the widow serves as the trustee of the trust and is able to decide for herself whether she needs to withdraw funds from the trust. On her death, if the assets have not been consumed by the widow, the balance of the trust assets will be paid to the children or to trusts for the children. By using a credit shelter trust, the assets held in the trust will not be taxed when the wife dies, because the assets will not be held in the wife’s name when she dies. The other assets of the family (which were held in the wife’s own name) will escape tax since they will be less than her $5,250,000 unified credit. As a result, the entire estate of $10,500,000 will end up inherited by the children with no federal estate taxes being paid, and the surviving widow will have had access to the entire $10,500,000 during her lifetime. This example demonstrates that estates up to $10,500,000 can be passed to the next generation without incurring any federal estate tax, if proper planning is done in advance. Although the taxes to be paid by larger estates (over $10,500,000) cannot be entirely eliminated by a credit shelter trust, the taxes can be reduced significantly by using the techniques described above. The same technique can be used to avoid the imposition of Oregon estate tax on estates of $2,000,000, through the proper use of the marital deduction and the Oregon exemption of $1,000,000. The federal law that became effective in 2011 also permits a surviving spouse to make use of all or a portion of the unused unified credit of the deceased spouse, under certain circumstances. That new law will help eliminate or reduce the tax on estates that were not planned properly. That “portability” provision does not apply to the Oregon estate tax, so proper planning is still important. The use of a credit shelter trust is the single most common estate planning tool in use today. (Don’t confuse a credit shelter trust with a revocable trust. A revocable trust is created and funded with assets while you are still alive. A credit shelter trust is created before you die, but it does not receive assets until after you die. The confusing part is that a credit shelter trust can be created by a will or it can be created by a revocable trust.) In addition to eliminating or reducing estate taxes, a credit shelter trust provides the surviving spouse with a considerable degree of financial security. The

Basic Estate Planning and Administration 2013 1–5 Chapter 1—The New Client Interview

plan must be carefully executed, however, to ensure that it will work properly regardless of which spouse dies first. In most cases, the manner in which the family holds its assets must be carefully reviewed. For example, if all of the family assets are held in joint name, then all of the assets will pass automatically to the surviving spouse, and none of the assets will be available to place into the credit shelter trust. In that situation, the holding of joint property may cause a significant tax to be paid on the second death. The amount of tax that can be avoided through the use of a credit shelter trust (and through the avoidance of joint ownership) can be as high as about $2,045,800 for a family with a net worth of $10,500,000, as explained above. In order to avoid that tax, a couple should place some of their assets in the husband’s name and place other assets in the wife’s name or make use of a form of ownership known as tenants in common. Although joint ownership should generally be avoided by couples whose combined net worth exceeds $1,000,000, a post-death disclaimer can be used to minimize the effect of owning joint property. Disclaimers are discussed in more detail below. As mentioned above, credit shelter trusts are usually not necessary for couples whose combined net worth is less than $1,000,000, because the Oregon exemption amount is $1,000,000. In some cases, however, a couple might have assets in excess of $1,000,000 but not enough assets to justify the use of a credit shelter trust. For example, a couple owning $1,100,000 in assets might prefer that the entire family net worth pass directly to the surviving spouse. They might reach that conclusion after deciding that the use of a credit shelter trust is not justified by the amount of tax that would be paid on the second death, or they may feel that the surviving spouse will eventually spend enough of the assets to reduce her estate below $1,000,000, thus eliminating the tax entirely. On the other hand, a credit shelter trust might become necessary if the value of the assets grows before the first death occurs. That dilemma can be solved through the use of a disclaimer will. Such a will directs that the entire family net worth will be left to the surviving spouse, but if she disclaims or renounces any portion of that inheritance, the portion disclaimed will then be placed in a credit shelter trust. Because the decision to sign a disclaimer can be made up to nine months after the first death, the surviving spouse will have an opportunity, after her husband’s death, to review her financial situation in order to determine whether a credit shelter trust is necessary or desirable. However, some technical requirements affect the ability of the surviving spouse to make use of a disclaimer. For example, if the surviving spouse accepts benefits from an asset, that asset may no longer be disclaimed. As a result, an attorney should be consulted shortly after a death occurs, rather than waiting until later in the nine-month period. State Estate Taxes In this paper, the term “estate tax” generally refers to the federal estate tax. However, in addition to federal estate tax, both Oregon and Washington impose an estate tax on their residents. (The federal estate tax and state estate tax are often called “death taxes.”) Oregon residents are allowed a $1,000,000 exemption from Oregon estate tax, as noted above. Washington residents are allowed a $2,000,000 exemption from Washington estate tax. As a general rule, the tax planning discussed in this paper will apply to both federal estate taxes and state estate taxes, although there are some differences between federal and state taxes that have not been discussed. Charitable Giving Another technique that can be used to reduce estate taxes is to leave assets to a charitable organization. Such bequests are exempt from the estate tax, and thus they reduce the amount of your estate that is subject to tax. An alternative is to make gifts to charity during your lifetime. Such lifetime gifts also reduce the size of your estate, plus they qualify for an income tax deduction. Gift Taxes One commonly used technique to reduce estate taxes is to make lifetime gifts, usually to children and grandchildren, keeping in mind the federal gift tax. In 2013, gifts of up to $14,000 per

Basic Estate Planning and Administration 2013 1–6 Chapter 1—The New Client Interview

year per recipient are not subject to the gift tax. Thus a person could give $14,000 to each of her children each year without incurring any gift or estate tax. In the case of a married couple, the limit is $28,000. As a result, a couple with three children could make tax-free gifts of $84,000 every year, effectively reducing their estates by that amount each year. (The $14,000 and $28,000 limits are valid in 2013 and will be increased in the years to come, based on the rate of inflation.) An unlimited exclusion applies to medical payments and tuition payments if paid directly to a health care provider or school. If gifts exceed the annual exclusion limitation, the excess reduces the unified credit available to the donor at death. The amount of the excess is known as a taxable gift. If the total cumulative taxable gifts exceed the gift tax unified credit of $5,250,000, then gift tax must be paid. Most donors try to not exceed the annual exclusion limits. Those that do use up some of their unified credit, but very few donors make so many gifts that they actually exceed $5,250,000 in gifts and have to pay gift tax. If the children or grandchildren are minors, the gifts can be placed in special trusts to make certain that the funds are spent for worthwhile purposes, such as a college education or buying a home. Trusts have the additional advantage of permitting distributions to children to be delayed until the child reaches an advanced age, such as 30 or 35. Gifts to custodians for the benefit of minors (UTMA accounts or UGMA accounts) should generally be avoided unless the gifts are quite small, because the child will be able to take complete control of custodial assets when he or she reaches the age of 21 or in some cases 25. As a general rule, lifetime gifts are not taxed by the Oregon estate tax or by the Washington estate tax, but some exceptions apply to that general rule. This is a very important aspect of the tax laws of Oregon and Washington; some people will be able to make very large gifts in order to reduce or eliminate the Oregon estate tax and the Washington estate tax. Generation-Skipping Tax Some families pass wealth directly to grandchildren, thus skipping their children’s generation. By doing so, the family is able to eliminate the estate tax for one entire generation, because the assets left to the grandchildren are not subject to estate tax when the children die. Congress reacted to this type of estate planning by adopting the generation-skipping tax in 1976. The generation-skipping tax is a separate tax that is imposed in addition to gift taxes and estate taxes. In some cases, the generation- skipping tax is imposed on transfers directly to the grandchildren, and in other cases it is imposed on transfers made through the use of trusts. Every donor or decedent is entitled to use an exemption from the generation-skipping tax. That exemption is tied to the estate tax unified credit exemption, which is $5,250,000 in 2013. In addition, an annual exclusion of $14,000 applies to gifts made directly to grandchildren and to certain types of trusts. An unlimited exclusion applies to medical payments and tuition payments if paid directly to a health care provider or school. Community Property Washington and California are governed by community property statutes, while Oregon is not. Residents (or former residents) of Washington and California need to understand the basic principles of community property because community property affects estate planning, estate taxes, and income taxes. In a community property state, property earned by either spouse during the marriage is deemed to be owned by both spouses in equal shares. The phrase “property earned” includes most forms of income, but it doesn’t include gifts or inherited property, nor does it include property acquired by one of the spouses before the marriage. For example, if a wife inherits money from her parents, that property is her separate property; it is not community property. The community property laws generally operate without regard to title. For example, if a husband uses his earnings to buy a house, that house will be community property, even if the title

Basic Estate Planning and Administration 2013 1–7 Chapter 1—The New Client Interview to the house is held by the husband in his name alone. As a result, the will of the husband controls the disposition of only a half interest in the house and the will of the wife controls the other half, even though the husband holds the deed to the entire house in his name alone. If the house was placed in joint name (in both names, with a right of survivorship), it would still be categorized as community property, but it would then pass to the surviving spouse following the first death. When a spouse dies in a community property state, only one-half of the community property will be subject to estate tax, regardless of whose name held the property. Community property also has certain income tax advantages. As a result, estate planning for Washington residents will require a careful review of all of the assets of the couple in order to determine which assets are community property and which assets are separate property. Married couples in Washington often enter into a community property agreement. Those agreements usually declare all of the couple’s property to be community and also declare that all of the property will pass automatically to the surviving spouse following the first death. That survivorship element of a community property agreement can be very dangerous for a couple with a combined estate of more than $2,000,000, for the same reason that joint property can be dangerous, as explained above. Such couples may wish to cancel or modify their community property agreements. On the other hand, a couple without a community property agreement may wish to enter into an agreement that does not include a survivorship element. Conclusion Although the basic tools of estate planning are described above, other tools are available in complex situations involving large estates, including irrevocable life insurance trusts and charitable trusts. Again, this paper is a very brief summary of some very complex laws that provide for a variety of exceptions that are not described in this paper. Applying those laws, and the many exceptions to those laws, to your individual situation requires professional assistance. Please do not attempt to make important estate planning decisions based on this paper alone. Seek the guidance of a professional advisor who can explain how these laws apply to your individual situation. © 2013 Philip N. Jones and Holly N. Mitchell.

Basic Estate Planning and Administration 2013 1–8 Chapter 1—The New Client Interview

SAMPLE ESTATE PLANNING QUESTIONNAIRE—MARRIED

Estate Planning Questionnaire Name Date of Birth Social Security # U.S. Citizen Husband  Yes  No Wife  Yes  No Address

Date of Marriage Place of Marriage Home phone Office phone (husband) Home email Office phone (wife) Fax Email (husband) Email (wife) Children (attach pages for additional children, as necessary) Name Date of Birth Address Home Telephone

If married, spouse’s name If children, name Date of Birth Date of Birth Date of Birth Name Date of Birth Address Home Telephone

If married, spouse’s name If children, name Date of Birth Date of Birth Date of Birth

Basic Estate Planning and Administration 2013 1–9 Chapter 1—The New Client Interview

1. A personal representative begins to act after your death and carries out the instructions in your will.

Who should act as personal representative of your estate?

Who should act as an alternate?

2. A guardian is the person who would raise your minor children, if both of you die.

Who should act as guardian of your minor children, if necessary?

, now living in the state of

Who should act as an alternate?

, now living in the state of

3. Should your children receive their inheritance at your death free of trust?  Yes  No

4. A trustee administers a trust following instructions set forth in your will. Your trustee will decide if distributions are in your child’s best interest and will manage the trust account until your children reach the age you decide would be appropriate for them to manage their own funds.

Who should serve as trustee for your children’s trust?

Who should act as an alternate?

5. If your children’s inheritance is held in trust, at what age do you think they will be able to manage these funds on their own?

Do you want your children to receive a percentage of the trust at various ages prior to full distribution, and at what age? Age: ______Percentage: ______

Should your trustee be able to use trust funds to purchase a home for your child?  Yes  No

6. If something should happen to you, your spouse, and your children or grandchildren, Oregon law provides that your property will go to your next of kin. If you have no close relatives, the property goes to the state. If you do not want your property to be distributed this way, who should receive the property?

7. Do you own real property in a state other than Oregon? If so, where?

8. During your marriage have you lived in other states? If so, where?

9. Do you have a safe deposit box?  Yes  No

Who has access?

Where is the key located?

Basic Estate Planning and Administration 2013 1–10 Chapter 1—The New Client Interview

10. An advance directive gives your representative the authority to communicate your wishes and make decisions about your health care if you are unable to do so.

Do you (and your spouse) have an advance directive signed after 1993?  Yes  No

If you want an advance directive:

Who should act as your representative?

Representative’s address

Representative’s home telephone

If this person cannot act,

Who should act as alternate representative?

Alternate representative’s address

Alternate representative’s home telephone

11. A durable power of attorney gives your agent the power to act for you in business and financial matters. This power usually takes effect upon your incapacity and ends at your death.

Have you (and your spouse) signed a durable power of attorney?  Yes  No

If you have not, we will prepare a durable power of attorney for each of you.

Who should act as your agent?

Agent’s address

Agent’s home telephone

If this person cannot serve,

Who should act as alternate agent?

Alternate agent’s address

Alternate agent’s home telephone

Basic Estate Planning and Administration 2013 1–11 Chapter 1—The New Client Interview

Assets Joint Husband Wife Bank Accounts Stocks and Bonds Home Other Real Estate Family Business Tangible Personal Property Retirement, Pension, IRAs, etc.

Other Assets Anticipated Inheritance

Total Assets Liabilities Home Mortgage Other Mortgage Credit Cards Other Liabilities

Total Liabilities Net Worth

Life Insurance Death Policy Company Owner Insured Beneficiary Benefit Loans? $ $ $ $

Basic Estate Planning and Administration 2013 1–12 Chapter 1—The New Client Interview

SAMPLE ESTATE PLANNING QUESTIONNAIRE—SINGLE Estate Planning Questionnaire Name Date of Birth Social Security # U.S. Citizen  Yes  No Address

Home phone Office phone Home email Office email Home fax Office fax Children (attach pages for additional children, as necessary) Name Date of Birth Address Home Telephone Office Phone If married, spouse’s name If children, name Date of Birth Date of Birth Date of Birth Name Date of Birth Address Home Telephone Office Phone If married, spouse’s name If children, name Date of Birth Date of Birth Date of Birth Name Date of Birth Address Home Telephone Office Phone If married, spouse’s name If children, name Date of Birth Date of Birth Date of Birth

Basic Estate Planning and Administration 2013 1–13 Chapter 1—The New Client Interview

1. A personal representative begins to act after your death and carries out the instructions in your will.

Who should act as personal representative of your estate?

Who should act as an alternate?

2. A guardian is the person who would raise your minor children, if you and your former spouse die.

Who should act as guardian of your minor children, if necessary?

, now living in the state of

Who should act as an alternate?

, now living in the state of

3. Should your children receive their inheritance at your death free of trust?  Yes  No

Who should serve as trustee for your children’s trust?

, now living in the state of

Who should act as an alternate?

, now living in the state of

5. If your children’s inheritance is held in trust, at what age do you think they will be able to manage these funds on their own?

Do you want your children to receive a percentage of the trust at various ages prior to full distribution, and at what age? Age: ______Percentage: ______

Should your trustee be able to use trust funds to purchase a home for your child?  Yes  No

6. If something should happen to you and your children or grandchildren, Oregon law provides that your property will go to your next of kin. If you have no close relatives, the property goes to the state. If you do not want your property to be distributed this way, who should receive the property?

7. Do you own real property in a state other than Oregon? If so, where?

8. Do you have a safe deposit box?  Yes  No

Who has access?

Where is the key located?

Basic Estate Planning and Administration 2013 1–14 Chapter 1—The New Client Interview

9. An advance directive gives your representative the authority to communicate your wishes and make decisions about your health care if you are unable to do so.

Do you have an advance directive signed after 1993?  Yes  No

If you want an advance directive:

Who should act as your representative?

Representative’s address

Representative’s home phone

If this person cannot act,

Who should act as alternate representative?

Alternate representative’s address

Alternate representative’s phone

10. A durable power of attorney gives your agent the power to act for you in business and financial matters. This power usually takes effect upon your incapacity and ends at your death.

Have you signed a durable power of attorney?  Yes  No

If you have not, we will prepare a durable power of attorney for you.

Who should act as your agent?

Agent’s address

Agent’s home phone

If this person cannot serve,

Who should act as alternate agent?

Alternate agent’s address

Alternate agent’s home phone

Basic Estate Planning and Administration 2013 1–15 Chapter 1—The New Client Interview

Assets In Your Name Joint (indicate with whom) Bank Accounts Stocks and Bonds Home Other Real Estate Family Business Tangible Personal Property Retirement, Pension, IRAs, etc.

Other Assets Anticipated Inheritance

Total Assets Liabilities Home Mortgage Other Mortgage Credit Cards Other Liabilities

Total Liabilities Net Worth

Life Insurance Death Policy Company Owner Insured Beneficiary Benefit Loans? $ $ $ $

Basic Estate Planning and Administration 2013 1–16 Chapter 1—The New Client Interview

SAMPLE NEW CLIENT LETTER AND CONFLICTS MEMORANDUM [Mr. Joe Client Ms. Jane Client 101 SW Main Portland, OR 97201] Re: Estate Planning Dear [Joe and Jane]: Thank you for asking our firm to epresentr you in connection with your estate and tax planning matters. This letter confirms our appointment for ______[a.m./p.m.] on [day], [month], 20___, at my office. Enclosed is an Estate Planning Questionnaire and reading materials prepared by members of our firm that may be helpful for you to read before our initial meeting. The Estate Planning Questionnaire is designed to provide me with some basic information necessary to begin the estate planning process. Please fill it out as completely as you can and bring it to our meeting. Although it is customary for a husband and wife to have the same law firm prepare their estate plans, you may decide to retain separate counsel for your estate planning. I am enclosing a memorandum that outlines some issues that you should be aware of if you both choose to retain the same lawyer. Please take some time to review the memorandum. If you both decide to retain this firm for your estate planning, please sign the memorandum and return it to me. If you have any questions, please do not hesitate to call me. I look forward to meeting with you on ______. Very truly yours,

[Philip N. Jones [email protected]] encs.

Basic Estate Planning and Administration 2013 1–17 Chapter 1—The New Client Interview

TO OUR ESTATE PLANNING CLIENTS: You have asked [Philip N. Jones] and the law firm of [DUFFY KEKEL LLP] to represent both of you jointly in connection with estate planning and related matters. Oregon law prohibits a law firm from simultaneously representing two clients whose interests are in conflict. Although most married couples choose to have the same law firm prepare their estate plans, it is possible that circumstances may exist or that a conflict may arise that would dictate a need for separate counsel. This memorandum summarizes some potential issues that a couple should be aware of when deciding whether to retain the same law firm for their estate planning. A lawyer who represents a couple jointly will develop a coordinated estate plan for both spouses and will not be an advocate for the interests of one spouse over the interests of the other. However, certain recommendations made by the lawyer will affect income and other property rights and may affect support provisions in the event of death or divorce. Any information that a couple provides to their lawyer is strictly confidential as to third parties. However, when representing both spouses, the lawyer cannot keep confidential information given to him or her by one spouse from the other spouse. A couple may have a disagreement or conflict of interest regarding the disposition of their property or other matters involved in estate planning. This may be more likely if one spouse’s share of the combined estate is substantially larger than the other spouse’s share. A conflict may also arise if one or both spouses have children from a prior marriage, if a couple does not agree about the disposition of the estate after the first spouse dies, or in other circumstances. If a serious disagreement occurs, each spouse may wish to have separate counsel. If a serious conflict arises between a couple after they have etainedr a lawyer to represent them jointly, either spouse may decide to retain separate counsel. In the event that such a conflict occurs, our firm would not be able to continue to represent either spouse and would have to withdraw. Oregon law requires us to recommend that each spouse consult separate counsel in deciding whether to consent to joint representation. Whether you consult separate counsel is, however, up to you. If you have questions that you would like answered regarding this memorandum, please call [Philip N. Jones]. If you continue to wish to have this firm represent both of you, please sign and date this memorandum in the spaces below and bring it to the first meeting. I HAVE READ THE FOREGOING MEMORANDUM AND I CONSENT TO [DUFFY KEKEL LLP] REPRESENTING BOTH MY SPOUSE AND ME IN CONNECTION WITH ESTATE PLANNING AND RELATED MATTERS. I UNDERSTAND THAT IF CONFLICTS REGARDING OUR ESTATE PLANNING SHOULD ARISE, WE MAY NEED TO RETAIN SEPARATE COUNSEL FOR OUR ESTATE PLANNING.

[Joe Client] [Jane Client] Dated: Dated:

Basic Estate Planning and Administration 2013 1–18 Chapter 1—The New Client Interview

Basic Estate Planning and Administration 2013 1–19 Chapter 1—The New Client Interview

Basic Estate Planning and Administration 2013 1–20 Chapter 2 How Elder Law Attorneys and Guardians Can Resolve Crises and Enhance the Lives of Vulnerable Elders—Presentation Outline

Kevin Burke Senior Managing Fiduciary Beagle Burke & Associates Portland, Oregon Chapter 2—How Elder Law Attorneys and Guardians Can Resolve Crises . . . Presentation Outline

Basic Estate Planning and Administration 2013 2–ii Chapter 2—How Elder Law Attorneys and Guardians Can Resolve Crises . . . Presentation Outline

1. Designing an estate plan is planning for future crises and life changes.

2. Some are avoidable.

a. Conflict.

b. Ambiguity.

c. Overly detailed prescriptions.

3. Some are inevitable.

a. Health changes.

b. Competency/cognitive changes.

c. Evolution of relationships.

4. Person-centered planning.

Core idea: “Nothing about me without me.”

This idea is a natural support of quality estate planning.

It is 10% asking the right questions, 70% listening, and the rest is follow-through.

5. Example—Esther

a. Medical crisis, not planned for, leads to a loss of ability to care for herself and manage her own affairs.

b. Esther becomes lonely and depressed. This leads to her becoming dependent on Johnny, her impecunious nephew.

Johnny means well.

Basic Estate Planning and Administration 2013 2–1 Chapter 2—How Elder Law Attorneys and Guardians Can Resolve Crises . . . Presentation Outline

c. Johnny takes Esther to a new attorney to redraft her estate planning documents in order to be rewarded for his care of Esther by inheriting her entire estate. Esther is now under the complete control of Johnny, dependent on him for care.

d. A legal battle now erupts when Johnny comes into conflict with Esther’s son James, who lives in New York and had been given power of attorney, named as personal representative, and named as a potential guardian/conservator in the original documents.

e. How might this have been avoided?

Let’s look at the meaning of the word counselor.

Fair to ask Esther how she lives. Does she have what are called natural supports? Friends? What does she do to enjoy her days? What sorts of health issues does she face? What kind of care is it likely she will need in the future?

What are the worst case scenarios that could have been planned for? How would she like to be cared for? Where?

f. Suggestions. Johnny might have been identified as a potential in-home caregiver and a specific role for him defined.

James, Johnny, and Esther could have been encouraged to meet and plan how they might react to a crisis or change in Esther’s status.

Some form of checks and balances to encourage Esther to activate the plan could have been designed.

These are not easy conversations to facilitate, but applying the principles of person-centered planning will make good outcomes more accessible.

6. Family caregiving: A digression.

a. In-home care from professional agencies is very expensive. A live-in family member who gets a small stipend as well as room and board in return for being available to support an elder can greatly reduce these costs.

A common scenario we have used is having a live-in family or friend with a regular (daily to weekly) shift by agency staff, usually about three hours. This can reduce the cost of a care plan for at- home care from $20,000 a month to less than $2,000 a month.

Basic Estate Planning and Administration 2013 2–2 Chapter 2—How Elder Law Attorneys and Guardians Can Resolve Crises . . . Presentation Outline

b. Family members experiencing transitional times of their lives can succeed as live-in care givers. They might be grad students, recent high school graduates, or, and these folks often prove a tad problematic, relatives with poor job histories and/or a history of poor life decisions. They are facing middle age without stable employment or savings. Their fear for their own future can make them see control of a vulnerable elder as a path to security.

7. The special case of blended families.

Nothing about us without consideration of the life that came before.

Planning for a future together requires a realistic assessment of the life issues each party is likely to face. An estate plan involving blended families is really two life care plans intertwined around a relationship—a relationship that is likely to be subjected to unanticipated stresses due to the medical and psychological changes of the aging process.

Fairness—don’t create a situation where the one of the parties has a motivation to subvert planning.

8. Care management, care management, care management.

All great caregiving is relationship-based. Having the right care manager guiding and supporting the process can save thousands of dollars and ensure that the last phase of life is a time of comfort and security.

9. Ed: A success story.

10. Questions and comments.

Basic Estate Planning and Administration 2013 2–3 Chapter 2—How Elder Law Attorneys and Guardians Can Resolve Crises . . . Presentation Outline

Basic Estate Planning and Administration 2013 2–4 Chapter 3 Conflicts, Competence, and Client Development in Estate Planning and Administration

Peter R. Jarvis Hinshaw & Culbertson LLP Portland, Oregon

Contents Selected Oregon Rules of Professional Conduct ...... 3–1 Rule 1.0 Terminology ...... 3–1 Rule 1.6 Confidentiality of Information ...... 3–2 Rule 1.7 Conflict of Interest: Current Clients ...... 3–3 Rule 1.9 Duties to Former Clients ...... 3–3 Rule 1.14 Client with Diminished Capacity 3–4 Rule 1.18 Duties to Prospective Client 3–4 Rule 7.1 Communication Concerning a Lawyer’s Services ...... 3–4 Rule 7.2 Advertising 3–5 Rule 7.3 Direct Contact with Prospective Clients 3–6 Rule 7.5 Firm Names and Letterheads 3–7 Oregon Formal Opinion No. 2005-119—Conflicts of Interest, Current Clients: Fiduciaries . . . . 3–9 American Bar Association Ethics Opinions ...... 3–15 ABA Formal Ethics Opinion 05-434—Lawyer Retained by Testator to Disinherit Beneficiary That Lawyer Represents on Unrelated Matters 3–15 ABA Formal Ethics Opinion 96-404—Client Under a Disability ...... 3–15 ABA Informal Ethics Opinion 89-1530—Disclosure of Disabled Client’s Condition to Client’s Physician ...... 3–15 In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010) 3–17 Presentation Slides 3–35 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Basic Estate Planning and Administration 2013 3–ii Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

SELECTED OREGON RULES OF PROFESSIONAL CONDUCT Rule 1.0 Terminology (a) “Belief” or “believes” denotes that the person involved actually supposes the fact in question to be true. A person’s belief may be inferred from circumstances. (b) “Confirmed in writing,” when used in eferencer to the informed consent of a person, denotes informed consent that is given in writing by the person or a writing that a lawyer promptly transmits to the person confirming an oral informed consent. See paragraph (g) for the definition of “informed consent.” If it is not feasible to obtain or transmit the writing at the time the person gives informed consent, then the lawyer must obtain or transmit it within a reasonable time thereafter. (c) “Electronic communication” includes but is not limited to messages sent to newsgroups, listservs and bulletin boards; messages sent via electronic mail; and real time interactive communications such as conversations in internet chat groups and conference areas and video conferencing. (d) “Firm” or “law firm” denotes a lawyer or lawyers, including “Of Counsel” lawyers, in a law partnership, professional corporation, sole proprietorship or other association authorized to practice law; or lawyers employed in a private or public legal aid or public defender organization, a legal services organization or the legal department of a corporation or other public or private organization. Any other lawyer, including an office sharer or a lawyer working for or with a firm on a limited basis, is not a member of a firm absent indicia sufficient to establish a de facto law firm among the lawyers involved. (e) “Fraud” or “fraudulent” denotes conduct that is fraudulent under the substantive or procedural law of the applicable jurisdiction and has a purpose to deceive. (f) “Information relating to the representation of a client” denotes both information protected by the attorney-client privilege under applicable law, and other information gained in a current or former professional relationship that the client has requested be held inviolate or the disclosure of which would be embarrassing or would be likely to be detrimental to the client. (g) “Informed consent” denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct. When informed consent is required by these Rules to be confirmed in writing or to be given in a writing signed by the client, the lawyer shall give and the writing shall reflect a recommendation that the client seek independent legal advice to determine if consent should be given. (h) “Knowingly,” “known,” or “knows” denotes actual knowledge of the fact in question, except that for purposes of determining a lawyer’s knowledge of the existence of a conflict of interest, all facts which the lawyer knew, or by the exercise of reasonable care should have known, will be attributed to the lawyer. A person’s knowledge may be inferred from circumstances. (i) “Matter” includes any judicial or other proceeding, application, request for a ruling or other determination, contract, claim, controversy, investigation, charge, accusation, arrest or other particular matter involving a specific party or parties; and any other matter covered by the conflict of interest rules of a government agency. (j) “Partner” denotes a member of a partnership, a shareholder in a law firm organized as a professional corporation, or a member of an association authorized to practice law. (k) “Reasonable” or “reasonably” when used in relation to conduct by a lawyer denotes the conduct of a reasonably prudent and competent lawyer.

Basic Estate Planning and Administration 2013 3–1 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

(l) “Reasonable belief” or “reasonably believes” when used in reference to a lawyer denotes that the lawyer believes the matter in question and that the circumstances are such that the belief is reasonable. (m) “Reasonably should know” when used in reference to a lawyer denotes that a lawyer of reasonable prudence and competence would ascertain the matter in question. (n) “Screened” denotes the isolation of a lawyer from any participation in a matter through the timely imposition of procedures within a firm that are reasonably adequate under the circumstances to protect information that the isolated lawyer is obligated to protect under these Rules or other law. (o) “Substantial” when used in reference to degree or extent denotes a material matter of clear and weighty importance. (p) “Tribunal” denotes a court, an arbitrator in a binding arbitration proceeding or a legislative body, administrative agency or other body acting in an adjudicative capacity. A legislative body, administrative agency or other body acts in an adjudicative capacity when a neutral official, after the presentation of evidence or legal argument by a party or parties, will render a binding legal judgment directly affecting a party’s interests in a particular matter. (q) “Writing” or “written” denotes a tangible or electronic record of a communication or representation, including handwriting, typewriting, printing, photostatting, photography, audio or videorecording and e-mail. A “signed” writing includes an electronic sound, symbol or process attached to or logically associated with a writing and executed or adopted by a person with the intent to sign the writing. Rule 1.6 Confidentiality of Information (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b). (b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary: (1) to disclose the intention of the lawyer’s client to commit a crime and the information necessary to prevent the crime; (2) to prevent reasonably certain death or substantial bodily harm; (3) to secure legal advice about the lawyer’s compliance with these Rules; (4) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer’s representation of the client; (5) to comply with other law, court order, or as permitted by these Rules; or (6) to provide the following information in discussions preliminary to the sale of a law practice under Rule 1.17 with respect to each client potentially subject to the transfer: the client’s identity; the identities of any adverse parties; the nature and extent of the legal services involved; and fee and payment information. A potential purchasing lawyer shall have the same responsibilities as the selling lawyer to preserve information relating to the representation of such clients whether or not the sale of the practice closes or the client ultimately consents to representation by the purchasing lawyer. (7) to comply with the terms of a diversion agreement, probation, conditional reinstatement or conditional admission pursuant to BR 2.10, BR 6.2, BR 8.7or Rule for Admission Rule 6.15. A lawyer serving as a monitor of another lawyer on diversion, probation, conditional reinstatement or conditional

Basic Estate Planning and Administration 2013 3–2 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

admission shall have the same responsibilities as the monitored lawyer to preserve information relating to the representation of the monitored lawyer’s clients, except to the extent reasonably necessary to carry out the monitoring lawyer’s responsibilities under the terms of the diversion, probation, conditional reinstatement or conditional admission and in any proceeding relating thereto. Rule 1.7 Conflict of Interest: Current Clients (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a current conflict of interest. A current conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer; or (3) the lawyer is related to another lawyer, as parent, child, sibling, spouse or domestic partner, in a matter adverse to a person whom the lawyer knows is represented by the other lawyer in the same matter. (b) Notwithstanding the existence of a current conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not obligate the lawyer to contend for something on behalf of one client that the lawyer has a duty to oppose on behalf of another client; and (4) each affected client gives informed consent, confirmed in writing. Rule 1.9 Duties to Former Clients (a) A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless each affected client gives informed consent, confirmed in writing. (b) A lawyer shall not knowingly represent a person in the same or a substantially related matter in which a firm with which the lawyer formerly was associated had previously represented a client: (1) whose interests are materially adverse to that person; and (2) about whom the lawyer had acquired information protected by Rules 1.6 and 1.9(c) that is material to the matter, unless each affected client gives informed consent, confirmed in writing. (c) A lawyer who has formerly represented a client in a matter or whose present or former firm has formerly represented a client in a matter shall not thereafter: (1) use information relating to the representation to the disadvantage of the former client except as these Rules would permit or require with respect to a client, or when the information has become generally known; or (2) reveal information relating to the representation except as these Rules would permit or require with respect to a client. (d) For purposes of this rule, matters are “substantially related” if (1) the lawyer’s representation of the current client will injure or damage the former client in connection with the same transaction or legal dispute in which the lawyer previously represented the former client; or (2) there

Basic Estate Planning and Administration 2013 3–3 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

is a substantial risk that confidential factual information as would normally have been obtained in the prior representation of the former client would materially advance the current client’s position in the subsequent matter. Rule 1.14 Client with Diminished Capacity (a) When a client’s capacity to make adequately considered decisions in connection with a representation is diminished, whether because of minority, mental impairment or for some other reason, the lawyer shall, as far as reasonably possible, maintain a normal client-lawyer relationship with the client. (b) When the lawyer reasonably believes that the client has diminished capacity, is at risk of substantial physical, financial or other harm unless action is taken and cannot adequately act in the client’s own interest, the lawyer may take reasonably necessary protective action, including consulting with individuals or entities that have the ability to take action to protect the client and, in appropriate cases, seeking the appointment of a guardian ad litem, conservator or guardian. (c) Information relating to the representation of a client with diminished capacity is protected by Rule 1.6. When taking protective action pursuant to paragraph (b), the lawyer is impliedly authorized under Rule 1.6(a) to reveal information about the client, but only to the extent reasonably necessary to protect the client’s interests. Rule 1.18 Duties to Prospective Client (a) A person who discusses with a lawyer the possibility of forming a client-lawyer relationship with respect to a matter is a prospective client. (b) Even when no client-lawyer relationship ensues, a lawyer who has had discussions with a prospective client shall not use or reveal information learned in the consultation, except as Rule 1.9 would permit with respect to information of a former client. (c) A lawyer subject to paragraph (b) shall not represent a client with interests materially adverse to those of a prospective client in the same or a substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in the matter, except as provided in paragraph (d). If a lawyer is disqualified from representation under this paragraph, no lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in such a matter, except as provided in paragraph (d). (d) When the lawyer has received disqualifying information as defined in paragraph (c), representation is permissible if: (1) both the affected client and the prospective client have given informed consent, confirmed in writing, or: (2) the lawyer who received the information took reasonable measures to avoid exposure to more disqualifying information than was reasonably necessary to determine whether to represent the prospective client; and (i) the disqualified lawyer is timely screened from any participation in the matter; and (ii) written notice is promptly given to the prospective client Rule 7.1 Communication Concerning a Lawyer’s Services (a) A lawyer shall not make or cause to be made any communication about the lawyer or the lawyer’s firm, whether in person, in writing, electronically, by telephone or otherwise, if the communication: (1) contains a material misrepresentation of fact or law, or omits a statement of fact or law necessary to make the communication considered as a whole not materially misleading;

Basic Estate Planning and Administration 2013 3–4 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

(2) is intended or is reasonably likely to create a false or misleading expectation about results the lawyer or the lawyer’s firm can achieve; (3) except upon request of a client or potential client, compares the quality of the lawyer’s or the lawyer’s firm’s services with the quality of the services of other lawyers or law firms; (4) states or implies that the lawyer or the lawyer’s firm specializes in, concentrates a practice in, limits a practice to, is experienced in, is presently handling or is qualified to handle matters or areas of law if the statement or implication is false or misleading; (5) states or implies that the lawyer or the lawyer’s firm is in a position to improperly influence any court or other public body or office; (6) contains any endorsement or testimonial, unless the communication clearly and conspicuously states that any result that the endorsed lawyer or law firm may achieve on behalf of one client in one matter does not necessarily indicate that similar results can be obtained for other clients; (7) states or implies that one or more persons depicted in the communication are lawyers who practice with the lawyer or the lawyer’s firm if they are not; (8) states or implies that one or more persons depicted in the communication are current clients or former clients of the lawyer or the lawyer’s firm if they are not, unless the communication clearly and conspicuously discloses that the persons are actors or actresses; (9) states or implies that one or more current or former clients of the lawyer or the lawyer’s firm have made statements about the lawyer or the lawyer’s firm, unless the making of such statements can be factually substantiated; (10) contains any dramatization or recreation of events, such as an automobile accident, a courtroom speech or a negotiation session, unless the communication clearly and conspicuously discloses that a dramatization or recreation is being presented; (11) is false or misleading in any manner not otherwise described above; or (12) violates any other Rule of Professional Conduct or any statute or regulation applicable to solicitation, publicity or advertising by lawyers. (b) An unsolicited communication about a lawyer or the lawyer’s firm in which services are being offered must be clearly and conspicuously identified as an advertisement unless it is apparent from the context that it is an advertisement. (c) An unsolicited communication about a lawyer or the lawyer’s firm in which services are being offered must clearly identify the name and post office box or street address of the office of the lawyer or law firm whose services are being offered. (d) A lawyer may pay others for disseminating or assisting in the dissemination of communications about the lawyer or the lawyer’s firm only to the extent permitted by Rule 7.2. (e) A lawyer may not engage in joint or group advertising involving more than one lawyer or law firm unless the advertising complies with Rules 7.1, 7.2, and 7.3 as to all involved lawyers or law firms. Notwithstanding this rule, a bona fide lawyer referral service need not identify the names and addresses of participating lawyers. Rule 7.2 Advertising (a) A lawyer may pay the cost of advertisements permitted by these rules and may hire employees or independent contractors to assist as consultants or advisors in marketing a lawyer’s or law firm’s services. A lawyer shall not otherwise compensate or give anything of value to a person or organization to promote, recommend or secure employment by a client, or as a reward for having made

Basic Estate Planning and Administration 2013 3–5 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration a recommendation resulting in employment by a client, except as permitted by paragraph (c) or Rule 1.17. (b) A lawyer shall not request or knowingly permit a person or organization to promote, recommend or secure employment by a client through any means that involves false or misleading communications about the lawyer or the lawyer’s firm. If a lawyer learns that employment by a client has resulted from false or misleading communications about the lawyer or the lawyer’s firm, the lawyer shall so inform the client. (c) A lawyer or law firm may be recommended, employed or paid by, or cooperate with, a prepaid legal services plan, lawyer referral service, legal service organization or other similar plan, service or organization so long as: (1) the operation of such plan, service or organization does not result in the lawyer or the lawyer’s firm violating Rule 5.4, Rule 5.5, ORS 9.160, or ORS 9.500 through 9.520; (2) the recipient of legal services, and not the plan, service or organization, is recognized as the client; (3) no condition or restriction on the exercise of any participating lawyer’s professional judgment on behalf of a client is imposed by the plan, service or organization; and (4) such plan, service or organization does not make communications that would violate Rule 7.3 if engaged in by the lawyer. Rule 7.3 Direct Contact with Prospective Clients (a) A lawyer shall not by in-person, live telephone or real-time electronic contact solicit professional employment from a prospective client when a significant motive for the lawyer’s doing so is the lawyer’s pecuniary gain, unless the person contacted: (1) is a lawyer; or (2) has a family, close personal, or prior professional relationship with the lawyer. (b) A lawyer shall not solicit professional employment from a prospective client by written, recorded or electronic communication or by in-person, telephone or real-time electronic contact even when not otherwise prohibited by paragraph (a), if: (1) the lawyer knows or reasonably should know that the physical, emotional or mental state of the prospective client is such that the person could not exercise reasonable judgment in employing a lawyer; (2) the prospective client has made known to the lawyer a desire not to be solicited by the lawyer; or (3) the solicitation involves coercion, duress or harassment. (c) Every written, recorded or electronic communication from a lawyer soliciting professional employment from a prospective client known to be in need of legal services in a particular matter shall include the words “Advertisement” in noticeable and clearly readable fashion on the outside envelope, if any, and at the beginning and ending of any recorded or electronic communication, unless the recipient of the communication is a person specified in paragraph (a). (d) Notwithstanding the prohibitions in paragraph (a), a lawyer may participate with a prepaid or group legal service plan operated by an organization not owned or directed by the lawyer that uses in-person or telephone contact to solicit memberships or subscriptions for the plan from persons who are not known to need legal services in a particular matter covered by the plan.

Basic Estate Planning and Administration 2013 3–6 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Rule 7.5 Firm Names and Letterheads (a) A lawyer may use professional announcement cards, office signs, letterheads, telephone and electronic directory listings, legal directory listings or other professional notices so long as the information contained therein complies with Rule 7.1 and other applicable Rules. (b) A lawyer may be designated “Of Counsel” on a letterhead if the lawyer has a continuing professional relationship with a lawyer or law firm, other than as a partner or associate. A lawyer may be designated as “General Counsel” or by a similar professional reference on stationery of a client if the lawyer or the lawyer’s firm devotes a substantial amount of professional time in the representation of the client. (c) A lawyer in private practice: (1) shall not practice under a name that is misleading as to the identity of the lawyer or lawyers practicing under such name or under a name that contains names other than those of lawyers in the firm; (2) may use a trade name in private practice if the name does not state or imply a connection with a governmental agency or with a public or charitable legal services organization and is not otherwise in violation of Rule 7.1; and (3) may use in a firm name the name or names of one or more of the retiring, deceased or retired members of the firm or a predecessor law firm in a continuing line of succession. The letterhead of a lawyer or law firm may give the names and dates of predecessor firms in a continuing line of succession and may designate the firm or a lawyer practicing in the firm as a professional corporation. (d) Except as permitted by paragraph (c), a lawyer shall not permit his or her name to remain in the name of a law firm or to be used by the firm during the time the lawyer is not actively and regularly practicing law as a member of the firm. During such time, other members of the firm shall not use the name of the lawyer in the firm name or in professional notices of the firm. This rule does not apply to periods of one year or less during which the lawyer is not actively and regularly practicing law as a member of the firm if it was contemplated that the lawyer would return to active and regular practice with the firm within one year. (e) Lawyers shall not hold themselves out as practicing in a law firm unless the lawyers are actually members of the firm. (f) Subject to the requirements of paragraph (c), a law firm practicing in more than one jurisdiction may use the same name in each jurisdiction, but identification of the firm members in an office of the firm shall indicate the jurisdictional limitations of those not licensed to practice in the jurisdiction where the office is located.

Basic Estate Planning and Administration 2013 3–7 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Basic Estate Planning and Administration 2013 3–8 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

FORMAL OPINION NO. 2005-119 Conflicts of Interest, Current Clients: Fiduciaries

Facts: Plaintiff sues Widow and the estate of Widow’s late husband in a personal injury tort action. Widow is the duly appointed personal representative of her late husband’s estate. Lawyer A has been asked to represent Widow in this litigation, both as an individual and in her capacity as personal representative. The potential liability of Widow and of the estate to Plaintiff could be different, and there are beneficiaries of the estate in addition to Widow whose economic interests may differ from those of Widow. Employee sues Employer, who is also a trustee of a retirement trust. Employee asserts that Employer has violated the rights of Employee as a beneficiary of the trust. Lawyer B, who generally advises Employer with respect to the trust and who advised Employer with respect to the handling of Employee’s claim, is asked to represent Employer in the litigation.

Questions: 1. May Lawyer A represent Widow both as an individual and in her capacity as personal representative? 2. If, during the course of their professional relationship, Widow informs Lawyer A that she has in the past breached the fiduciary duties that she owes to the estate, may Lawyer A inform the beneficiaries of the estate of the breaches? 3. If Widow informs Lawyer A that she intends to breach such duties in the future, may Lawyer A inform the beneficiaries? 4. May Lawyer B represent Employer in the trust litigation brought by Employee B, in light of the fact that Employee is a beneficiary of the trust?

Conclusions: 1. Yes, but see discussion. 2. No, qualified.

Basic Estate Planning and Administration 2013 3–9 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

3. Yes, qualified. 4. Yes.

Discussion: 1. The Estate Questions. As we observed in OSB Formal Ethics Op No 2005-62, a lawyer for a personal representative represents the personal representative and not the estate or the beneficiaries. It follows that when Lawyer A represents Widow as an individual and Widow in her capacity as personal representative, Lawyer A has only one client. Alternatively stated, the fact that Widow may have multiple interests as an individual and as a fiduciary does not mean that Lawyer A has more than one client, even if Widow’s personal interests may conflict with her obligations as a fiduciary. Representing one person who acts in several different capacities is not the same as representing several different people. Consequently, the current-client conflict rules in Oregon RPC 1.7,1 do not apply to Lawyer A’s situation. Cf. In re Harrington, 301 Or 18, 27, 718 P2d 725 (1986).

1 Oregon RPC 1.7 provides: (a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a current conflict of interest. A current conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; (2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer; or (3) the lawyer is related to another lawyer, as parent, child, sibling, spouse or domestic partner, in a matter adverse to a person whom the lawyer knows is represented by the other lawyer in the same matter. (b) Notwithstanding the existence of a current conflict of interest under paragraph (a), a lawyer may represent a client if: (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not obligate the lawyer to contend for something on behalf of one client that the lawyer has a duty to oppose on behalf of another client; and (4) each affected client gives informed consent, confirmed in writing.

Basic Estate Planning and Administration 2013 3–10 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

The absence of any lawyer-client relationship with the estate or the beneficiaries does not permit Lawyer A to assist Widow in any conduct that would be illegal or fraudulent or otherwise in violation of any rule of professional conduct. See, e.g., Oregon RPC 1.2(c) (prohibiting lawyer from counseling or assisting a client “in conduct that the lawyer knows to be illegal or fraudulent”); Oregon RPC 3.1 (prohibiting lawyer from taking any action on behalf of client that has no basis in law or fact); Oregon RPC 8.4(a)(3) (prohibiting lawyer from engaging in “conduct involving dishonesty, fraud, deceit or misrepresentation that reflects adversely on the lawyer’s fitness to practice law”).2 As noted above, Lawyer A may not assist Widow in improper conduct. This does not mean, however, that Lawyer A is free to reveal information relating to the representation of Widow any more than lawyers for other clients may. Oregon RPC 1.6 provides, in pertinent part: (a) A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b). (b) A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary: (1) to disclose the intention of the lawyer’s client to commit a crime and the information necessary to prevent the crime; (2) to prevent reasonably certain death or substantial bodily harm; (3) to secure legal advice about the lawyer’s compliance with these Rules;

2 A further clarification also may be appropriate. If Lawyer A undertook to represent the beneficiaries and not just the personal representative (as, for example, by giving the beneficiaries individual legal advice about the estate or advising the beneficiaries on other matters), a current client conflict could exist under Oregon RPC 1.7 because Lawyer A would then have more than one client. Cf. The Florida Bar v. Brigman, 307 So2d 161 (Fla 1975); Richardson v. State Bar, 19 Cal2d 707, 122 P2d 889 (1942). But see Kidney Association of Oregon v. Ferguson, 315 Or 135, 843 P2d 442 (1992) (theoretical potential for multiple current-client conflict is not automatically a conflict because the two clients—the personal representative of the estate and its sole beneficiary—shared interest in maximizing distribution). See also OSB Formal Ethics Op Nos 2005-85 and 2005- 46 regarding the “who is the client” question.

Basic Estate Planning and Administration 2013 3–11 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

(4) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer’s representation of the client; (5) to comply with other law, court order, or as permitted by these Rules. . . . On the facts given above, Widow’s communication to Lawyer about her past wrongs was made in the course of her representation by Lawyer A and thus constitutes information relating to the representation that is protected by Oregon RPC 1.6. It follows that unless one of the exceptions to Oregon RPC 1.6 applies, Lawyer A must not reveal Widow’s past wrongs. Lawyer A may, however, discuss with Widow the legal consequences of her misconduct and counsel her about appropriate corrective measures. Oregon RPC 1.2(c). Lawyer cannot assist Widow in withholding or misrepresenting information she must disclose to the probate court. Oregon RPC 1.2(b), 3.3(a)–(b). In fact, Lawyer would be obligated to seek leave to withdraw if not withdrawing would cause Lawyer to become directly involved in wrongdoing. See, e.g., Oregon RPC 1.16(a).3 Cf. OSB Formal Ethics Op No 2005-53. In withdrawing, however, Lawyer cannot disclose Widow’s past wrong or other information protected by Oregon RPC 1.6. The result would be somewhat different if Widow’s statements were not simply communications about past wrongs, but also communications of an intention to commit a future crime. See, e.g., Oregon RPC 1.6(b)(1); OEC 503(4)(a). Lawyer could then ethically disclose the intention of Widow to commit the crime and the information necessary to prevent it. Cf. State v. Phelps, 24 Or App 329, 545 P2d 901 (1976). See also United States v. Zolin, 905 F2d 1344 (9th Cir 1990); State v. Belva Ray, 36 Or App 367, 584 P2d 362 (1978); State ex rel N. Pacific Lbr. v. Unis, 282 Or 457, 579 P2d 1291 (1978). As an ethics matter, however, disclosure in this case would be permissive rather than mandatory. OSB Formal Ethics Op No 2005-34. 2. The Trust Question. As discussed above in connection with representation of a personal representative, the lawyer for a trustee represents the trustee and not the trust or its beneficiaries. If the rule were otherwise, it would in effect be impossible for a trustee to obtain legal advice independent of the

3 With regard to further handling of the matter if the court refuses to allow withdrawal, see OSB Formal Ethics Op No 2005-34.

Basic Estate Planning and Administration 2013 3–12 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

beneficiaries. Although there is some limited case law to the contrary from other jurisdictions,4 we do not believe that these cases are either well-reasoned or consistent with the Oregon approach to representation of fiduciaries. Cf. Oregon RPC 1.13(a) (“a lawyer employed or retained by an organization represents the organization acting through its duly authorized constituents”). Here, too, the fact that Lawyer B does not represent the trust beneficiaries does not permit Lawyer B to assist Employer in any wrongdoing. Cf. Whitfield v. Tomasso, 682 F Supp 1287 (EDNY 1988). Similarly, if the corporate employer and fiduciary were not the same or if Lawyer B also represented the beneficiaries as clients, a conflict of interest under Oregon RPC 1.7 could conceivably exist. Cf. Intern. Union v. Allis-Chalmers Corp., 447 F Supp 766, 770–771 (ED Wis 1978) (declining, on facts before court, to find conflict in simultaneous representation of employer and trustee, who were separate entities).

Approved by Board of Governors, August 2005.

4 Cf. Hechenberger v. Western Elec. Co., 570 F Supp 820, 823 (ED Mo 1983), aff’d on other grounds, 742 F2d 453 (8th Cir 1984); Helt v. Metropolitan Dist. Com’n, 113 FRD 7, 9 (D Conn 1986); Washington-Baltimore v. Washington Star Co., 543 F Supp 906, 909 (DC Cir 1982). COMMENT: For additional information on this general topic and other related subjects, see THE ETHICAL OREGON LAWYER §§4.1–4.11, 4.14, 4.18, 6.1–6.5, 6.12, 7.39, 9.1–9.2, 9.7–9.11, 9.18, 9.20–9.21 (Oregon CLE 2003); RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS §§32–33, 121, 128, 130 (2003); and ABA Model Rules 1.2(d), 1.6–1.7, 1.16, 8.4(c). See also Washington Informal Ethics Op Nos 1226, 1849 (unpublished).

Basic Estate Planning and Administration 2013 3–13 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Basic Estate Planning and Administration 2013 3–14 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

AMERICAN BAR ASSOCIATION ETHICS OPINIONS ABA Formal Ethics Opinion 05-434—Lawyer Retained by Testator to Disinherit Beneficiary That Lawyer Represents on Unrelated Matters There ordinarily is no conflict of interest when a lawyer is engaged by a testator to disinherit a beneficiary whom the lawyer represents on unrelated matters, unless doing so would violate a legal obligation of the testator to the beneficiary, or unless there is a significant risk that the lawyer’s representation of the testator will be materially limited by the lawyer’s responsibilities to the beneficiary. The opinion is available to Westlaw or Lexis subscribers, or it may be purchased from the ABA at http:// apps.americanbar.org/abastore/index.cfm?section=main&fm=Product.AddToCart&pid=5611100434. ABA Formal Ethics Opinion 96-404—Client Under a Disability A lawyer who reasonably determines that his client has become incompetent to handle his own affairs may take protective action on behalf of the client, including petitioning for the appointment of a guardian. Withdrawal is appropriate only if it can be accomplished without prejudice to the client. The protective action should be the least restrictive under the circumstances. The appointment of a guardian is a serious deprivation of the client’s rights and ought not be undertaken if other, less drastic, solutions are available. With proper disclosure to the court of the lawyer’s self-interest, the lawyer may recommend or support the appointment of a guardian who the lawyer reasonably believes would be a fit guardian, even if the lawyer anticipates that the recommended guardian will hire the lawyer to handle the legal matters of the guardianship estate. However, a lawyer with a disabled client should not attempt to represent a third party petitioning for a guardianship over the lawyer’s client. The opinion is available to Westlaw or Lexis subscribers, or it may be purchased from the ABA at http:// apps.americanbar.org/abastore/index.cfm?section=main&fm=Product.AddToCart&pid=5611100404. ABA Informal Ethics Opinion 89-1530—Disclosure of Disabled Client’s Condition to Client’s Physician A lawyer may consult a client’s physician concerning a medical condition which interferes with the client’s ability to communicate or make decisions concerning the representation even though the client has not consented and is currently incapable of doing so. The opinion is available to Westlaw, Lexis, or ABA/BNA Lawyers’ Manual on Professional Conduct subscribers.

Basic Estate Planning and Administration 2013 3–15 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Basic Estate Planning and Administration 2013 3–16 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

348 Or. 574 238 P.3d 13 In re Complaint as to the Conduct of D. Rahn HOSTETTER, Accused. (OSB Nos. 07-37, 007-161; SC S056471). Supreme Court of Oregon,En Banc. Argued and Submitted March 1, 2010. Decided July 29, 2010.

[238 P.3d 14] court reviews the trial panel decision de novo. ORS 9.536(2); BR 10.6. The Bar must establish [238 P.3d 15] misconduct by clear and convincing evidence. BR 5.2. Clear and convincing evidence means Roy Pulvers, Hinshaw & Culertson LLP, “evidence establishing that the truth of the facts Portland, argued the cause and filed the briefs asserted is highly probable.” In re Cohen, 316 for the accused. Or. 657, 659, 853 P.2d 286 (1993). As to the Stacy Hankin, Assistant Disciplinary Ingle matter, we conclude that the accused Counsel, Oregon State Bar, Tigard, argued the violated DR 5-105(C) and RPC 1.9(a). As to the Grohs matter, we conclude that the accused cause and filed the brief for the Oregon State 1 Bar. violated DR 1-102(A)(3) and RPC 8.4(a)(3). We impose a suspension of 150 days. PER CURIAM. I. FACTS AND PROCEDURAL HISTORY A. [348 Or. 576] The Ingle Matter

In this lawyer disciplinary matter, the Bar In the mid 1990s, the accused represented charged the accused with ethical violations in Pearl Ingle in obtaining a series of loans from two separate matters. In the Ingle matter, the Bar Andrew Hohn and alleged that the accused violated the former- client conflict-of-interest rule. The trial panel [348 Or. 577] concluded that the accused violated DR 5- drafted the documents to evidence and secure 105(C) and RPC 1.9(a) when, having those loans. The documents included several represented the borrower in the underlying loan promissory notes and a mortgage in favor of transaction, he subsequently represented the Hohn on certain property owned by Ingle (loan lender in collecting the loans from the transactions). The accused also represented Ingle borrower's estate. In the Grohs matter, the Bar in obtaining from Hohn partial releases of the alleged that the accused violated the rule against mortgage securing the loans. In 2004, Ingle died, misrepresentation. The trial panel concluded that and her daughter was appointed personal the accused violated RPC 8.4(a)(3) when he representative of Ingle's estate. Ingle's will “acquiesced [in] the removal” of a notarized directed that all her “just debts and liabilities” be signature page from one deed and had it placed “fully paid.” on a second deed, which contained a different legal description, and then had the altered deed During 2004 and 2005, the accused recorded. In part because the accused had been represented Hohn in collecting the outstanding disciplined previously, the trial panel loans that Hohn had made to Ingle during her recommended that he be suspended from the lifetime (the debt collection). 2 In particular, practice of law for 150 days. [238 P.3d 16] Pursuant to ORS 9.536(1) and Bar Rules of Procedure (BR) 10.1 and 10.3, the accused seeks the accused asserted a probate claim on Hohn's review of the trial panel's conclusions. This behalf against Ingle's estate based on the

- 1 -

Basic Estate Planning and Administration 2013 3–17 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

promissory notes and mortgages that he had accept the proceeds of the bank loan in exchange previously prepared for Ingle. The personal for releasing parcel 3. representative disallowed the claim. The accused then demanded that the personal representative The Wildes retained the accused to pay Hohn $81,519.29 or execute a new represent them in negotiating the new agreement promissory note for that amount, or the accused with Grohs. In November 2004, the accused would initiate a foreclosure action against Ingle's faxed Grohs a letter setting out the terms of the property-the same property at issue in the new agreement. The letter enclosed for Grohs's mortgages that the accused had prepared on signature a Deed in Lieu of Foreclosure for Ingle's behalf. parcels 1, 2, and 4 (deed on three parcels) and a promissory note for the remaining balance. In a Eventually, the accused brought an action handwritten postscript, the accused informed against Ingle's estate asserting claims for breach Grohs that, to cancel the foreclosure sale, Grohs of contract, action on promissory notes, and would also need to sign a Deed in Lieu of judicial foreclosure of real property. The Foreclosure on all four parcels (deed on four personal representative challenged Hohn's parcels). Apparently, the deed on four parcels claims, arguing that some loans were barred by was necessary to protect the Wildes in case the statute of limitations, were unsupported by Grohs's loan did not close. In a later fax, the documentation, or had already been repaid. The accused assured Grohs that, if Grohs's loan parties ultimately settled the claims for closed, the foreclosure would be cancelled and $52,660.64. the accused would destroy the deed on four parcels. However, if the loan did not close, the The personal representative registered a accused would record the deed on four parcels complaint with the Bar. The Bar charged the rather than the deed on three parcels. accused with violating DR 5-105(C) (subsequently representing a client in the same Grohs signed and notarized the deed on or a significantly related matter as a former four parcels. The accused immediately cancelled client when the interests of the current and the foreclosure sale. Grohs's bank loan closed a former clients are in actual or likely conflict) few weeks later, and parcel 3 was reconveyed to and RPC 1.9(a) (representing a client in the Grohs. same or substantially related matter as a former client in which the The accused was scheduled to be away on vacation the next week. Before he left, he [348 Or. 578] arranged for the Wildes to come to the office during his absence and execute the remaining current client's interests are materially adverse to documents, including the deed on three parcels. the interests of the former client without The accused reviewed the documents that the obtaining informed consent, confirmed in Wildes were to sign and dictated a letter to writing). The trial panel concluded that the Grohs, sent the next day, informing accused violated the foregoing provisions. [348 Or. 579] B. The Grohs Matter her that the deed on three parcels would be Anna Grohs purchased property from recorded that day. Oliver and Christie Wilde in 2003. The property consisted of four parcels. Grohs defaulted on a There is no record that Grohs ever signed payment, and the Wildes initiated a foreclosure the deed on the three parcels. Instead, the proceeding. Grohs obtained a bank loan to pay signature page from the deed on four parcels- the Wildes, and the parties discussed entering containing Grohs's notarized signature-was into a new agreement in which the Wildes would affixed to the deed on three parcels. The Wildes

- 2 -

Basic Estate Planning and Administration 2013 3–18 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

executed the deed on three parcels, and the deed exchanges. And somewhere in there, there was was sent for recording. Due to unrelated errors an agreement to, for time's sake, to use, since in the paperwork, the deed was re-sent for she had already signed, the [deed on four recording at least two times, and was eventually parcels].” 4 recorded sometime after January 1, 2005. 3 The accused also testified that it was not [238 P.3d 17] Grohs's idea to switch the pages, but his own:

About two years later, Grohs discovered that her “No, she wouldn't have thought of that. I signature from the deed on four parcels had been think that, and I'm pretty confident of this, I just affixed to the deed on three parcels, and she think I suggested an option that I can send this to complained to the Bar. The accused responded you, but guess what, it reads the same and so we by letter to Grohs's complaint. In that letter, the could just change the legal description.” accused acknowledged that he attached the signature page from the deed on four parcels to Contrary to his letter to the Bar and his the deed on three parcels, but asserted that he deposition testimony, the accused testified at the had Grohs's permission to do so: disciplinary hearing that he first learned of the switched signature pages when the Bar informed “Ms. Grohs was under time pressure to get him of Grohs's complaint against him. The her loan closed. I told Ms. Grohs by telephone accused also testified that he did not know how that I would send her the documents. I told her the signature page from the deed on four parcels that the Promissory Note did not need to be became attached to the deed on three parcels. notarized, but the [deed on three parcels] did Faced with the fact that his billing records and need to be notarized. I told her that, if she documentation revealed no discussion with wanted to avoid the hassle of going to a notary Grohs about affixing the signature page from the again, I could use the deed she signed previously deed on four parcels to the deed on three parcels, and substitute the legal description of Parcels 1, the accused conceded that he had merely 2 and 3 in place of the legal description for speculated that he and Grohs discussed saving Parcels 1,2,3, and 4. She agreed.” her a trip to the notary, and that he had assumed that they discussed it because he “would not The Bar charged the accused with violating ever do anything like that without her DR 1-102(A)(3) (conduct involving agreement.” The accused opined that his staff misrepresentation) and RPC 8.4(a)(3) (conduct possibly “just mixed it up” because the accused involving misrepresentation that reflects was gone on vacation at the time and his legal adversely on the lawyer's fitness to practice assistant told him that he did not instruct her to law). affix the signature page from the deed on four parcels to the deed on three parcels. The accused gave sworn deposition testimony that confirmed the version of events [348 Or. 581] he gave to the Bar in his letter. In that testimony, he explained: The trial panel found that “the [a]ccused or someone in his office” removed the notarized “All I know is, is that there was a time signature page from the deed on four parcels, when we were pressured to-she was pressured. attached it to the deed on three She's the one that was feeling pressure, not from me, but from wanting to salvage her [238 P.3d 18]

[348 Or. 580] parcels, and had it recorded. The trial panel thus concluded that the accused violated RPC interest in the property, to have all the 8.4(a)(3). The trial panel did not address whether documents signed. And [there] were Fed-Ex

- 3 -

Basic Estate Planning and Administration 2013 3–19 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

the accused also violated DR 1-102(A)(3) as 1. Whether a deceased client is a “former charged by the Bar. 5 client” for purposes of the former-client conflict-of-interest rules Based on the above violations, the trial panel concluded that the appropriate sanction in As a threshold matter, we must first this case was a 150-day suspension. determine whether it is possible for an attorney to violate the former-client conflict-of-interest II. DISCUSSION A. Ingle Matter rules when his or her former client is deceased. The accused essentially contends that no The accused seeks review of the trial violation was possible because Ingle, his former panel's decision that he violated DR 5-105(C) client, is deceased, and, accordingly, cannot and RPC 1.9(a) in the Ingle matter. DR 5-105(C) have interests adverse to Hohn, and cannot prohibits an attorney, after representing a former suffer injury from the subsequent representation. client in a matter, from representing another The Bar responds that a deceased client's client “in the same or a significantly related interests survive his or her death. In particular, matter when the interests of the current and the Bar contends that, in this case, Ingle's former clients are in actual or likely conflict.” surviving interests are expressly described in her RPC 1.9(a) similarly prohibits an attorney, after will. representing a former client in a matter, from representing another person “in the same or a This case presents a matter of first substantially related matter in which that impression in Oregon-that is, whether a former person's interests are materially adverse to the client, now deceased, is protected by the former- interests of the former client unless each affected client conflict-of-interest rules. Oregon is not client gives informed consent, confirmed in alone, as no jurisdiction appears to have directly writing.” addressed the issue. At best, a few jurisdictions have addressed the related issue of whether In this case, the Bar has charged that the dissolved corporations are “clients” for purposes accused's representation of Hohn, without of the former-client conflict-of-interest rules. obtaining informed consent, confirmed in Those jurisdictions are split on the issue. Some writing, from the estate and Hohn, constituted a jurisdictions hold that, upon a corporation's former-client conflict of interest in violation of dissolution, a conflict of interest cannot exist, both DR 5-105(C) and RPC 1.9(a). On review, because the entity is “dead,” no longer exists, the Bar contends that the accused represented and, accordingly, cannot have interests adverse Ingle in a matter and then later represented Hohn to the current client. See, e.g., Bagdan v. Beck, in the same or a substantially related matter 140 F.R.D. 660, 667 (D.N.J.1991) (holding that, when Ingle's surviving interests were materially because the former client of the accused (the adverse to Hohn's interests because of their corporation) for all intents and purposes is former relationship as debtor and creditor. The “dead,” the former-client conflict rule does not accused responds that Ingle had no interests apply). Conversely, other jurisdictions hold that because she was deceased; the debt collection a bankruptcy trustee “stands in the shoes” of the was corporation as former client, and the accused in [348 Or. 582] later litigation may not represent an interest adverse to the successors in interests of the not the same matter as, or substantially related failed corporation. See, e.g., FDIC v. Berry, No to, the loan transactions; and Hohn's and Ingle's 1-85-62, (ED Tenn, June 10, 1985) (as discussed interests therefore were not materially adverse. in Bagdan, 140 F.R.D. at 666, with full opinion We turn to those arguments. [238 P.3d 19]

- 4 -

Basic Estate Planning and Administration 2013 3–20 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

attached as Appendix Exhibit 1) (disqualifying shall not subsequently represent another client in counsel for former officers and directors of the same or a significantly related defunct corporation because those attorneys previously had represented corporation). [348 Or. 584]

[348 Or. 583] matter when the interests of the current and former clients are in actual or likely conflict.” The other context in which courts have addressed whether a client's interests survive his (Emphasis added.) DR 5-105(D) provides or her death arises in criminal cases, in which an an exception when “both the current client and attorney or firm represents a criminal defendant the former client consent to the representation after having previously represented the victim- after full disclosure.” now deceased-on unrelated criminal charges. See, e.g., State ex rel. S.G., 175 N.J. 132, 134- RPC 1.9(a) provides: 35, 814 A.2d 612, 614 (2003) (holding that a “A lawyer who has formerly represented a current-client conflict of interest existed when client in a matter shall not thereafter represent firm represented both the defendant and his another person in the same or a substantially victim in unrelated criminal matters, even after related matter in which that person's interests are the victim's death, during the two-week period 6 materially adverse to the interests of the former before the victim's matter was terminated). The client unless each affected client gives informed issue in those cases centered on whether the consent, confirmed in writing.” former representation of the victim in the unrelated criminal matter prevented (Emphasis added.) constitutionally adequate representation of the criminal defendant in the subsequent criminal The wording of those rules focuses on the proceeding. That is, the issue was whether a interests of the former client. That focus conflict of interest created such a division of supports the Bar's position that, because a loyalty that the attorney could not provide the client's interests can and often do survive a adequate representation of the current client that client's death, the rules' protections extend to a the constitution requires. Here, we must former client even after his or her death. But it is determine whether a conflict of interest exists not just any interests of the former client that such that the attorney violates a disciplinary rule must survive. In the context of the disciplinary that protects the interests of the former client. rule, it is the former client's interests that pertain Accordingly, the two contexts are qualitatively to the matter in which the lawyer previously distinct, and the former provides little guidance represented the former client. It is those interests in answering the latter. that must survive the former client's death.

We thus turn to the former-client conflict- The rules also require that the former of-interest rules themselves to determine client's interests “are” in actual or likely conflict whether those rules' protections extend to former with (DR 5-105(C)) or materially adverse to clients who are deceased. In interpreting a (RPC 1.9(a)) the current client's interests. disciplinary rule, this court looks to the wording Accordingly, the attorney must assess whether of the rule, read in context. See In re Haws, 310 the pertinent interests of the deceased former Or. 741, 746-48, 801 P.2d 818 (1990) (using that client will be adverse to the interests of the methodology to interpret disciplinary rule, subsequent client during the subsequent focusing on meaning of rule's key words). DR 5- representation. That is, the proper analysis is not 105(C) provides, in part: whether the interests of the former and current client were adverse “Except as permitted by DR 5-105(D), a lawyer who has represented a client in a matter [238 P.3d 20]

- 5 -

Basic Estate Planning and Administration 2013 3–21 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

during the former client's lifetime, but whether “(1) Representation of the present client in the surviving interests of the former client are the subsequent matter would, or would likely, adverse to the current client during the inflict injury or damage upon the former client subsequent representation. in connection with any proceeding, claim, controversy, transaction, investigation, charge, In sum, we conclude that, pursuant to DR accusation, arrest or other particular matter in 5-105(C) and RPC 1.9(a), an attorney is which the lawyer previously represented the prohibited from engaging in a former-client former client; or conflict of interest even when the former client is deceased, as long as the former client's “(2) Representation of the former client interests survive his or her death and are adverse provided the lawyer with confidences or secrets to the current client during * * * the use of which would, or would likely, inflict injury or damage upon the former client [348 Or. 585] in the course of the subsequent matter.”

the subsequent representation. Having DR 5-105(C)(1), (2). determined that a deceased client may be a former client for purposes of the former-client This court first defined the term conflict-of-interest rules, we turn to whether the “significantly related” in In re Brandsness, 299 Bar proved the necessary elements under those Or. 420, 430-31, 702 P.2d 1098 (1985). In rules. Brandsness, this court explained that

2. Whether the loan transaction and debt [348 Or. 586] collection is the same or a substantially related matter “the principle embodied in the concept of ‘significantly related’ matters consists of two The accused contends that there is no subtests: former-client conflict of interest because the loan transaction and the debt collection is not the “ a. Matter Specific. same or a substantially related matter. The Bar disagrees. According to the Bar, the loan “Representation of the present client in the transaction and the debt collection are the same subsequent matter would, or would likely, inflict matter because the accused “represented Ingle's injury or damage upon the former client in any interests as borrower in entering into various matter in which the lawyer previously obligations, including promissory notes, with represented the former client; or Hohn” and then “sought to enforce those same “ b. Information Specific. obligations, but this time on behalf of Hohn, the lender.” Alternatively, the Bar argues that the “Representation of the former client debt collection is substantially related to the loan provided the lawyer with confidential transaction. Because, as explained below, we information the use of which would, or would determine on this record that the loan transaction likely, inflict injury or damage upon the former and the debt collection are both significantly and client in the subsequent matter.” substantially related, we need not determine whether the matters are the “same.” Id. (emphasis in original). This court clarified that matter-specific conflicts are “keyed We first consider whether the loan to a particular matter,” while information- transactions and debt collection are specific conflicts are “based on particular “significantly related” under DR 5-105(C). information.” Id. at 431, 702 P.2d 1098. Matters are “significantly related” for purposes of DR 5-105(C) if either:

- 6 -

Basic Estate Planning and Administration 2013 3–22 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

When DR 5-105(C) was later promulgated, represented husband in divorce and then, on it largely codified the definition of “significantly behalf of wife's new spouse, sought to collect related” that this court had formulated in against husband the payments under the Brandsness. In re McKee, 316 Or. 114, 129, 849 settlement that had been negotiated while the P.2d 509 (1993) (“[t]he new rules codified this attorneys represented him). In articulating the court's holding in In re Brandsness ”); see also test for “significantly related” matters in Kidney Association of Oregon v. Ferguson, 315 Brandsness, this court described those cases as Or. 135, 140 n. 7, 145 n. 13, 843 P.2d 442 “such egregious conflicts that we could decide (1992) (observing that DR 5-105 “since has been them without searching for the boundary amended, but its effect essentially is the same,” between the acceptable and unacceptable that and that “changes in DR 5-105 reflect an closer cases * * * require us to locate.” 299 Or. evolution of terminology rather than at 430, 702 P.2d 1098. Later, after DR 5-105(C) substance”). Accordingly, this court's definition was promulgated, this court reaffirmed that, of “significantly related” in Brandsness is under the matter-specific-conflict subtest for relevant to this court's interpretation of that term “significantly related” matters, an attorney who under DR 5-105(C). represented a former client in a transaction may not then represent another client in enforcing his [238 P.3d 21] rights arising out of that same transaction. McKee, 316 Or. at 129-30, 849 P.2d 509 The Bar contends that the matters in this (relying on DR 5-105(C)(1), slander of title case are “significantly related” because the action was “significantly related” to earlier accused engaged in a matter-specific conflict dissolution proceeding because the accused under DR 5-105(C)(1). That is, according to the attempted to enforce provisions of dissolution Bar, “[t]o the extent there was, or even could judgment that he drafted on behalf of former have been, a dispute * * * as to the validity of client). the loans or the amounts due, the [a]ccused's pursuit of Hohn's interests would, or would [348 Or. 588] likely, inflict injury or damage upon Ingle.” 7 Against that backdrop, we have no trouble [348 Or. 587] concluding that the accused engaged in a matter- specific conflict in this case and, thus, the In several cases decided before Brandsness, this matters are “significantly related” for purposes court consistently held that a former-client of DR 5-105(C)(1). Here, the accused, in the conflict of interest exists when an attorney loan transactions, drafted several promissory represents a former client in a transaction and notes and mortgages on behalf of Ingle in then subsequently represents another client in obtaining loans from Hohn. He then, in the debt enforcing his or her rights arising out of that collection, subsequently represented Hohn in same transaction. See In re Holmes, 290 Or. 173, enforcing his rights arising out of those same 182-84, 619 P.2d 1284 (1980) (improper for documents. Such an “egregious conflict” leaves attorney to represent former client in negotiating us with no doubt that the accused's settlement of debt, and then represent representation of Hohn in the debt collection subsequent client in suing former client to “would, or would likely” inflict injury or collect that same debt); In re Brownstein, 288 damage upon Ingle in connection with the loan Or. 83, 87, 602 P.2d 655 (1979) (an attorney transactions. cannot represent a former client in a transaction and then subsequently represent another client in The accused nonetheless argues that the an attempt to enforce his or her rights arising out matters are not “significantly related,” reasoning of that same transaction); In re Mumford, 285 that Ingle could not be injured or damaged by Or. 559, 561-62, 591 P.2d 1377 (1979) (patent the subsequent representation, because she was conflict of interest existed when attorneys deceased. As noted, matters are “significantly

- 7 -

Basic Estate Planning and Administration 2013 3–23 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

related” under DR 5-105(C)(1) when, as acknowledged, Hohn's goal in the debt pertinent here, representation of the present collection was to collect “as much as possible client in the subsequent matter “would, or would pursuant to the promissory notes and even some likely, inflict injury or damage upon the former loans under which there were no notes[.]” Thus, client [.]” (Emphasis added.) The wording of the accused's representation of Hohn “would, or that portion would likely” injure or damage Ingle's surviving interests in the loan transactions in violation of [238 P.3d 22] DR 5-105(C).

of the rule focuses on the former client, and not We turn to whether the matters are on the interests of the former client. That focus- “substantially related” pursuant to RPC 1.9(a). at first blush-could support the accused's Whether the analysis under RPC 1.9(a) differs contention that, once a client is deceased, he or from DR 5-105(C) depends on whether the term she could not be injured or damaged and, thus, “substantially related” differs in meaning from matters could not be significantly related under “significantly related.” At the time of the DR 5-105(C). However, that definitional accused's conduct, RPC 1.9(a) provided no provision must be understood in the context of definition of “substantially related.” RPC 1.9 the prohibition itself, which arises when, in (2005). 8 The new rule thus did not contain the connection with the subsequent representation, definition previously set out in DR 5-105(C). the “interests” of the current and former client are in actual or likely conflict. Given that The term was changed from “significantly context, the injury or damage to the former related” to “substantially related” when the client to which the definition necessarily refers Oregon Rules of Professional Conduct were is injury or damage to the former client's adopted on December 1, 2004, effective January interests. Indeed, we can conceive of no other 1, 2005. Order Adopting the Oregon Rules of way a lawyer's representation may injure a Professional Conduct, Chief Justice former client than through his or her interests. That is, conflict of interest rules are just that- [348 Or. 590] they protect the client's interests; they do not intend to protect clients from, for example, Order No. 04-44 (Dec. 1, 2004), Oregon physical injury or assault. Accordingly, a Appellate Advance Sheets No. 1 (Jan. 3, 2005) deceased client may be injured within the at A-3, A-16. Although RPC 1.9 (2005) provides meaning of the rule if, as previously noted, his no commentary to explain why the term was or her surviving interests may be harmed by the changed from “significantly related” to subsequent representation. “substantially related,” the wording tracks that of ABA Model Rule 1.9(a). See ABA Model [348 Or. 589] Rule 1.9(a) (2002) (former-client conflict of interest exists when matters are the same or In this case, Ingle's interests in the loan “substantially related” and the interests of the transactions were those of a debtor-to minimize former and current client are “materially her legal debt as much as possible as is adverse”). Before the adoption of the RPCs, reasonable within the bounds of the law. Those Oregon's former-client conflict-of-interest rule interests survived Ingle's death and were was distinct from both the ABA Model Rule and represented by her personal representative. See the rule adopted in many states because it used ORS 114.265 (personal representative has the term “significantly related” rather than fiduciary duty to preserve estate with as little “substantially related,” and it used an actual and sacrifice of value as is reasonable under the likely conflict paradigm rather than requiring circumstances). Ingle's will also expressly stated that the interests be “materially adverse.” that she would fully pay her “just” debts. On the American Bar Association and Bureau of other hand, as the accused himself National

- 8 -

Basic Estate Planning and Administration 2013 3–24 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

[238 P.3d 23] specific conflicts, as did DR 5-105(C). Yet, each subtest under the ABA Model Rule appears to Affairs, Inc., ABA/BNA Lawyers' Manual on be broader than the subtests under DR 5-105(C). Professional Conduct § 51:205 (2002) (“Oregon's ethics code has a unique provision on Unlike DR 5-105(C)(1), to constitute a former-client conflicts” because it uses the term matter-specific conflict under ABA Model Rule “significantly related” and an actual/likely 1.9(a), a risk of injury is not required; rather the conflict paradigm.). However, after the RPC was matters must merely involve the same adopted, Oregon's rule became nearly identical transaction or legal dispute. The main concern to ABA Model Rule 1.9(3). 9 appears to be disloyalty to the former client. ABA/BNA Lawyers' Manual on Professional Because RPC 1.9(a) (2005) does not define Conduct § 51:226. It is generally if not the term “substantially related,” and because it universally accepted that a “current tracks the text of the ABA Model Rule, we look representation adverse to a former client is to the commentary of the ABA Model Rules for substantially related to the earlier representation guidance. In particular, Comment [3] to ABA if it involves the lawyer's own work for the Model Rule 1.9(a) (2002) provides a definition former client-especially an attack on that work.” of “substantially related” for purposes of that Id.; see also Restatement of Law Governing rule: Lawyers § 132(1) (2000) (a current matter is substantially related to an earlier matter if “the “Matters are ‘substantially related’ for current matter involves the work the lawyer purposes of this Rule if they involve the same performed for the former client”). transaction or legal dispute or if there otherwise is a substantial risk that confidential factual To constitute an information-specific information as would normally have been conflict under ABA Model Rule 1.9(a), unlike obtained in the prior representation would DR 5-105(C)(2), actual possession of client materially advance the client's position in the confidences is not necessary. See discussion 348 subsequent matter.” Or. at 586-87 n. 7, 238 P.3d at 21 n. 7 (explaining that DR 5-105(C)(2) requires actual That definition is not binding on this court, possession of client confidences). Rather, it is but we consider it for its persuasive value. enough if there is a substantial risk that [348 Or. 591] confidential factual information as would normally have been obtained in the prior The “substantial relationship” test from the representation would materially advance the ABA Model Rule can be broken down into two client's position in the subsequent matter. The subtests: ABA Model Rule protects the former client from having to reveal the confidential information (1) whether the matters “involve the same learned by the lawyer. The focus thus is on the transaction or legal dispute”; or risk of information gained “based on the nature of the services the lawyer provided the former (2) whether there otherwise is “a client and information that would in substantial risk that confidential factual information as would normally have been [348 Or. 592] obtained in the prior representation would materially advance the client's position in the ordinary practice be learned by a lawyer subsequent matter.” providing such services.” Comment [3] to ABA Model Rule 1.9(a); see also Richard E. Flamm, (Emphasis added.) In a sense, the ABA Lawyer Disqualification: Conflicts of Interest Model Rule can be characterized as dealing with and Other Bases § 8.4, 148 (2003) (policy matter-specific conflicts and information- against requiring former client to show precisely

- 9 -

Basic Estate Planning and Administration 2013 3–25 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

what confidences were used against her includes 105(A)(2). “A ‘likely conflict of interest’ does avoiding extensive inquiries into privileged not include situations in which the only conflict areas). is of a general economic or business nature.” Id. So framed, the analysis under RPC 1.9(a) and As previously noted, the Bar did not argue DR 5-105(C) is not materially distinct. that the accused came into actual possession The Bar contends that Ingle's surviving [238 P.3d 24] interests and Hohn's interests were per se materially adverse and patently in conflict due to of client confidences. Neither did it argue that their former relationship as debtor and creditor. the accused's conduct created a substantial risk We agree. As previously discussed, Ingle's that confidential factual information as would interests in the loan transactions as debtor- i.e., normally have been obtained in the prior to minimize her legal debt as much as representation would materially advance Hohn's reasonably possible within the bounds of the position in the subsequent representation. We law-survived Ingle's death and were represented thus confine our focus on whether the matters by her personal representative. 348 Or. at 589, are “substantially related” under RPC 1.9(a) 238 P.3d at 22. On the other hand, Hohn's based on whether the accused engaged in a interests as creditor in the debt collection were matter-specific conflict. We conclude that they to maximize the amount that Ingle owed under are. The debt collection and loan transactions the loans as much as was reasonable within the certainly involved the same transaction-the bounds of the law and to collect as much of that underlying loan documents that the accused amount as possible. Those interests are drafted on behalf of Ingle. The accused's “different” and “adverse.” See In re Wittemyer, representation of Hohn involved his own work 328 Or. 448, 455, 980 P.2d 148 (1999) (conflict that he had completed on behalf of Ingle and, in of interest existed when a lawyer represented that regard, the matters are substantially related. 10 both the lender and borrower in a loan We therefore determine that the accused transaction); In re Moore, 299 Or. 496, 506, 703 engaged in a matter-specific conflict in violation P.2d 961 (1985) (debtor and creditor had of RPC 1.9(a). different interests). Thus, Ingle's surviving 3. Whether Ingle's surviving interests were interests and Hohn's interests were in likely adverse to Hohn's interests during the conflict and materially adverse during the subsequent representation subsequent representation.

A conflict of interest exists under RPC The accused disagrees, contending that 1.9(a) when the current client's interests “are Ingle's and Hohn's interests were not adverse materially adverse to the interests of the former because the Bar failed to prove that Hohn client.” A conflict of interest exists actually sought to collect on any loans that were not “just.” According to the accused, the Bar's [348 Or. 593] assertions that Hohn sought to collect on undocumented loans or loans beyond the statute under DR 5-105(C) when the interests of the of limitations are not supported by the record. current and former clients “are in actual or likely conflict.” An “actual conflict of interest” exists [348 Or. 594] when “the lawyer has a duty to contend for something on behalf of one client that the lawyer The accused conflates “adversity” with has a duty to oppose on behalf of another “injury.” The rules against conflicts of interest client.” DR 5-105(A)(1). A “ ‘likely conflict of require an attorney to assess whether the interest’ exists in all other situations in which interests of the former and prospective new the objective personal, business or property client are adverse at the time the attorney seeks interests of the clients are adverse.” DR 5- to undertake the subsequent representation.

- 10 -

Basic Estate Planning and Administration 2013 3–26 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

Ingle's surviving interests and Hohn's interests as A lawyer engages in conduct involving debtor and creditor were adverse from the misrepresentation when the lawyer makes a outset. Whether the subsequent representation, either

[238 P.3d 25] [348 Or. 595]

representation ultimately caused actual injury to directly or by omission, that the lawyer knows is Ingle is an inquiry relevant to sanctions, and not false and material. In re Davenport, 334 Or. 298, to whether Ingle and Hohn's interests are 308, 49 P.3d 91, adh'd to as modified on recons., adverse or in conflict. See American Bar 335 Or. 67, 57 P.3d 897 (2002). “A lawyer acts Association's Standards for Imposing Lawyer knowingly by being consciously aware of the Sanctions 7 (1991) (amended 1992) (ABA nature or attendant circumstances of the conduct, Standards) (defining actual and potential injury but not having a conscious objective to for purposes of sanctions). accomplish a particular result.” In re Lawrence, 332 Or. 502, 513, 31 P.3d 1078 (2001). A In sum, we find that the debt collection was misrepresentation is material if it “would or significantly and substantially related to the loan could significantly influence the hearer's transactions and Hohn's interests were in likely decision-making process.” In re Eadie, 333 Or. conflict with and materially adverse to Ingle's 42, 53, 36 P.3d 468 (2001). The accused does surviving interests during the subsequent not dispute that, if he knowingly attached the representation. We therefore conclude that the signed and notarized signature page from the accused violated both DR 5-105(C) and RPC deed on four parcels to the deed on three parcels 1.9(a) in the Ingle matter. and sent it for recording, that such representation was false and material. Neither does the accused B. Grohs Matter dispute that such misrepresentation would reflect The Bar alleged that the accused engaged in adversely on his fitness to practice law. Rather, misrepresentation in violation of DR 1- the accused's sole contentions are that the Bar 102(A)(3) and RPC 8.4(a)(3) when the accused failed to establish, by clear and convincing removed Grohs's signature page from the deed evidence, that he acted (1) through direct, on four parcels, attached it to the deed on three personal conduct, or (2) with a knowing state of parcels, and then recorded the altered deed. As mind. noted, the trial panel concluded that the accused First, the accused contends that there is “no violated RPC 8.4(a)(3), but did not address DR evidence-and certainly not clear and convincing 1-102(A)(3). The accused seeks review of the evidence-of direct, personal conduct.” (Original trial panel's decision that he violated RPC capitalization omitted.) The trial panel 8.4(a)(3). On de novo review, we consider concluded that the accused “acquiesced [in] the whether the accused's conduct violated either removal of the notarized signature page” from rule as alleged. one deed and had it placed on a second deed. DR 1-102(A)(3) provides: “It is According to the accused, that conclusion is professional misconduct for a lawyer to * * * contradicted by the trial panel's “either/or” [e]ngage in conduct involving dishonesty, fraud, finding that “the Accused or someone in his deceit or misrepresentation[.]” RPC 8.4(a)(3) office ” (emphasis added) removed the signature provides: “It is professional misconduct for a page from the deed on four parcels and affixed it lawyer to * * * engage in conduct involving to the deed on three parcels. The accused thus dishonesty, fraud, deceit or misrepresentation contends that the trial panel's “either/or” finding that reflects adversely on the lawyer's fitness to of fact cannot support a conclusion by clear and practice law[.]” convincing evidence that there was any personal misconduct by the accused.

- 11 -

Basic Estate Planning and Administration 2013 3–27 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

Second, the accused contends that there is demeanor-based, because this court no clear and convincing evidence that the appropriately defers to the trial panel's superior accused acted with the requisite mens rea of position to assess credibility on that basis.” “knowledge.” The accused argues that “[a]ll the evidence points to a mistake by [the accused]'s In re Fitzhenry, 343 Or. 86, 103 n. 13, 162 office in the filing[.]” P.3d 260 (2007).

The Bar disagrees and contends that the The trial panel in this case found that the accused acted both personally and with the accused's trial testimony varied from his letter of requisite knowledge. The explanation to the Bar and from what was contained in his deposition. The trial panel also [348 Or. 596] found that Grohs was credible in all her testimony and expressly concluded that, where Bar relies principally on the accused's letter in her testimony differed from that of the accused, response to the Bar and his deposition Grohs was to be believed. The trial panel did testimony, in which the accused was “clear and not, however, make other express demeanor- unequivocal” that he personally made the based findings. substitution In contrast to the version of events given by [238 P.3d 26] the accused in his letter to the Bar and deposition testimony, after consulting with Grohs. According to the Bar, although the accused later changed his story [348 Or. 597] and claimed that he had no idea how the signature page on the deed on four parcels Grohs testified at the hearing that she never had became attached to the deed on three parcels, the a conversation with the accused about attaching trial panel considered the disparate versions her signature from the deed on four parcels to provided by the accused and rejected the new the deed on three parcels. The trial panel found version. that testimony to be credible, but made no demeanor-based findings. Accordingly, we owe The question of what the accused actually no deference to that assessment. Fitzhenry, 343 knew thus hinges on whether this court believes Or. at 103 n. 13, 162 P.3d 260. However, the accused's letter in response to the Bar and Grohs's testimony is corroborated by the deposition testimony under oath, or his later accused's billing records and documentation, equivocations and retractions. This court gives which do not support that she had such a weight to the trial panel's express credibility conversation with the accused. We thus find the assessments. In re Gustafson, 333 Or. 468, 470, panel's credibility finding, based on those 41 P.3d 1063 (2002). More specifically, objective factors, to have persuasive force. Id. The accused's previous claim in his letter to the “[w]hen a panel's assessment is based on Bar and his deposition testimony that he had the objective factors involving the intrinsic permission from Grohs to affix the signature believability of competing inferences or page from the deed on four parcels to the deed evidence- e.g., the inherent improbability of on three parcels is not credible. 11 certain testimony, the existence of corroboration, and so on-this court owes no deference to that However, that finding undermines only the assessment, but the panel's discussion may be accused's original proffered reason for attaching enlightening and have persuasive force. When the signature page from the deed on four parcels the panel's assessment is based on subjective to the deed on three parcels, not his concession observations of a witness's demeanor and the that he knew about the signature page switch. As manner in which the witness testifies, the trial noted, in his letter to the Bar, the accused panel explicitly should state that its findings are

- 12 -

Basic Estate Planning and Administration 2013 3–28 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

represented that he sought and received Grohs's we conclude that a 150-day suspension is permission to “use the deed she signed appropriate. previously and substitute the legal description of [the deed on three parcels] in place of the legal The purpose of lawyer discipline is not to description for [the deed on four parcels].” That penalize the accused. In re Glass, 308 Or. 297, representation to the Bar establishes the 304, 779 P.2d 612 (1989). Rather, the purpose is accused's knowledge of the signature page to “protect the public and the administration of switch, whether he or someone in his office justice from lawyers who have not discharged, personally switched the pages. When the will not discharge, or are unlikely to properly accused later testified before the trial panel that discharge their professional duties to clients, the he did not know how the signature page became public, the legal system, and the legal affixed, his only proffered explanation profession.” ABA Standard 1.1.

[238 P.3d 27] In determining an appropriate sanction for a lawyer's violations of the rules, we follow the for the discrepancy in his version of events was analytical framework that this court has set out that he had no recollection of switching the in past cases. Under that framework, we pages, but merely had speculated that he determine an initial presumptive sanction based discussed saving Grohs a trip to the notary, on (1) the ethical duty violated, (2) the lawyer's because he “would not ever do anything like that mental state, and (3) the actual or potential injury caused. See, e.g., In re Jaffee, 331 Or. [348 Or. 598] 398, 408, 15 P.3d 533 (2000) (articulating methodology). We then adjust that presumptive without her agreement.” Given that the accused sanction based on a fourth factor-the presence of immediately admitted in his letter to the Bar that aggravating or mitigating circumstances. Id. at he was “consciously aware” of the 408-09, 15 P.3d 533. Finally, we consider circumstances surrounding the signature page whether that adjusted sanction is consistent with switch to the Bar, we find that he had the Oregon case law. Id. at 409, 15 P.3d 533. requisite knowledge that the notarized signature page from the deed on four parcels was removed [348 Or. 599] and affixed to the deed on three parcels. A. Preliminary Analysis Accordingly, the Bar established by clear and convincing evidence that the accused acted The accused has violated multiple rules in with knowledge. Thus, the trial panel correctly this matter. The violations breached the concluded that the accused violated RPC accused's duties to his clients and to the public. 8.4(a)(3). The Bar also proved by clear and ABA Standard 4.3 (failure to avoid conflicts of convincing evidence that the accused violated interest violates duty owed to clients); ABA DR 1-102(A)(3). Standard 5.1 (engaging in misrepresentation violates duty owed to public to maintain III. SANCTION personal integrity); see also In re Knappenberger, 338 Or. 341, 356, 108 P.3d Having found that the accused violated the 1161 (2005) (“[a] lawyer's most important disciplinary rules charged, we must determine ethical duties are those owed to clients, the appropriate sanction. The trial panel including the duty to avoid conflicts of concluded that the appropriate sanction was a interest”); In re Spencer, 335 Or. 71, 86, 58 P.3d 150-day suspension. On review, the accused 228 (2002) (by engaging in conduct that challenges the trial panel's sanction, and argues involved dishonesty and misrepresentation, the that, at most, a reprimand is warranted. We have accused violated his duty to the public to reviewed the trial panel's conclusions with maintain his personal integrity). regard to the sanction and, as we explain below,

- 13 -

Basic Estate Planning and Administration 2013 3–29 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

The ABA Standards recognize three mental explained, based on our own de novo review of states: intentional, knowing, and negligent. A the record, we agree with the trial panel that the lawyer acts with “intent” if he or she acts with accused violated RPC 8.4(a)(3) knowingly, and “the conscious objective or purpose to we also conclude that the accused violated DR accomplish a particular result.” ABA Standards 1-102(A)(3) knowingly. 348 Or. at 597-98, 238 at 7. A lawyer acts with “knowledge” if he or P.3d at 26-27. she acts with “conscious awareness of the nature or attendant circumstances of the conduct but Under the ABA Standards, the injuries without the conscious objective or purpose to caused by a lawyer's professional misconduct accomplish a particular result.” Id. “Negligence” may be either actual or potential. See In re is “the failure of a lawyer to heed a substantial Williams, 314 Or. 530, 547, 840 P.2d 1280 risk that circumstances exist or that a result will (1992) (“[A]n injury need not be actual, but only follow, which failure is a deviation from the potential, in order to support the imposition of a standard of care that a reasonable lawyer would sanction.”). Actual “injury” is actual harm to a exercise in the situation.” Id. client, the public, the legal system, or the profession that is caused by a lawyer's Here, as for the violations in the Ingle misconduct. ABA Standards at 7. “Potential matter, based on our de novo review of the injury” is harm that is reasonably foreseeable at record, we conclude that the accused violated the time of the lawyer's misconduct but that DR 5-105(C) and RPC 1.9(a) knowingly. The ultimately did not occur. Id. accused represented Ingle in obtaining a series of loans from Hohn and drafted the documents As to the Ingle matter, there was potential to evidence and secure those loans. It is injury to the public and the profession. See In re undisputed that the accused McMenamin, 319 Or. 609, 621, 879 P.2d 173 (1994) (Graber, J., dissenting) (potential for [238 P.3d 28] injury to public and profession exists because, “when lawyers have conflicts of interest, they knew both that Hohn was Ingle's lender in those jeopardize the willingness of clients to disclose loan transactions and that Hohn, in the fully their confidences and thereby jeopardize subsequent representation, was seeking to the ability of clients to obtain the most effective enforce his rights arising out of the very legal representation possible”). There was also documents that the accused had drafted on potential injury to Ingle's interests, but not actual behalf of Ingle in the prior representation. injury to them. Although the estate expended Furthermore, the accused testified at the hearing monetary resources in defending the claim that he was aware that Hohn's interest was “in against certain “unjust” claims ( i.e., Hohn's getting as much as possible pursuant to the claims to collect on loans unsupported by notes promissory notes and even some loans under and claims beyond the statute of limitations), the which there were no notes[.]” In that respect, we estate would have had to do so regardless of who had represented Hohn. See In re Campbell, 345 [348 Or. 600] Or. 670, 688, 202 P.3d 871 (2009) (injury to conclude that the accused was consciously former client included potential economic harm, aware of the nature or attendant circumstances not actual economic harm, because former client of the conduct underlying the violations in the would have been required to employ a lawyer Ingle matter. even if the accused had not also represented subsequent clients). As to the Grohs matter, the trial panel necessarily found that the accused acted with [348 Or. 601] knowledge when it determined that the accused Regarding the Grohs matter, we conclude violated RPC 8.4(a)(3). As we previously that, although it does not appear that the Wildes

- 14 -

Basic Estate Planning and Administration 2013 3–30 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

suffered any actual injury, there was potential 5-104(A) (entering into a business transaction injury to the Wildes, because proper claim of with a client without consent after full title to the properties could potentially be in disclosure), and ORS 9.527(4) (willful deceit or dispute due to the altered deed. There also is misconduct in the legal profession). In re potential serious injury to the legal system, the Hostetter, 11 DB Rptr. 195 (1997). In 2001, the profession, and to the public when, as here, a accused was admonished lawyer engages in misrepresentation that reflects adversely on the lawyer's fitness to practice law. [348 Or. 602] In re Paulson, 346 Or. 676, 716, 216 P.3d 859 (2009), adh'd to as modified on recons., 347 Or. for engaging in a current-client conflict of 529, 225 P.3d 41 (2010). interest in violation of DR 5-105(E).

The ABA Standards provide that The accused disputes that the 2001 letter of suspension is the appropriate sanction for each admonition is appropriately considered as a prior of the accused's violations of RPC 1.9(a) and disciplinary offense. We disagree. In In re DR 5-105(C). See ABA Standard 4.32 Cohen, 330 Or. 489, 500-01, 8 P.3d 953 (2000), (suspension is generally appropriate when a this court explained that it ordinarily would not lawyer knows of a conflict of interest and does consider a letter of admonition as a prior not fully disclose to a client the possible effect disciplinary offense if the admonition involved of that conflict, and causes potential injury to a misconduct “wholly different in nature from the client). Reprimand is generally an appropriate misconduct at issue in the case at bar,” but sanction for each of the accused's violations of would do so if it involved the “same or similar RPC 8.4(a)(3) and DR 1-102(A)(3). See ABA type of misconduct as that presently at issue.” Standard 5.13 (reprimand is generally The accused was admonished in 2001 because appropriate when a lawyer knowingly engages he violated DR 5-105(E) (current-client conflict in conduct that involves misrepresentation and of interest). Specifically, the State Professional that adversely reflects on the lawyer's fitness to Responsibility Board found that the accused practice law). Because suspension is the greater represented clients in a subdivision matter at the of the two sanctions, suspension is the same time that the accused's firm was appropriate preliminary sanction here. representing another client in lease negotiations (and then a dispute) with those same clients. B. Aggravating and Mitigating That misconduct is not “wholly different in Circumstances nature from the misconduct at issue” in this case but, rather, is similar in type and violates the We next consider any aggravating and same duty-the duty owed to his clients. See ABA mitigating circumstances. We find three Standard 4.3 (failure to avoid conflicts of aggravating circumstances in this case. First, the interest violates duty owed to client).

[238 P.3d 29] Two mitigating factors are also present. The accused had a cooperative attitude toward accused committed multiple offenses. ABA the disciplinary proceedings. ABA Standard Standard 9.22(d). Second, having been licensed 9.32(e). The accused also appears to have an to practice law in Oregon since 1978, the excellent reputation in the community. ABA accused has substantial experience in the Standard 9.32(g). practice of law. ABA Standard 9.22(i). Finally, the accused has prior disciplinary offenses. ABA C. Oregon Case Law Standard 9.22(a). Specifically, in 1997, the accused was suspended from the practice of law Having made a preliminary determination for 90 days for violating DR 1-102(A)(3) that a suspension of some term is appropriate (engaging in conduct involving dishonesty), DR based on the ABA Standards and the

- 15 -

Basic Estate Planning and Administration 2013 3–31 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

aggravating and mitigating factors, we turn to [238 P.3d 30] this court's case law to help us determine the duration of that suspension. As we have noted in that case, this court concluded that the accused 12 the past, case-matching in the context of violated, inter alia, DR 1-102(A)(3) when she disciplinary proceedings “is an inexact science.” knowingly altered and filed with the court a final In re Stauffer, 327 Or. 44, 70, 956 P.2d 967 account that had been previously signed and (1998). That is especially so for cases involving notarized by her client. 326 Or. at 495, 501-02, multiple violations in multiple matters, because 953 P.2d 387. This court also concluded that the in many such proceedings the accused declines accused violated DR 5-105(E) (representing to contest the charges or the sanction. Paulson, multiple current clients when such 346 Or. at 721, 216 P.3d 859. Still, we think that representation would result in an actual or likely this court's past cases do provide some guidance, conflict) when the accused simultaneously and that they demonstrate the appropriateness of represented the prior and successor personal the suspension in this case. representatives of an estate. 326 Or. at 495, 503- 04, 953 P.2d 387. After determining that the [348 Or. 603] accused's violation of DR 5-105(E) was “both obvious and serious,” but also finding that the As this court has explained on several “mitigating factors significantly outweigh[ed] occasions, a finding that a lawyer has engaged in the aggravating factors,” this court imposed a a conflict of interest in violation of DR 5-105, sanction of 120 days. 326 Or. at 505-06, 953 standing alone, typically justifies a 30-day P.2d 387. suspension. Campbell, 345 Or. at 689, 202 P.3d 871; see also Knappenberger, 338 Or. at 361, Here, as in Morris, the accused's violation 108 P.3d 1161 (court ordinarily suspends of the conflict of interest rules was “obvious and lawyers who violate DR 5-105(C)); In re serious.” Furthermore, Hockett, 303 Or. 150, 164, 734 P.2d 877 (1987) (30-day suspension appropriate for single [348 Or. 604] violation of DR 5-105(C)). Here, however, the accused not only engaged in a conflict of the aggravating factors in this case militate in interest, but also engaged in misrepresentation favor of a sanction greater than the 120-day that reflects adversely on his fitness to practice sanction imposed in Morris. Accordingly, a 150- law. day suspension is appropriate in this case.

In previous lawyer disciplinary cases IV. CONCLUSION involving dishonesty and misrepresentation, this Having found, as did the trial panel, that the court has ordered sanctions ranging from six- accused violated DR 5-105(C), RPC 1.9(a), and month suspensions to disbarment. In re Wilson, RPC 8.4(a)(3), as well as DR 1-102(A)(3); 342 Or. 243, 251, 149 P.3d 1200 (2006); see, having considered the relevant ABA Standards; e.g., In re Benson, 317 Or. 164, 854 P.2d 466 and having evaluated the applicable Oregon case (1993) (six-month suspension for assisting client law, we determine that the appropriate sanction in preparation of fraudulent documents); In re for the accused's violations in this matter is a Hawkins, 305 Or. 319, 751 P.2d 780 (1988) 150-day suspension. (disbarment for filing false affidavit and using false evidence); In re Brown, 298 Or. 285, 692 The accused is suspended from the practice P.2d 107 (1984) (two-year suspension for of law for 150 days, commencing 60 days from preparation of false affidavit). the date of the filing of this decision.

In re Morris, 326 Or. 493, 953 P.2d 387 ------(1998), is particularly instructive here. In Notes:

- 16 -

Basic Estate Planning and Administration 2013 3–32 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

1The Oregon Rules of Professional Conduct based on assertion of conflict of interest when (RPC) became effective January 1, 2005. The petitioner's counsel previously represented the Disciplinary Rules (DRs) of the Oregon Code of deceased victim; noting that, although petitioner's Professional Responsibility apply to conduct before counsel's belief that his duty to the deceased victim that date. In re Fitzhenry, 343 Or. 86, 88 n. 1, 162 ended upon the victim's death “may have been P.3d 260 (2007). Because the accused's conduct in mistaken,” petitioner's counsel's prior representation these matters occurred both before and after January of the victim did not influence the choices he made 1, 2005, both the DRs and the RPC apply. during the course of the trial).

2The accused did not obtain informed consent, 7The Bar does not contend that the accused confirmed in writing, from either the personal engaged in an information-specific conflict under DR representative or Hohn before representing Hohn 5-105(C)(2). That is, the Bar does not appear to against the estate. contend on appeal, nor did it contend before the trial panel, that the accused's representation of Ingle 3As recorded, the deed on three parcels provided the accused “with confidences or secrets * * contained the signed and notarized signature page * the use of which would, or would likely, inflict from the deed on four parcels, but the unsigned page injury or damage” upon Ingle in the course of the from the deed on three parcels was still attached. subsequent matter under DR 5-105(C)(2).

4The accused contends that the Bar improperly In any event, we note that DR 5-105(C)(2) relies on the accused's deposition testimony because requires that an attorney have come into actual the Bar did not enter the testimony into evidence, but, possession of client confidences. See id. rather, read portions of the testimony into the record (“Representation of the former client provided the at the hearing. When the Bar read the above portion lawyer with confidences or secrets * * *.” (Emphasis of the testimony into the record, the accused added.)). There is nothing in the record in this case immediately responded with, “I know I prefaced that that suggests that the accused obtained actual by saying, ‘I don't remember this.’ I'm sure if we possession of any confidential information in looked back, there would have been [a] preface to representing Ingle in the loan transactions that would, that to say, ‘I don't have an independent recollection or would likely, inflict injury or damage upon Ingle of much of this at all.’ ” The accused thus argues that in the course of representing Hohn in the debt the Bar improperly relies on portions of his collection. deposition testimony out of context. 8The rule was amended effective December 1, We disagree with the accused. The accused 2006, to add the following definition of “substantially never requested that any additional portion of the related”: deposition testimony be read into the record to confirm that he in fact did not, at the time, recall the “For purposes of this rule, matters are events he testified to in detail during his deposition. ‘substantially related’ if (1) the lawyer's In all events, even without relying on the deposition representation of the current client will injure or testimony in this case, we would reach the same damage the former client in connection with the same conclusion based solely on the accused's letter to the transaction or legal dispute in which the lawyer Bar. previously represented the former client; or (2) there is a substantial risk that confidential information as 5The Bar pleaded violations of both DR 1- would normally have been obtained in the prior 102(A)(3) and RPC 8.4(a)(3) in its second amended representation of the former client would materially complaint and presented facts establishing that the advance the current client's position in the subsequent accused's conduct occurred both before and after matter.” January 1, 2005. Accordingly, it appears that the trial panel's lack of a finding regarding DR 1-102(A)(3) RPC 1.9(d); Order Amending Oregon Rules of was merely inadvertent. Professional Conduct, Chief Justice Order No. 06- 059 (Nov. 16, 2006), Oregon Appellate Advance 6See also Mickens v. Taylor, 535 U.S. 162, 176- Sheets No. 26 (Dec. 18, 2006) at A-19. Because the 78, 122 S.Ct. 1237, 152 L.Ed.2d 291 (2002) accused's conduct preceded the effective date of the (Kennedy, J., concurring) (agreeing with majority's amendment, that definition does not apply in this denial of ineffective assistance of counsel claim case.

- 17 -

Basic Estate Planning and Administration 2013 3–33 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

In re Hostetter, 348 Or 574, 238 P3d 13 (Or., 2010)

9The only difference between RPC 1.9(a) and accused claimed in his letter to the Bar and ABA Model Rule 1.9(a) is that RPC 1.9(a) allows an deposition testimony that Grohs was under time exception if the attorney obtains informed consent, pressure to get her loan closed. However, Grohs's confirmed in writing, from each affected client, while loan had already closed several days before the ABA Model Rule 1.9(a) requires informed consent, signature pages were switched. confirmed in writing, from only the former client. Furthermore, whether the accused had Grohs's 10The accused disagrees and contends that, to permission to alter and record the deed is irrelevant. establish a matter-specific conflict pursuant to RPC The misrepresentation occurred in this case when, by 1.9(a), the Bar is required to prove actual injury-that recording the document, the accused knowingly made is, the Bar is required to prove that the estate paid a false representation that Grohs signed the deed on more than the fair value of Hohn's claims as a result three parcels when, in fact, she had signed and of the accused's representation of Hohn. The notarized a separate and distinct legal document-the accused's premise and conclusion are incorrect. The deed on four parcels. accused relies on language in RPC 1.9(d)(1) (matters are “substantially related” if the lawyer's 12This court also found that the accused violated representation of the current client “will injure or DR 7-102(A)(5) (in lawyer's representation of client, damage the former client”), a subsection of the rule knowingly making a false statement of law or fact) that, as noted, 348 Or. at 589 n. 8, 238 P.3d at 22 n. and DR 1-102(A)(4) (conduct prejudicial to the 8, was not adopted until after the accused engaged in administration of justice). 326 Or. at 495, 953 P.2d the conduct at issue. We therefore decline to address 387. the accused's argument in that respect. ------11The accused's reason for gaining Grohs's permission also does not hold up factually. The

- 18 -

Basic Estate Planning and Administration 2013 3–34 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Conflicts, Competence and Client Development in Estate Planning

By: Peter R. Jarvis [email protected]

The Duty of Zealous Representation

. Not a part of Oregon rules since 2005 . Replaced by competence, diligence and communication . But has anything really changed? • What gets lawyers disciplined? • What gets lawyers sued for malpractice? . Cf. RPC 1.16(b)(2), (4) (you don't have to do things you reasonably think are illegal, unethical or repugnant); RPC 1.2(c) (prohibiting advice or assistance to a client on something the lawyer knows is illegal)

Basic Estate Planning and Administration 2013 3–35

1 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Theft of Clients and Conflicts: Some Background

. RPC 4.2 does not prohibit client poaching . The HOD has broadened lawyer speech rights • Is in-person contact next? • Why doesn't estate planning in hospitals make sense? . RPC 1.14 allows some action on behalf of clients operating under a disability but is not unlimited • Must retain as normal a relationship as practicable • Must watch out for conflicts of interest

Theft of Clients and Conflicts: Fact Pattern

You have long represented H and W, both over 90 years old and showing some signs of dementia, as well as their children, S and D, both over 60, and their grandchildren, GS and GD, both over 30. The family has generally been close. Six weeks after H's death, you get a letter from Shyster Sam, Esq., who informs you that at the request of W's buff young fiancé, he now represents W, that W has directed that you turn over your entire file to him, that W has directed you not to contact her and that W has further directed that you not inform any other family members of these demands.

Basic Estate Planning and Administration 2013 3–36

2 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Theft of Clients and Conflicts: Questions

1. Can you: (a) ignore Sam altogether? (b) contact W anyway? (c) tell one or more family members? (d) go undercover to check out Sam and the fiancé? (e) demand medical proof or other assurances of W's competence? (f) file a guardianship? (g) contact the Bar? (h) take other action? 2. To what extent would or might the answers be different if you only represented H and W and had never represented other family members?

Theft of Clients and Conflicts: Questions

3. Same basic family facts except that H is still alive and Sam and W's fiancé have not appeared on the horizon. A. Is it ethical for you to do all six family estate plans? B. What, if anything, do you need to say to your clients about confidentiality? C. What if H or W asks you to disinherit GS or GD but not tell them?

Basic Estate Planning and Administration 2013 3–37

3 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Theft of Clients and Conflicts: Questions

4. H dies (again) and W, his personal representative, hires you as counsel for the estate. A. Whom do you represent in your capacity as counsel for the estate and who controls attorney-client privilege? B. If X, a non-client beneficiary, sues W for maladminstration and/or conversion, does W need separate counsel for her in her capacities as personal representative and individual beneficiary?

Theft of Clients and Conflicts: Questions

5. H's will calls for Y, another non-client beneficiary, to receive $100,000 if Y is married to Z at the time of H's death. Although Y says he was married to Z when H died, W demands that Y not be paid on the ground that Y and Z were already in divorce proceedings at the time. Can you ethically represent W even though you drafted H's estate plan?

Basic Estate Planning and Administration 2013 3–38

4 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Bonus Question (Time Permitting)

6. You represent S and D but no one else in the family. S and D tell you that they have spoken to their parents and that their parents want to split what they own 50-50 between S and D. They therefore ask you to draft wills to this effect for their parents to sign. A. Can you ethically do so? B. Should you do so? C. If you do so, do H and W become your clients?

Thank You

Peter R. Jarvis Hinshaw & Culbertson LLP (503) 243-7696 [email protected] www.hinshawlaw.com

Basic Estate Planning and Administration 2013 3–39

5 Chapter 3—Conflicts, Competence, and Client Development in Estate Planning and Administration

Basic Estate Planning and Administration 2013 3–40 Chapter 4 The Complexities of Modern Relationships: Planning for Unmarried Partners1

Melanie E. Marmion Fitzwater Meyer Hollis & Marmion LLP Portland, Oregon

Contents I. Introduction ...... 4–1 II. What a Difference a Year Makes ...... 4–1 A. Then (One Year Ago) ...... 4–1 B. Now ...... 4–3 C. Taking a Closer Look at the Policy Shift 4–4 III. Changes to Federal Law 4–6 A. Background 4–6 B. Department of the Treasury 4–6 C. Social Security ...... 4–6 D. Department of Health/Human Services (Medicare/Medicaid) ...... 4–7 IV. Oregon Law ...... 4–8 A. Categories of Unmarried Couples ...... 4–8 B. Family and Estate Planning Issues 4–9 C. Health and Long-Term Care Issues ...... 4–12 D. Oregon Estate Tax ...... 4–13 V. Considerations for Oregon Estate Planning Attorneys ...... 4–13 A. Should Same-Sex Partners Get Married Now? ...... 4–13 B. Drafting Considerations 4–14 VI. Case Studies ...... 4–16 A. Michelle and Carolyn ...... 4–16 B. Helen and Bill ...... 4–19 C. David and Michael 4–20 Appendixes A. Basic Rights Oregon Resource Guide ...... 4–23 B. DHS Form 45-6, Declaration of Oregon Registered Domestic Partnership . . . . 4–31 C. DOJ Letter ...... 4–33 D. Same-Sex Marriage Laws by State ...... 4–41 E. Presentation Slides 4–43

1 Disclaimer: The information contained in this paper is based on Oregon law and is subject to change. It should be used for general purposes only and should not be construed as specific legal advice by Fitzwater Meyer Hollis & Marmion LLP, or its attorneys. Neither this paper nor use of its information creates an attorney-client relationship. If you have specific legal questions, consult with your own attorney or call us for an appointment. Copyright 8 2013 Fitzwater Meyer Hollis & Marmion LLP. Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–ii Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

THE COMPLEXITIES OF MODERN RELATIONSHIPS: PLANNING FOR UNMARRIED PARTNERS

I. INTRODUCTION

Non-traditional households with unmarried partners or married same-sex partners are rapidly growing in number. While there are many financial and practical considerations for people to marry, the number one reason is still emotional. Making a statement of commitment publicly, and having it legally recognized can have a surprisingly powerful effect. Nonetheless, legal and financial factors often play a significant role in the decision to marry.

II. WHAT A DIFFERENCE A YEAR MAKES

A. Then (one year ago)

1. Federal Defense of Marriage Act (“DOMA”)

a. The Defense of Marriage Act (“DOMA”) enacted in 1996 had two major substantive sections:

(1) Section 2 declares that no state must recognize another state’s marriage of a same-sex couple.

(a) Section 2 still in effect; not changed by Windsor v. U.S.1 but see discussion of Obergefell v. Kasich2 below.

(2) Section 3 barred the federal government from recognizing legal marriages of lesbian and gay couples (Section 3 declared unconstitutional under Windsor.

1United States v. Windsor, 570 U.S. ___ (2013) (Docket No. 12-307).

2Obergefell et. al. vs. Kasich et. al., D.C. Ohio, Western Division No. 1:13-cv-501 (July 22, 2013).

Basic Estate Planning and Administration 2013 4–1 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

2. Oregon’s Constitutional DOMA

In Measure 36, voted in 2004, the Oregon voters approved a constitutional amendment to define marriage as a union between one man and one woman.3

3. Oregon Domestic Partnership Act

a. Oregon has a spousal equivalency law which took effect on February 4, 2008. ORS 106.300 et seq. Oregon same-sex couples can register, and are commonly called “registered domestic partners” (RDPs). Rather than pick and choose different provisions of the law that would apply to same-sex couples, the law generally states that registered domestic partners will have the same rights and responsibilities as a spouse under Oregon law.

b. Requirements. The process for registering is easy, by filing a form that the County Clerk’s office. A good summary of the law that also answers questions about the effect of already being married or registered in other jurisdictions can be found at the Basic Rights Oregon website at www.basicrights.org. A copy is attached.

c. Advantages and Disadvantages. Because of how Oregon’s spousal equivalency laws are written, the advantages and disadvantages of heterosexual marriage generally apply to registering as domestic partners, at least under state law. However, because of the overlap between federal and state law, and the effect of the federal DOMA, there are some practical differences. For example, setting aside any analysis of whether income taxes will be more or less favorable if RDPs are allowed to file joint returns for Oregon purposes, there is the hassle and expense factor. That is, in order to take advantage of the ability to file an Oregon joint tax return, RDPs (who are not otherwise married in another jurisdiction) will have to prepare (or pay someone to prepare) two versions

3 OR CONST Art XV, Sec. 5a “It is the policy of Oregon, and its political subdivisions, that only a marriage between one man and one woman shall be valid or legally recognized as marriage.”

Basic Estate Planning and Administration 2013 4–2 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

of their federal returns. Their “real” separate federal returns and a “dummy” version of a joint federal return prepared as if they were married for federal tax purposes. The conclusions on the federal dummy return are then translated to the Oregon joint return.

B. Now:

1. Repeal of Section 3 of DOMA

a. U.S v. Windsor– see discussion below

2. Oregon DOMA still in effect but...

a. Oregon Department of Justice October 18, 2013 legal opinion concluding that Oregon’s current policy of non-recognition of same-sex marriages performed out of state would likely violate federal law. This opinion led to memo issued to state agencies (by Oregon Chief Operating Officer) directing agencies to recognize same-sex marriages performed out of state.

b. Oregon United for Marriage Voter Initiative - which is all but a lock to get a referendum on the ballot to overturn Measure 36.

c. Lawsuit filed in federal court in Eugene by 2 gay couples seeking to have Measure 36 declared unconstitutional (Geiger et al v. Kitzhaber et al ______(2013).

3. Oregon Register Domestic Partnership laws still in effect

4. Washington State legalizes same-sex marriage

a. No in-state residency requirements

5. Other states rapidly falling into recognition category

a. As of this writing, my home state of New Jersey became the 14th state to recognize same-sex marriage despite the strong opposition of Gov. Chris Christie.

Basic Estate Planning and Administration 2013 4–3 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

C. Taking a Closer Look at the Policy Shift

1. Driven by a combination of grass-roots organization and constitutional analysis

2. U.S. v. Windsor4

a. Brief Facts: 83-year-old woman was legally married in Canada in 2007 to her same-sex partner of over 40 years. The State of New York recognized their marriage. When the plaintiff’s wife died, her estate was forced to pay $363,000 in estate taxes that would not have been assessed were they not a lesbian couple. The New York District Court held that section 3 of DOMA was unconstitutional and this the Second Circuit Court of Appeals affirmed. Fast-tracked to Supreme Court review.

b. In a 5-4 decision, Supreme Court held that section 3 of DOMA violated equal protection under the Fifth Amendment.5 (June, 2013)

c. Note that Windsor did not opine on the legality of Section 2 of DOMA.

3. Hollingsworth v. Perry6

a. Brief Facts: Also known as the “Proposition 8” case. Proposition 8 was California’s ballot initiative of Measure 36 and passed in 2008. U.S. District Court found that Proposition 8 violated the due process and equal protection clauses of the 14th Amendment. This conclusion was affirmed by the Ninth Circuit. Because the State of California refused to defend the law, the Proponents of Proposition 8 were forced to step-in and appeal to the Supreme Court.

4United States v. Windsor, 570 U.S. ___ (2013) (Docket No. 12-307).

5 Justice Anthony Kennedy authored the majority opinion and was joined by Justices Ginsburg, Breyer, Sotomayor and Kagan. Chief Justice Roberts dissented along with Scalia, Alito and Thomas.

6 570 U.S. ___ (2013) (Docket No. 12-144).

Basic Estate Planning and Administration 2013 4–4 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

b. The Supreme Court (June 26, 2013) dismissed the appeal on the grounds that the proponents of Proposition 8 lacked standing to defend the law.

c. While the Supreme Court’s ruling left the District Court’s opinion as the final outcome (Prop 8 unconstitutional under the 14th Amendment) and Governor Jerry Brown resumed allowing same-sex couples to marry, the Supreme Court’s decision was less than satisfactory to non-California same-sex supporters.

4. Obergefell v. Kasich (Ohio District Court)7

a. Brief facts: long-term gay couple fly from Cincinnati, OH (gay marriage prohibited) to Baltimore, MD (gay marriage legal) and get married on the plane while it is sitting on BWI tarmac. One spouse diagnosed with ALS and upon returning to Ohio, couple file temporary restraining order against the Ohio law banning recognition of same-sex marriage performed in other jurisdictions and seeking to have eventual death certificate recite that the survivor was the “spouse”.

b. Noting that Ohio recognizes other out-of-state marriages even if they violate Ohio’s marriage laws (marriages between first cousins, marriages between minors), the District Court found that distinguishing between foreign opposite sex marriages and foreign same-sex marriages is a blatant violation of the equal protection clause of the 14 Amendment.

c. This line of reasoning seems to be driving the issuance of the Oregon Department of Justice Opinion letter issued in October 16th, 2013 (copy in materials).

7Obergefell et. al. vs. Kasich et. al., D.C. Ohio, Western Division No. 1:13-cv-501 (July 22, 2013).

Basic Estate Planning and Administration 2013 4–5 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

III. CHANGES TO FEDERAL LAW

A. Background: Post-Windsor, it is now clear that federal laws cannot deny benefits to same-sex spouses who are otherwise “married”. However, whether the couple is “married” for purposes of the particular federal law in question will depend on whether the law (federal agency) recognizes the “place of celebration” or the “place of domicile”

1. “Place of Celebration” view–> If the couple was married in a jurisdiction that recognizes same-sex marriage, they are “married” even if they live in a jurisdiction that forbids same-sex marriage.

2. “Place of Domicile”– If the couple resides in a jurisdiction that prohibits recognition of same-sex marriage, they are not “married” for federal law even if they were legally married in a jurisdiction that allows same-sex marriage.

B. Department of the Treasury

1. Examples of potential benefit to “spouses”:

a. Unlimited marital deduction for estate and gift transfers b. Ability to rollover retirement benefits and get stretch payout of required minimum distribution rules c. More favorable calculation of required minimum distributions d. Ability to file joint income tax returns e. Claiming earned income/child tax credits f. No deemed income taxes on value of employer-sponsored health coverage to same-sex spouse

2. Guidance issued August 29, 2013 to follow the “place of celebration” approach

C. Social Security

1. Examples of potential benefit to “spouses”:

a. Retirement spousal benefit –> non-earning or lower-earning spouses collects an amount that is equal to ½ of the other spouse’s Social Security benefit.

Basic Estate Planning and Administration 2013 4–6 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

b. Disability spousal benefit–> spouse of disabled worker may collect a monthly Social Security disability benefit.

c. Surviving spouse benefit–> surviving spouse can choose to collect their own Social Security monthly payment or the full value of their deceased spouse’s payment. Surviving spouse may also use the survivor’s benefit to delay retiring on his/her own record, thereby earning delayed retirement credits and increasing his/her own benefit.

2. “Guidance” issued August 9, 2013 to follow a combo of place/celebration & place/domicile approach

a. Will process claims for same-sex couples married AND living in a jurisdiction that recognizes same-sex marriage.

b. Will HOLD claims for same-sex couples who are married AND living in a jurisdiction that does not recognize the marriage

c. Will HOLD claims for couples in a legal same-sex relationship other than marriage (domestic partnership; civil union)

(1) Couples in this category should still apply because favorable decision will be retroactive

(2) There may be another avenue to benefits. Social Security laws define spouse as including any person who would receive under the laws of intestacy. Oregon RDPs meet this requirement and could therefore, arguably, stand as a “spouse” for Social Security benefits.

D. Department of Health/Human Services (Medicare/Medicaid)

1. Examples of potential benefits for “spouses”:

a. Access to care in nursing home where their spouse resides

Basic Estate Planning and Administration 2013 4–7 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

b. Avoidance higher medicare premiums by relying on spouse’s work record

c. Ability to delay enrollment in Part B & Part D

d. Deemed income between spouses for Medicaid eligibility (this is a disadvantage rather than a benefit)

2. Guidance issued August 29, 2013 to follow “place of celebration” for access to skilled nursing home care under Medicare Advantage plans

3. Generally follows Social Security so unclear to this author how other spousal benefits (other than skilled nursing home care) is currently being interpreted.

a. For married-same sex couples living in jurisdiction that recognizes their marriage– will be treated a spouse

b. For married same sex couples living in jurisdiction that does not recognize their marriage but recognizes another legal union (domestic partner/civil union)–probably yes, because domestic partner/civil union partner have the same rights as spouse for purposes of the intestate laws.

c. For married same sex couples living in jurisdiction that does not recognize their marriage and they are not otherwise in another type of legal union–unclear but likely not recognized as spouse unless policy change

IV. OREGON LAW

A. Categories of Unmarried Couples

1. Complications and Terminology.

There are at least five categories of couples in Oregon, and there are at least two legally recognized relationships. This complicates not just planning but terminology. For purposes of this outline, I am using the following shorthand:

Basic Estate Planning and Administration 2013 4–8 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

a. Heterosexual married couples (“spouse”)

b. Heterosexual unmarried couples (“unmarried partners”)

c. Same-sex couples who have not registered in Oregon (also “unmarried partners”)

d. Registered domestic partners in Oregon (“RDPs”)

e. Same-sex couples married in other states or countries who have not registered in Oregon:

(1) under OR constitution—“unmarried partners”

(2) under DOJ opinion letter–> “spouses”

B. Family and Estate Planning Issues

a. Intestacy. If you die without a Will to direct your assets, the default laws of intestacy will transfer your property to your closest living “heirs at law”. The primary “heir” is a spouse.

(1) RDPs will inherit as a primary heir/spouse

(2) An unmarried partner will not receive any property unless the asset passes by virtue of survivorship (i.e. there is a beneficiary designation or the asset is jointly- owned).

b. Spousal elective share. A surviving spouse has a legal right to receive a minimum amount of property from his/her deceased spouse. That is, the elective share law prevents spouses from disinheriting each other. The amount of property to which a surviving spouse is entitled depends on the length of the marriage.

(1) RDPs have spousal elective share rights

(2) Unmarried partners do not have spousal elective share rights; may be disinherited by partner’s estate plan

Basic Estate Planning and Administration 2013 4–9 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

c. Protective proceeding (Guardian and/or Conservator). A court will appoint someone to make your financial and healthcare decisions for you if the court determines that you are incapacitated. Spouses/blood relatives are “preferred” individuals to be appointed.

(1) RDPs are “preferred” individuals who stand as a spouse and first in line to be appointed

(2) Unmarried partners do not have any preference unless partners have signed written declarations (Nomination of Guardian/Conservator)

d. Disposition of remains. Spouses/blood relatives have legal preference to take control of a body and make decisions concerning funeral/burial arrangements.

(1) RDPs are “preferred” and stand on equal footing to a spouse

(2) Unmarried partners do not have any preference unless partners have signed written declarations (Disposition of Remains)

e. Hospital visitation. Not as big of a concern since 2010 Department of Health/Human Services issuance of rules requiring hospitals who participate in Medicaid/Medicare to allow “equal and fair” access to any person selected for visitation by a patient or a patient’s representative.

(1) RDPs have same visitation rights as a spouse

(2) Unmarried partners would have visitation rights as long as partner (or their representative) could communicate that wish. May also be clarified in Advance Directive.

2. Adoption by Non-Biological Parent to Establish Parentage.

a. “Second-parent” adoption puts non-bio parent on equal footing with biological parent. Although parentage is

Basic Estate Planning and Administration 2013 4–10 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

presumed if child born during the relationship of a RDPs, adoption is recommended for both RDPs and unmarried partners because it clarifies the legal relationship for federal and other state purposes (clients move out of state).

(1) An adopted child is treated as a biological child under Oregon intestacy laws (i.e. parent dies without a will and assets pass to “descendants”). An adoption can also solve the issue of class gifts from other relatives. For Example: if non-biological partner’s parents leave assets to “their descendants, per stirpes”, the adopted grandchild will inherit if his/her parent predeceases. If no adoption, and the grandparents do not clarify the issue in their estate plan, the child will not inherit if his/her parent predeceases.

(2) Equal “parenting” time.

(3) Sharing or pursuing custody

(4) Social security survivor benefits.

3. Divorce/Dissolution of RDP

a. A spouse married in Oregon may file for divorce if at least one party is currently a resident of Oregon. A spouse married in another state must be a resident or domiciled in Oregon for a period of 6 months prior to filing.

b. RDPs follow same procedure for termination of the partnership

c. Uncertainty surrounding termination of out-of-state same-sex marriage

(1) Can get married in WA without residency requirement

(2) Must be resident of WA for divorce though

(3) Will new OR approach (DOJ opinion) allow for OR residents to terminate their same-sex marriage??

Basic Estate Planning and Administration 2013 4–11 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

C. Health and Long Term Care Issues

1. Health Insurance. The Oregon Insurance Division has clarified that health insurance policies issued in Oregon must provide equal treatment for spouses and RDPs.

2. Medicaid for Long-Term Care: There are protections in the law that allow the “well spouse” from total impoverishment when his/her spouse needs expensive long-term care. The “well” spouse is allowed to keep some of the couple’s assets, and is not required to completely deplete the couple’s resources. circumstances.

a. Unmarried partner will not have the protections described above.

b. One significant area of confusion is how Oregon Medicaid policy affects same-sex couples. Arguably, if a same-sex couple registers under Oregon’s domestic partner law, it should be treated in all respects the same as a heterosexual married couple. However, Medicaid receives substantial federal funding and so a question remains as to:

(1) Whether the couple must get ‘married” to be recognized as spouses by the federal law; and

(2) If “married”, whether the Department of Human Services will follow the “place of celebration” approach (as they’ve done for same-sex spouses in skilled nursing facilities under Medicare advantage plans) or the “place of domicile” approach.

(3) The Centers for Medicare and Medicare Services (CMS) has offered some limited avenues to respond to these issues. CMS has sent a letter indicating that states are not required to deny eligibility after an otherwise disqualifying transfer involving same-sex partners if it would create undue hardship. This is possible because federal law includes a rarely used undue hardship provision. CMS is giving a green light for states to apply this provision with same-sex couples

Basic Estate Planning and Administration 2013 4–12 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

who are otherwise barred from using spousal impoverishment protections.

(4) In the same letter CMS addressed application of estate recovery rules against the estate of a deceased partner of the same-sex couple. Application of these rules could result in the surviving partner becoming impoverished or homeless. CMS indicated that the undue hardship rule allows the state, in its discretion, to provide the same protections to same-sex partners as it would apply to a heterosexual surviving spouse with respect to estate recovery.

D. Oregon Estate Tax.

a. Currently, every Oregonian enjoys a $1 million exemption from Oregon estate taxes.

b. Assets left directly or in qualifying trust for a surviving spouse or RDP receives 100% marital deduction for Oregon estate tax purposes.

c. Property left to an unmarried partner will use the Oregon exemption.

d. Use of bypass trusts/disclaimer planning available to spouses and RDPs to minimize Oregon estate tax.

e. (1) Disclaimers by RDPs can result in taxable gifts by the disclaiming RDP under federal tax laws.

(2) Disclaimer planning is not useful to minimize estate taxes for unmarried partners.

V. CONSIDERATIONS FOR OREGON ESTATE PLANNING ATTORNEYS

A. Should same-sex partners get married now? Absent some other mitigating factor(s), I would advise same-sex couples to get married (in WA or another state) and register in Oregon as Domestic Partners.

Basic Estate Planning and Administration 2013 4–13 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

1. Possible Advantages:

a. File joint tax returns both at the state and federal levels

b. Social security survivor benefits

c. Spousal roll-over of IRA accounts

d. Unlimited marital deduction for federal and OR estate tax purposes. Unlimited marital deduction for federal gift tax purposes

2. Possible Disadvantages

a. Emotional uncertainty outweighs financial benefits

b. Income tax “marriage” penalty

c. Deemed income between spouses for determination of SSI eligibility

d. Possible roadblocks to divorce

B. Drafting Considerations

1. Prevent unintended revocation of Wills–> A subsequent marriage or domestic partnership revokes a prior-signed Will unless the Will expresses intent that it not be revoked

a. Example (non-registered/unmarried partners):

PARTNER. I live with and share my life with Mary Smith, and all references to "my partner" are to her. It is possible that Mary and I will at some point in the future be legally married in any state in the United States in which such marriages are recognized, or in any other country in which such marriages are recognized. It is also possible that we will enter into a domestic partnership or civil union that will be recognized by governmental or private entities. In such events, it is my intention that this instrument continue in full force and effect, and that provisions naming Mary not be revoked.

Basic Estate Planning and Administration 2013 4–14 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

b. Example (registered/unmarried partners)

DOMESTIC PARTNER. I live with and share my life with Mary Smith, and all references to "my partner" are to her. We have registered as Domestic Partners in Oregon. It is possible that Mary and I will at some point in the future be legally married in any state in the United States in which such marriages are recognized, or in any other country in which such marriages are recognized. In such event, it is my intention that this instrument continue in full force and effect, and that provisions naming Mary not be revoked.

c. Example (registered/married out-of-state)

SPOUSE. I live with and share my life with Mary Smith, and all references to "my spouse" are to her. We have registered as Domestic Partners in Oregon and were married in the State of Washington. In the event that our marriage is legally recognized by Oregon in the future, it is my intention that this instrument continue in full force and effect, and that provisions naming Mary not be revoked.

2. Carefully define “spouse”–> If your clients intend to benefit the spouses of their children (or other beneficiaries) in their estate plan, it is important to clearly define whether they intend to include same-sex spouses.

a. Example:

DEFINITION OF “SPOUSE”. For all purposes hereunder, the “spouse” of my child shall include any person to whom such child is married or has entered into any other formal relationship in a jurisdiction that allows that individual to inherit as a spouse under the laws of intestacy, and from whom my child is not legally separated on the date in question, whether or not the formality of that same-sex relationship is recognized by the state law governing this Will.”

3. Carefully define “descendant(s)”–> If your clients intend to benefit the children of a same-sex marriage or relationship, it is important to clearly define their intention

Basic Estate Planning and Administration 2013 4–15 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

a. Example:

DEFINITION OF “DESCENDANT(S)”. The term “descendant” shall mean all naturally born or legally adopted children of the person indicated and shall specifically include children born during a same-sex marriage or any other formal relationship in a jurisdiction that allows that individual to inherit as a spouse under the laws of intestacy, whether or not the formality of that same-sex relationship is recognized by the state law governing this Will.

VI. CASE STUDIES

Disclaimer: the following examples are not meant to illustrate ALL of the considerations that may be relevant to each of these couples but are intended to simply highlight some of the bigger issues.

A. Michelle and Carolyn.

Michelle and Carolyn are same-sex partners. They have not registered as Oregon domestic partners. Carolyn gave birth to twins last year. Carolyn stays at home with the kids and Michelle works. They want to know whether they should register as domestic partners and/or get married.

Michelle Carolyn Joint residence $75,000 equity ($250,000 value less $175,000 mortgage) various bank $50,000 accounts investments $150,000 IRA $200,000 Life Insurance $300,000 rental property $500,000 $1,000,000 $275,000

Basic Estate Planning and Administration 2013 4–16 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

1. Register as RDPs?

a. Non-tax benefits of RDP status are primarily related to giving each other authority under OR laws that give deference to spouse/blood relatives” (e.g. medical decisions; intestate succession, guardian/conservator; disposition of remains). As an alternative to registering, clients can sign documents to achieve this same result.

b. Estate tax benefits of RDP status. Clients are flirting with an Oregon taxable estate. Michelle’s assets (including the joint property) exceed $1,000,000. RDP status could be helpful. Clients may also want to consider a bypass or disclaimer trust to eliminate Oregon estate tax if Michelle dies first, in order to prevent the potential of double taxation of assets.

Example: Assume Michelle dies first and Michelle and Carolyn HAVE NOT registered...

(a) Bypass Trust planning: Michelle’s estate will owe Oregon estate tax of approximately because no marital deduction is allowable (Carolyn is not treated as a spouse because she is not a RDP). However, if part of all of Michelle’s assets are directed to a bypass trust (rental and/or life insurance), the value of the bypass trust should not be included in Carolyn’s taxable estate when she dies. Without the bypass trust, those assets would be subject to Oregon estate tax at Michelle’s death and at Carolyn’s death (potentially troublesome if they died within a short time frame).

(b) Disclaimer planning: would not be useful. Carolyn would be treated as making a taxable gift of $800,000 for federal purposes and need to file a gift tax return. Also, the value of the disclaimer trust would likely be included in Carolyn’s estate (for federal and Oregon purposes).

Basic Estate Planning and Administration 2013 4–17 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Example: Assume Michelle dies first and Michelle and Carolyn HAVE registered as domestic partners...

(a) Bypass Trust planning: Michelle still has a taxable estate but because bypass trust holds less than $1,000,000 (assuming that only rental and/or life insurance are directed to the bypass trust) and the balance of the estate passes to RDP, NO Oregon estate tax will be owed at Michelle’s death.

(b) Disclaimer planning: As RDPs, Michelle and Carolyn could incorporate disclaimer planning to allow Carolyn to disclaim assets at Michelle’s death. There would still be a gift for federal tax purposes (only “spouses” enjoy unlimited marital deduction for gift tax purposes), but the disclaimed assets should not be included in Carolyn’s Oregon estate.

(1) Other considerations

(a) File joint income tax returns for Oregon but not federal

(b) Not “spouses” so many federal benefits may not be available (IRA rollover, Social Security survivorship)

ii. Get Married?

(1) Marriage would allow Michelle and Carolyn access to federal benefits such as IRA roll-over, joint income tax return filing..

(a) Social Security benefits still uncertain at the time of this writing

(2) Because of the uncertainty of Oregon’s interpretation and recognition of the out-of-state marriages and how that may play out in the coming months, it is advisable for these client to both marry and register.

iii. Best Advice– GET MARRIED AND REGISTER

Basic Estate Planning and Administration 2013 4–18 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

iv. Adoption.

Michelle should be advised to move forward with second parent adoption of twins to establish legal parentage and ensure that her father’s inheritance passes to twins if she predeceases (assuming father’s estate plan calls for distribution to his legal descendants).

b. Helen and Bill.

Helen and Bill are unmarried partners who have been in a relationship for 15 years. Bill is 63 and working. When he retires he will receive $1,600 a month in Social Security benefits. He is divorced and has 2 grown children from his first marriage. Helen is 58, widowed and has 1 grown child from her first marriage. Under her deceased spouse’s record, she would receive $1,000. Helen has multiple sclerosis, which is progressing slowly. She is not currently disabled as defined in the Social Security Administration rules, but she anticipates future disability and a need for long-term care. They want to know the advantages of getting married or registering as domestic partners.

i. Issues.

(1) RDP? Registering as domestic partners is not an option.

(2) Marriage?

(a) Marriage advantages:

(i) Helen can collect $800 in Social Security benefits at age 62 on Bill’s record.

(b) Marriage disadvantages:

(i) Helen can receive higher benefits based on her deceased husband’s record beginning at age 60. She will lose Social Security survivor benefits if she marries before the age of 60.

(ii) Helen may be eligible for Medicaid if she needs expensive long-term care if the couple does not marry.

Basic Estate Planning and Administration 2013 4–19 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

c. David and Michael.

David and Michael are long-term partners. They were married in Multnomah County in 2004 and have been closely watching the same-sex marriage issue as it relates to other states. They have not registered as domestic partners and would prefer not to register unless there are important advantages for them. David runs a successful marketing firm and Michael works for a nonprofit organization. Their estate planning goals are to take care of each other during their joint lives and then leave the estate to charity upon the second of them to die. They also want to know the advantages of registering as domestic partners or getting married in another state.

David Michael Joint residence $500,000 bank accounts $100,000 $30,000 $15,000 investments $1,000,000 $250,000 IRA $500,000 $150,000 life insurance $1,000,000 $500,000 $2,600,000 $680,000 $765,000

i. Register as RDPs? Get Married? With the fall of DOMA and the changing scene of state recognition of same-sex marriage, from an estate tax perspective, it makes sense for Michael and David to both:

(1) Register as Domestic Partners for Oregon to secure benefits that Oregon affords to spouses and hedge against uncertainty of whether Oregon will recognize their out-of-state marriage.

(a) For example, if David and Michael register, they can eliminate Oregon estate tax at first death. This will be particularly advantageous for the clients if David were to die first. Plus, there should be no tax at the second death if the majority of their assets are left to charity. Clients estate plan could be as simple as leaving all assets outright to the survivor.

Basic Estate Planning and Administration 2013 4–20 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

(2) Get married in Washington (or other state allowing same-sex marriage) to access federal marriage benefits.

(a) For example, the survivor of them would be able to roll- over the IRA account of their deceased spouse and avoid taking any minimum required distributions until the survivor reaches age 70 ½.

ii. Income Taxes–> David and Michael should ensure that the potential negative income tax results of RDP/marriage status do not outweigh the benefits of marriage/RDP status for estate taxes.

iii. Prenup?

DISCLAIMER: The information contained in this paper is based on Oregon law and is subject to change. It should be used for general purposes only and should not be construed as specific legal advice by Fitzwater Meyer Hollis & Marmion, LLP, or its attorneys. Neither this paper nor use of its information creates an attorney-client relationship. If you have specific legal questions, consult with your own attorney or call us for an appointment.

Basic Estate Planning and Administration 2013 4–21 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–22 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

APPENDIX A—BASIC RIGHTS OREGON RESOURCE GUIDE

Resource Guide

503/222.6151 www.basicrights.org

Basic Estate Planning and Administration 2013 4–23 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Oregon’s Domestic Partnership Law

A Domestic Partnership may be established by two individuals of the same sex who are at least 18 years of age, at least one of is an Oregon resident, and who are otherwise legally capable of consenting.

Establishing a Domestic Partnership affords same‐sex couples all of the rights and responsibilities that are granted under state law through a marriage contract. These important rights and responsibilities include: • Hospital visitation rights and medical decision‐making for part‐ ners; Check out • Automatic parentage of non‐biological parents for www.basicrights.org children born after the Domestic Partnership is estab‐ for a list of the top 25 rights and lished; responsibilities • Significant legal and financial obligations to each other; afforded to domestic • And dissolution provisions similar to legal divorce. partners!

Domestic Partnerships are prohibited and void if: • Either party has a different legally‐recognized spouse*; or • The parties are first cousins or any nearer kin.

An Oregon court may declare a Domestic Partnership void if: • A judge finds either party was not of legal age (18); or • Was incapable of consenting due to insufficient understanding; or • Consent was obtained by force or fraud.

*Please see FAQ for what this means for couples with legally‐recognized relationships from an‐ other state or country. Next Steps for Basic Rights Oregon

With the passage of our anti‐discrimination and domestic partnership legislation, 2007 was an historic year with incredible victories to celebrate! But we still have a lot to do.

Opponents failed in their first attempt to force a divisive, statewide vote on our new laws—but they get a second chance at putting an initiative on the ballot in ‘08. So we need to prepare to defend the Oregon Family Fairness Act and Oregon Equality Act in 2008.

We also know that simply passing a law isn’t enough—you have to enforce that law. And Basic Rights Oregon is committed to ensuring that our new laws are enforced uniformly around all of Oregon.

Finally, we couldn’t have passed this historic legislation without the pro‐equality majority we currently have in the House and Senate. We need to increase that majority in this upcoming election year.

To accomplish these goals, we need your help! To get involved, call us at 503/222.6151 or visit 1 www.basicrights.org for more details.

Basic Estate Planning and Administration 2013 4–24 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

You and your partner can register your Domestic The Registration Process Partnership in any county in Oregon!

The first day you can register your Domestic Partnership is January 2, 2008, as January 1st is a holiday. Oregon’s Domestic Partnership registry is managed in each county by the County Clerk’s office. This office is located in the county seat, and this is where you and your partner can file the necessary paperwork to become domestic partners. In order to register your Domestic Partnership, you will need:

• A Driver’s License, passport, or other state‐issued ID with your photo, date of birth, and signature. • Cash to pay the registration fee. Most clerk’s offices do not accept See pages 5 to 7 checks and none accept credit or debit cards. for county clerk contact info and details on Once you arrive, these are the most likely steps you will take: registration costs!

1. Go into the office and obtain a Declaration of Domestic Part‐ nership form.

2. Fill out the form (but don’t sign it yet).

3. Locate a Notary Public, sign the Declaration in his/her presence, and have him/her notarize the form. You need ID for this step, and be prepared to pay a small fee for this service, be‐ tween $1 and $5. Please note that notaries may charge up to $5 per signature, including their own, so it may cost up to $15 in total. In the Contact and Fee Information by County Section of this guide, but the price of notarization listed is per signature. Please note that the notary public may be an official at the County Clerk’s office but may not be—for a complete list of No‐ taries Public in Oregon, check out: www.filinginoregon.com/Oregon/Notaries.htm.

4. Bring the notarized form back to the clerk’s office and pay your cash fee. You may need to show your ID again as proof of age.

5. The clerk will then sign your Declaration of Domestic Partnership form, making it legally valid, and voila, you and your partner are domestically partnered!

6. You will then receive a decorative, commemorative Certificate of Registered Domestic Part‐ nership either in person or in the mail. This is NOT a legal document.

7. We recommend that couples purchase a certified copy of their Declaration of Domestic Part‐ nership from their county clerk (the fees vary from county to county but typically between $10 and $20). The certified copy will assist you with benefits claims and name changes.

A Note on Name Changes: To modify your surname(s), obtain a certified copy of the Declaration of Domestic Partnership from your county clerk. This copy is usually sent by mail. Then, take your certified copy to the Department of Motor Vehicles to change your Oregon Driver’s License. The certified copy of your Declaration of Domestic Partnership is a legal document. 2

Basic Estate Planning and Administration 2013 4–25 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Frequently Asked Questions If my partner and I have participated in a local Domestic Partnership registry (Portland/Multnomah County, Eugene or Ashland), must we re‐register?

YES – couples participating in a local Domestic Partnership registry should plan to re‐register under the new Domestic Partnership law , provided they wish to assume more expansive legal rights and responsibilities. The existing local registries are symbolic in This FAQ will be nature and confer no legal rights, whereas the Oregon Family frequently updated. Fairness Act significantly changes the legal status of For the most recent Domestic Partners, giving them all of the rights and version, please visit responsibilities currently available to married couples. www.basicrights.org If my partner and I entered into a Domestic Partnership (as is available in California) or a Civil Union (as is available in Vermont), can we get an Oregon Domestic Partnership?

YES—a couple who entered into a civil union or domestic partnership in another state can and should file a Declaration of Domestic Partnership under Oregon law.

My partner and I were married in Massachusetts, Canada or another country. Would we need to dissolve our previous marriage in order to file a Domestic Partnership in Oregon?

NO—a couple who married in Massachusetts, Canada, or another country does not have to dissolve their previous marriage. They can and should file a Declaration of Domestic Partnership under Oregon law.

If my Domestic Partner and I travel or move to another state that recognizes same‐sex relationships, will our Oregon Domestic Partnership be valid there?

PROBABLY NOT. A prudent legal approach would be to assume that another state would not recognize an Oregon Domestic Partnership. An emergency situation like the illness or injury of a partner or child would be a bad time to try to sort out the legal complexities of interstate law. Couples in this situation are strongly encouraged to consult an attorney.

Basic Estate Planning and Administration 2013 4–26 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Will Oregon recognize Domestic Partnerships or Civil Unions of other states?

Legal opinions vary on whether the Family Fairness Act authorizes Oregon to recognize the rights and responsibilities conferred on same‐ sex couples by other jurisdictions. While Oregon is prohibited from recognizing same‐sex marriages due to Constitutional Amendment 36, the state MAY be able to extend the rights and responsibilities of an Oregon Domestic Partnership to a same‐sex couple who obtained legal recognition in another state via Domestic Partnership or Civil Union. The language of HB 2007 does not explicitly address this situation; the safest route for a couple seeking a legally‐recognized relationship in this state would be to register for an Oregon Domestic Partnership.

Will my employer be required to start providing health care to my partner, like they do for married spouses? Important! Registering for a do‐ HB 2007 provides no clear answer. A 1998 court mestic partnership could have serious case required public (government agency) ramifications on your will and other legal employers to extend health care benefits to agreements. Please same‐sex partners. It is unclear whether private consult your attorney. employers are obligated to extend health benefits to same‐sex domestic partners. Although we believe there are strong legal arguments that would support such an obligation, some private employers may deny health benefits asserting the denial is permitted under federal law. This question likely will be resolved by the courts. For now, you can check the language in your employer's policy and health plan documents to determine if the policy or plan already extends benefits to opposite‐sex domestic partners. Ask your company benefits administrator whether, given the new laws, the company intends to provide same‐sex partner benefits as of January 1, 2008.

Please note that this resource guide is for educational purposes only and is NOT LEGAL ADVICE. Please consult your

attorney regarding your specific situation.

Basic Estate Planning and Administration 2013 4–27 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Contact Information and Fees by County Baker County Columbia County Deschutes County Tamera Green, County Clerk Betty Huser, County Clerk Nancy Blankenship, County Clerk [email protected] [email protected] [email protected] 541/523.8207 503/397.3796 541/388.6549 1995 3rd Street, Suite 150 230 Strand Street 1300 NW Wall Street, Suite 200 Baker City, OR 97814 St. Helens, OR 97051 Bend, OR 97701 Fee: $54, cash and local checks Fee: $50, cash and in‐state checks Fee: $55, cash and in‐state checks Required ID: state‐issued ID Required ID: state‐issued ID Required ID: state‐issued ID Notary: Yes, no charge Notary: No Notary: No Benton County Coos County Douglas County James Morales, County Clerk Teri Turri, County Clerk Barbara Nielson, County Clerk [email protected] [email protected] [email protected] 541/766.6831 541/396.3121 541/440.4323 120 NW 4th Street 250 N Baxter Street 1036 SE Douglas Street, Room 221 Corvallis, OR 97330 Coquille, OR 97423 Roseburg, OR 97470 Fee: $50, cash and checks Fee: $50, cash and checks Fee: $50, cash and in‐state checks Required ID: Driver’s license or Required ID: state‐issued ID Required ID: state‐issued ID passport or birth certificate or Notary: Yes, no charge Notary: No other state‐issued ID Notary: Yes, $5 per signature Crook County Gilliam County Dee Berman, County Clerk Rena Kennedy, County Clerk Clackamas County [email protected] [email protected] Sherry Hall, County Clerk 541/447.6553 541/384.2311 [email protected] 300 NE Third, Room 23 221 S Oregon Street 503/650.5686 Prineville, OR 97754 Condon, OR 97823 2051 Kaen Road, 2nd Floor Fee: $60, cash and checks Fee: $50, cash Oregon City, OR 97045 Required ID: state‐issued ID Required ID: state‐issued ID Fee: $60, cash only Notary: Yes, $5 per signature Notary: No Required ID: state‐issued ID Notary: No Curry County Grant County Renee Kolen, County Clerk Kathy McKinnon, County Clerk Clatsop [email protected] mckinnonk@grantcounty‐or.gov Nicole Williams, County Clerk 541/247.3295 503/397.3796 [email protected] 29821 Ellenburg Avenue 230 Strand Street 503/325.8511 Gold Beach, OR 97444 St. Helens, OR 97051 820 Exchange Street, Suite 220 Fee: $50, cash or money order Fee: $50, cash and in‐state checks Astoria, OR 97103 Required ID: state‐issued ID Required ID: state‐issued ID Please contact Clerk Williams for Notary: No Notary: Notaries may be available fee, ID, and notary information. in the building

The Declaration of Domestic Partnership form will be available online at http://oregon.gov/DHS/ph/chs/index.shtml starting January 1st, 2008. If you would like to bring your own copy, make sure you print it on legal paper (8.5 x 14)!

Basic Estate Planning and Administration 2013 4–28 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Harney County Klamath County Malheur County Maria Iturriaga, County Clerk Linda Smith, County Clerk Deborah DeLong, County Clerk [email protected] [email protected] [email protected] 541/573.6641 541/883.5134 251 “B” Street West, Courthouse 450 N Buena Vista 305 Main Street Suite 4 Burns, OR 97720 Klamath Falls, OR 97601 Vale, OR 97918 Fee: $50, cash and in‐state checks Fee: $57.75, cash Fee: $60, cash or money order Required ID: state‐issued ID Required ID: state‐issued ID Required ID: state‐issued ID Notary: Yes, no charge Notary: Yes, no charge Notary: Notaries available in build‐ ing, $1 per signature Hood River County Lake County Leah Day, Records and Elections Stacie Geaney, County Clerk Marion County Clerk [email protected] Bill Burgess County Clerk [email protected]‐river.or.us 541/947.6006 [email protected] 541/386.1442 513 Center Street 503/588.5225 601 State Street Lakeview, OR 97630 100 High Street NE, Room #1331 Hood River, OR 97031 Please contact Clerk Geaney for fee, Salem, OR 97301 Fee: $50, cash and checks ID, and notary information Please contact Clerk Burgess for Required ID: state‐issued ID fee, ID and notary information. Notary: No Lane County Annette Newingham, County Clerk Morrow County Jackson County [email protected] Bobbie Childers, County Clerk Carmen Helman, Deputy Clerk 541/682.3653 [email protected] [email protected] 125 East 8th Avenue 541/676.5604 541/774.6152 Eugene, OR 97401 100 S Court Street, Suite 102 10 S Oakdale, Room 216 Fee: $50‐$60, cash and in‐state Heppner, OR 97836 Medford, OR 97501 checks Please contact Clerk Childers for Please contact Clerk Helman for Required ID: state‐issued ID fee, ID and notary information. fee, ID, and notary information. Notary: No Multnomah County Jefferson County Mike Watson, Customer Services Kathy Marston, County Clerk Lincoln County Gail Bradshaw Supervisor [email protected] At‐[email protected] [email protected] 541/475.4451 503/988.3027 (Marriage License & 66 SE “D” Street, Suite C 541/265.4131 Domestic Partnership Information) Madras, OR 97741 225 W Olive Street 501 SE Hawthorne Blvd, Suite 175 Please contact Clerk Marston for Newport, OR 97365 Portland, OR 97214 fee, ID, and notary information Fee: $60, cash Fee: $60, cash or money order Required ID: state‐issued ID Required ID: state‐issued ID Josephine County Notary: No Notary: yes, no charge (only available Georgette Brown, County Clerk for the first two weeks) Linn County [email protected] Polk County 541/474.5240 Steven Druckenmiller, County Clerk Valerie Unger, County Clerk 500 NW Sixth Street [email protected] [email protected] Grants Pass, OR 97526 541/967.3831 503/623.9217 Fee: $50‐$60, cash and in‐state 300 4th Avenue SW 850 Main Street checks Albany, OR 97321 Dallas, OR 97338 Required ID: state‐issued ID Fee: $50, cash Fee: $50, cash and checks Notary: No Required ID: state‐issued ID Notary: Yes, $5 per signature Required ID: state‐issued ID 6 Notary: Yes, no charge

Basic Estate Planning and Administration 2013 4–29 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Sherman County Union County Washington County Debbie Hayden, Chief Deputy Clerk Robin Church, County Clerk Sally Myers, Supervisor of Washing‐ dhayden@sherman‐county.com clerk31@union‐county.org ton County Recorders Office 541/565.3606 541/278.6236 [email protected] 500 Court Street 1001 4th Street, Suite D 503/846.8752 Moro, OR 97039 La Grande, OR 97850 155 N First Avenue, Suite 130 Fee: Unknown, cash and in‐state Fee: $50, cash and in‐state checks Hillsboro, OR 97124 checks Required ID: state‐issued ID Fee: $60, cash and in‐state checks Required ID: state‐issued ID Notary: No Required ID: state‐issued ID Notary: Yes, no charge Notary: No Wallowa County Tillamook County Dana Roberts, County Clerk Wheeler County Tassi O’Neil, County Clerk [email protected] Barbara S. Sitton, County Clerk [email protected] 541/426.4543 [email protected] 503/842.3402 101 S River Street, Room 100 541/763.2400 201 Laurel Avenue Enterprise, OR 97828 701 Adams Street, Room 204 Tillamook, OR 97141 Please contact Clerk Roberts for Fossil, OR 97830 Fee: $50, cash fee, ID, and notary information. Please contact Clerk Sitton for fee, Required ID: state‐issued ID Wasco County ID, and notary information. Notary: No Karen LeBreton Coats, County Clerk Yamhill County Umatilla County [email protected] Jan Coleman, County Clerk 541/506.2530 Jean Henphill, Chief Records Clerk [email protected] 511 Washington Street, Room 201 [email protected] 503/434.7518 The Dalles, OR 97058 541/278.6236 414 NE Evans Street Fee: $50, cash 216 SE 4th Street, Room 108 McMinnville, OR 97128 Required ID: state‐issued ID Pendleton, OR 97801 Fee: $50, cash Notary: No Fee: $50, cash Required ID: state‐issued ID Required ID: state‐issued ID Notary: No Notary: Yes, $5 per signature

Celebrate! Our New Laws Join Basic Rights Oregon on January 2nd to celebrate our new laws. All of our celebrations are FAMILY FRIENDLY!: Portland Eugene The Gerding Theatre at the Armory Davis’ Restaurant & Bar 128 NW 11th Avenue 94 W Broadway—5:30pm 5:00pm—8:00pm Free appetizers & champagne toast. Stay Light food, cash bar, jazz band & more! for dinner! Davis’ is donating 10% of their evening proceeds to Basic Rights Oregon! Southern Oregon (in Ashland) Standing Stone Brewing Company Bend 101 Oak Street (between Main and Lithia) Deschutes Brewery & Public House 5:30pm—Free appetizers, cash bar! 1044 Bond Street, 2nd Floor 4:30pm—6:30pm Corvallis Free hors d’oeuvres and pie! Iovino’s Ristorante—136 SW Washington Street 7:00pm—Complimentary dessert & champagne!

7 Latest Update: December 21st, 2007

Basic Estate Planning and Administration 2013 4–30 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

APPENDIX B—DHS FORM 45-6, DECLARATION OF OREGON REGISTERED DOMESTIC PARTNERSHIP

Oregon Department of Human Services 136- Center for Health Statistics

Local  le number State  le number Declaration of Oregon Registered Domestic Partnership This declaration of domestic partnership must be registered with an Oregon county clerk to be valid. 1. Partner A – Legal name: First Middle Last

2. Surname at birth (if different than current legal name): 3. Other legal surnames used:

4. Birthplace (state or foreign country): 5. Date of birth (month, day, year): 6. Age (18 or older):

7. Sex: 8. Current status (never married, widowed, divorced): 9a. Resident county: 9b. Resident state:

Partner A Partner 9c. Mailing address: Number and street City or town State Country ZIP code

10. Partner A legal name taken after domestic partnership: First Middle Last

11. Partner B – Legal name: First Middle Last

12. Surname at birth (if different than current legal name): 13. Other legal surnames used:

14. Birthplace (state or foreign country): 15. Date of birth (month, day, year): 16. Age (18 or older):

17. Sex: 18. Current status (never married, widowed, divorced): 19a. Resident county: 19b. Resident state:

Partner B Partner 19c. Mailing address: Number and street City or town State Country ZIP code

20. Partner B legal name taken after domestic partnership: First Middle Last

I acknowledge that: I am entering into a domestic partnership with the party listed above (Partner B); I am at least 18 years of age; I and/or my partner reside in Oregon and am otherwise capable to enter into this relationship. I declare the information and representations contained herein are true, correct and contain no material omissions of fact to the best of my knowledge and belief. I consent to the jurisdiction of the circuit courts of Oregon for the purpose of an action to obtain a judgment of dissolution or annulment of the domestic partnership or for legal separation of the partners in the domestic partnership, or for any other proceeding related to the partners’ rights and obligations, even if one or both partners cease to reside in or to maintain a domicile in this state.

State of , Signature partner A (current name) Date

county of . This instrument was acknowledged before me on (date),

by (name(s) of person(s)).

Signature of notarial of cer:

My commission expires: Seal: I acknowledge that: I am entering into a domestic partnership with the party listed above (Partner A); I am at least 18 years of age; I and/or my partner reside in Oregon; and am otherwise capable to enter into this relationship. I declare the information and representations contained herein are true, correct and contain no material omissions of fact to the best of my knowledge and belief. I consent to the jurisdiction of the circuit courts of Oregon for the purpose of an action to obtain a judgment of dissolution or annulment of the domestic partnership or for legal separation of the partners in the domestic partnership, or for any other

Signatures/notaries proceeding related to the partners’ rights and obligations, even if one or both partners cease to reside in or to maintain a domicile in this state.

State of , Signature Partner B (current name) Date

county of . This instrument was acknowledged before me on (date),

by (name(s) of person(s)).

Signature of notarial of cer:

My commission expires: Seal: County of  ling: Signature of county of cial at county of  ling: cial Date registered at county: Name of issuing of cial (print): Local Of 

The information below is optional and will not appear on certi ed copies of the RECORD. 20. Number of this 21. If previously married or part of a 22. Hispanic origin 23. Race(s): 24. Education - 25. Occupation: partnership domestic partnership, how did it (if yes, specify): highest grade (include marriages and domestic end? By death, divorce, dissolution completed partnerships) 1st, or annulment? (specify below) (specify below): 2nd, etc. (specify below): 20a. 21a. 22a. 23a. 24a. 25a.

Partner A Partner B 20b. 21b. 22b. 23b. 24b. 25b.

45-6 (01/10)

Basic Estate Planning and Administration 2013 4–31 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–32 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

APPENDIX C—DOJ LETTER

Basic Estate Planning and Administration 2013 4–33 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–34 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–35 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–36 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–37 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–38 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–39 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–40 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

APPENDIX D—SAME-SEX MARRIAGE LAWS BY STATE

Basic Estate Planning and Administration 2013 4–41 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–42 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

APPENDIX E—PRESENTATION SLIDES

Planning for Unmarried Partners and Same-Sex Couples

Melanie Marmion Fitzwater Meyer Hollis & Marmion

 Then:  Federal Defense of Marriage Act (“DOMA”)  Section 2  Section 3  Oregon  Article XV, Section 5a of the Oregon Constitution  Domestic Partnerships (ORS 106.300 et. seq.)

Basic Estate Planning and Administration 2013 4–43

1 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Now:  FederalRepeal of Section 3 of DOMA  U.S. v. Windsor  State  Oregon DOMA still in effect but…  DOJ opinion letter  Oregon United for Marriage voter initiative  Federal lawsuit  Domestic Partnerships  Washington State legalizes same-sex marriage  No residency requirement

 U.S. v. Windsor  June 26, 2013  Section 3 unconstitutional  Did not opine on Section 2  Hollingsworth v. Perry  CA prop 8 case  Dismissed because lack of standing  Obergefell v. Kasich  Section 2 of DOMA at issue  Recent Oregon DOJ opinion follows similar reasoning

Basic Estate Planning and Administration 2013 4–44

2 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Federal laws/benefits require:  Marriage AND  Recognition of the marriage by the particular department/agency

 “Place of Celebration” vs. “Place of Domicile”

 Department of the Treasury  Examples of potential benefits  Ability to roll-over IRA accounts  Unlimited marital deduction for estate/gift taxes  File joint federal income tax returns  No deemed income taxes on value of employer sponsored health-coverage  “Place of Celebration” controls

Basic Estate Planning and Administration 2013 4–45

3 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Social Security  Examples of potential benefits  Surviving spouse benefits  Non-earner spouse retirement benefits  Following quasi-”place of domicile”  Processing claims for same-sex marriages who live in jurisdiction recognizing their marriage  Holding claims for couples who are married AND who do not live in a jurisdiction that recognizes their marriage

 Social Security  Social Security rules define “spouse” to include any person that would receive under the laws of intestacy  RDPs  Social Security also holding these claims pending further guidance

Basic Estate Planning and Administration 2013 4–46

4 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Department of Health/Human Services  Medicare/Medicaid  Examples of potential benefits  Access to care in nursing home where spouse resides  Avoid higher medicare premiums based on spouse work record  Ability to delay enrollment in Part B & Part D  Limited guidance shows “place of celebration”  Access to skilled care in nursing homes

 Categories of Couples  Heterosexual married  “spouse”  Heterosexual unmarried “unmarried partners”  Same-sex/not registered/not married “unmarried partners”  Same-sex/registered/not married “RDPs”  Same-sex/registered or not/married  Under OR constitution “unmarried partners”  Under DOJ opinion letter “spouses”

Basic Estate Planning and Administration 2013 4–47

5 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Family and Estate Planning Issues  Intestacy  Spousal Elective Share  Protective proceedings (guardianship/conservatorship)  Disposition of Remains  Hospital visitation  Adoption by non-biological parent  Termination of the partnership/divorce

 Health and Long-Term Care Issues  Health insurance  Medicaid for Long-Term Care  Spousal impoverishment protections will be available to same-sex spouses married in other jurisdicitions  November 2013 announced rule changes to OARs will be effective April, 2014; temporary rule in meantime  Availability to RDPs remains unclear  Partial federal funding may require marriage  CMS guidance

Basic Estate Planning and Administration 2013 4–48

6 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Taxes  Income taxes  Advantage/disadvantage  Joint returns  Oregon Estate Tax  Unlimited marital deduction  Use of bypass/disclaimer trusts for spouse/RDPs

 SHOULD CLIENTS GET MARRIED?  Possible Advantages:  Joint income tax returns  Social Security benefits  Roll-over of IRA accounts  Estate/Gift marital deduction  Possible Disadvantages  Emotional uncertainty  Income tax “marriage” penalty  Deemed income between spouses for SSI/Medicaid eligibility  Possible roadblocks to legally terminating marriage  Bootstrap with RDP registeration?

Basic Estate Planning and Administration 2013 4–49

7 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Clarify relationship and intention for Wills to remain valid  Define “spouse”  Define “descendant”

 Assets  House equity $ 75,000 (joint)  Bank accounts $ 50,000 (joint)  IRA $200,000 (Michelle)  Life Insurance $300,000 (Michelle)  Rental property $500,000 (Michelle)  Investments $150,000 (joint)

 Should they register?  Treated as spouse for medical decisions, intestacy, guardian/conservator, etc.

Basic Estate Planning and Administration 2013 4–50

8 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Oregon Estate Tax analysis  If not registered…  Tax due if Michelle died first  Bypass trust could save double taxation  No disclaimer planning  If registered…  No tax due at first death  Bypass and disclaimer planning available

 Should they get married?  Federal Benefits  Uncertainty of Oregon recognition of same-sex marriage in coming months  Best Advice  Get Married & Register  Adoption

Basic Estate Planning and Administration 2013 4–51

9 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Bill is 63 & working  Bill will receive $1,600 SS-retirement benefits  Helen is 58 & widowed  Helen would receive $1,000 in SS benefits under her deceased spouse’s record  Helen has MS and anticipates need for long- term care

 Planning Issues  RDP status is not available  Helen would receive higher benefits on her predeceased spouse record  If Helen needs Medicaid for long-term care  Bill’s assets will not be counted  Spousal impoverishment laws?

Basic Estate Planning and Administration 2013 4–52

10 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

 Joint Assets:  House $500,000  Bank accounts $ 15,000  Investments $250,000  David:  Bank accounts $100,000  Investments $1,000,000  IRA $500,000  Life Insurance $1,000,000  Michael  Bank accounts $ 30,000  IRA $150,000  Life insurance $500,000

 Get Married?  Eliminate tax at first death; simplify plan  Access to federal benefits  Roll-over of IRA $ !  Register?  Help secure OR uncertainty while recognition rules fall into place  Income Tax analysis necessary to determine “marriage penalty”  Prenup?

Basic Estate Planning and Administration 2013 4–53

11 11/14/2013

Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–54

12 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–55 Chapter 4—The Complexities of Modern Relationships: Planning for Unmarried Partners

Basic Estate Planning and Administration 2013 4–56 Chapter 5 Tips and Traps in Preparing an OR706 Oregon Estate Tax Return1

Jeffrey M. Cheyne Samuels Yoelin Kantor LLP Portland, Oregon

Contents I. Tips and Traps in Preparing an OR706 Oregon Estate Tax Return ...... 5–1 II. Q&A from ODR Staff Meeting—Friday, September 6, 2013 (Edited Answers from Staff Members) ...... 5–1 A. What Are the Top Eleven Mistakes That ODR Encounters with Filed OR706s? . . . 5–1 B. Extension Applications: Does ODR Encounter Any Difficulties with Taxpayers Who Are Seeking an Extension of Time to File the OR706? ...... 5–5 C. Problems with Extensions of Time to Pay Oregon Estate Tax 5–5 D. Schedule OSMP: What Mistakes Does ODR See with the Schedule OSMP? . . . . 5–6 E. Oregon QTIP Election vs. OSMP Election: What Is the Difference Between a State QTIP Election and a Schedule OSMP Election? ...... 5–6 F. An Example of a Defective Marital Trust Provision ...... 5–8 G. ORS 130.240 Marital Deduction Gifts (A Statutory Cleanup Provision) ...... 5–9 H. Disclaimers ...... 5–9 I. Portability Decisions 5–12 J. Schedule NRC: What Kind of Mistakes Does ODR See with Schedule NRC? . . . 5–13 K. NRC Annual Certification Report ...... 5–13 L. April 15 Due Date ...... 5–13 M. NRC Use by Estate 5–14 N. Cessation of Use/Subsequent Reuse of NRC Property ...... 5–14 O. No Qualified Use of NRC Property Within Two Years/Subsequent Reuse by Family Member ...... 5–14 P. NRC Disposition Tax ...... 5–14 Q. Lifetime Gifting Opportunity 5–14 R. Oregon Residents vs. Nonresidents ...... 5–15 S. Nonresident Decedents ...... 5–17 T. Resident Decedents with Out-of-State Property ...... 5–17 U. Interest and Penalties: Installment Plan; Late Payment of Taxes ...... 5–17 Sample Client Letter re Portability 5–18

1 The author wishes to thank and acknowledge Joanna Mitchel and Maribel Luna from the Oregon Department of Revenue for taking the time to meet and answer a number of questions concerning various estate tax forms. In addition, the author wishes to thank Phillip N. Jones and Holly N. Mitchell, Duffy Kekel LLP, Portland, Oregon, for portions of this chapter that are based on materials from the Oregon Estate Tax chapter recently published in Administering Oregon Estates. Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

Basic Estate Planning and Administration 2013 5–ii Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

I. TIPS AND TRAPS IN PREPARING AN OR706 OREGON ESTATE TAX RETURN The 2011 Legislature made significant changes to ORS chapter 118, which became effective for decedents dying on or after January 1, 2012. The tax imposed by ORS Chapter 118 (formerly known as the Oregon inheritance tax) is now known as the Oregon estate tax. Does an OR Form 706 Need to Be Filed? The filing threshold for the requirement to file an Oregon Form 706 Estate Tax Return is a gross estate of $1,000,000 or more based on the value of the decedent’s worldwide assets. ORS 118.160(1). 1. First. Identify and determine the value of the decedent’s gross estate including “all property, real or personal, tangible or intangible, wherever situated.” IRC §2031(a). The total value of those assets constitutes the decedent’s “gross estate” under IRC §2031 and ORS 118.005(6). Note: Oregon estate tax statutes reference the federal estate tax law as that law existed as of December 31, 2010 (ORS 118.007). 2. Second—Determine Whether an Oregon Estate Tax Return Is Required. If the value of the decedent’s gross estate is less than $1,000,000, then no Oregon estate tax return is required to be filed. ORS 118.160(1)(c). However, because the decedent’s gross estate includes the value of all of the decedent’s assets, wherever located in the world, a resident or nonresident decedent whose estate includes assets located in Oregon worth substantially less than $1,000,000 will still be subject to the filing requirement if the total value of the gross estate is over $1,000,000. For example, if a nonresident decedent has a deeded timeshare interest in a beach property at the Oregon coast worth $300,000, as well as other assets in California worth $800,000, representatives of the decedent would have to file an Oregon estate tax return because the decedent’s worldwide gross estate would be valued at over $1,000,000. No Oregon estate tax return will be due and no tax will be due if the worldwide gross estate of the decedent is less than the filing threshold of $1,000,000 ORS 118.160(1)(c). 3. Third. What are some of the common errors on the OR706 estate tax return as seen by the staff at the Oregon Department of Revenue (ODR)? See next pages. II. Q&A FROM ODR STAFF MEETING—FRIDAY, SEPTEMBER 6, 2013 (EDITED ANSWERS FROM STAFF MEMBERS) A. What Are the Top Eleven Mistakes That ODR Encounters with Filed OR706s? 1. Incomplete tax returns, missing pages of returns, or only the three pages of Form OR706 are filed but no schedules. 2. Missing documentation such as death certificates, Form 712s, trust documents, will, and supporting values of assets. 3. No supporting documents for discounts of real estate property value. 4. Missing proof of extensions: Extension box is marked on return but no approved extension form is attached to return. 5. Line 5 on page 1 of the OR706 return not filled in: “Gross value of property located in Oregon” must be filled out even when 100% of the gross assets are Oregon property. Note the black dots on page 1 of the return – all contain data that is entered into the ODR system. All must contain data that is correct or the return will be pulled and the estate representative will be contacted. 6. Tax lines not filled out, blank line 11 on page 1 of the OR706 return, “Tax due” (tax payable on amount on line 7 on page 1 of the OR706 but not carried down to tax due).

Basic Estate Planning and Administration 2013 5–1 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

For office use only Date received Form Oregon Year of Death r Estate Transfer Payment r OR706 r r 2012 BIN (147) Tax Return r

Part 1 (Please print or type.) Decedent’s first name, middle initial, and last name Decedent’s Social Security number , Estate r Date of birth Date of death Decedent’s domicile (legal residence)—City, County, State, Country Year domicile established r Is the estate being probated in Oregon? An extension of time to file is attached. Yes r If Yes— Oregon county: An extension of time to pay is attached. No r Oregon probate number: This is an amended return. A separate election is claimed.

Executor’s name Executor’s Social Security number Executor’s daytime telephone number ( ) Executor’s mailing address City State ZIP code

Attach a copy of all required schedules and supporting documents.

Part 2—Tax computation Round all amounts to the nearest whole dollar. 1. Total gross estate (from page 3, Part 5, line 512) ...... 1. 2. Total allowable deductions (from page 3, Part 5, line 522)...... 2. 3. Taxable estate (line 1 minus line 2) ...... 3. 4. Oregon estate tax (see page 3, Part 6) ...... 4. 5. Gross value of property located in Oregon ...... r 5. 6. Oregon percentage (line 5 divided by line 1, round to four decimal places, no more than 100%) ...... 6. 7. Tax payable to Oregon (line 4 multiplied by line 6) ...... 7. 8. Natural Resource Credit (from Schedule NRC, line 9)...... r 8. 9. Net estate tax (line 7 minus line 8)...... r 9. 10. Amount paid by original due date of return ...... 10. 11. Tax due (line 9 minus line 10) ...... 11. 12. Overpayment (line 10 minus line 9) ...... r12. 13. Penalty for late filing or late payment (see instructions) ...... 13. 14. Interest on late payment (see instructions)...... 14. 15. Total due (add lines 11, 13, and 14) ...... 15. 16. Refund (line 12 minus lines 13 and 14) ...... 16.

Signatures and authorization Under penalties of false swearing, I declare that I have examined this return, including accompanying schedules and statements. To the best of my knowledge and belief it is true, correct, and complete. If prepared by a person other than the executor, this declaration is based on all information of which the preparer has any knowledge.

Executor signature Title Executor’s telephone no. Executor’s SSN or FEIN Date X Executor signature Title Executor’s telephone no. Executor’s SSN or FEIN Date X Check the box to authorize the following individual(s) to receive and provide confidential tax information relating to this return. Preparer’s name (print) Title Telephone number ( ) Preparer’s mailing address City State ZIP code

Signature of preparer Date

150-104-001 (Rev. 10-12) Form OR706 page 1 of 3

Basic Estate Planning and Administration 2013 5–2 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

, Estate Part 3—Elections by the executor Check the “Yes” or “No” box for each question. See instructions. 1. Do you elect alternate valuation? ...... 1. Yes No 2. Do you elect special use valuation? Attach Schedule A-1 ...... 2. Yes No 3. Do you elect to pay the taxes in installments? If you requested an extension of time to pay you will be required to provide collateral for the unpaid estate transfer tax under Oregon Revised Statute 118.225...... 3. Yes No 4. Do you elect to postpone the part of the taxes attributable to a reversionary or remainder interest as described in Section 6163? ...... 4. Yes No

Part 4—General information You must attach a copy of the death certificate, and all supporting documents. See instructions.

1. Marital status of the decedent at time of death: Married Oregon registered domestic partner Widow or widower— Name of deceased spouse/Oregon registered domestic partner: SSN of deceased: Date of death: Single Legally separated Divorced—Date divorce decree became final: 2. a. Surviving spouse’s/Oregon registered domestic partner’s name: b. Survivor’s Social Security number: c. Amount received (see instructions):

3a. Individuals (other than the surviving spouse/Oregon registered domestic partner), trusts, or other estates who receive benefits from the estate (do not include charitable beneficiaries shown in Schedule O) (see instructions). For Privacy Act Notice (applicable to individual beneficiaries only), see the instructions for Form 1040. Name of individual, trust, or estate receiving $5,000 or more Identifying number Relationship to decedent Amount (see instructions)

3b. All unascertainable beneficiaries and those who receive less than $5,000 ...... Total ...... 3

Check the “Yes” or “No” box for each question. 4. Does the gross estate contain any Section 2044 property [qualified terminable interest property (QTIP) from a prior gift or estate]? (Schedule F) ...... 4. Yes No

If you answer “Yes” to any of questions 5–12, you must attach additional information as described in the instructions. 5. a. Was there any insurance on the decedent’s life that is not included on the return as part of the gross estate? (Schedule D, Form 712) .....5a. Yes No b. Did the decedent own any insurance on the life of another that is not included in the gross estate?(Schedule D, Form 712) ...... 5b. Yes No 6. Did the decedent at the time of death own any property as a joint tenant with right of survivorship in which (a) one or more of the other joint tenants was someone other than the decedent’s spouse, and (b) less than the full value of the property is included on the return as part of the gross estate? (Schedule E) ...... 6. Yes No 7. a. Did the decedent, at the time of death, own any interest in a partnership or unincorporated business, limited liability company, or any stock in an inactive or closely held corporation? ...... 7a. Yes No b. If yes, was the value of any interest owned (from 7a.), discounted on this estate tax return? If yes, see the federal instructions on reporting the total accumulated or effective discounts taken on Schedule F or G ...... 7b. Yes No 8. Did the decedent make any transfer described in Section 2035, 2036, 2037, or 2038? (Schedule G) ...... 8. Yes No 9. Were there in existence at the time of the decedent’s death: a. Any trusts created by the decedent during his or her lifetime? (Schedule G and trust document) ...... 9a. Yes No b. Any trusts not created by the decedent under which the decedent possessed any power, beneficial interest, or trusteeship? (Schedule F and trust document) ...... 9b. Yes No 10. Did the decedent ever possess, exercise, or release any general power of appointment? (Schedule H) ...... 10. Yes No 11. Was the decedent, immediately before death, receiving an annuity described in the “General” paragraph of the instructions for Schedule I? (Schedule I) ...... 11. Yes No 12. Was the decedent ever the beneficiary of a trust for which a deduction was claimed by the estate of a pre-deceased spouse or Oregon registered domestic partner under Section 2056(b)(7) and which is not reported on this return? If “Yes,” attach an explanation ...... 12. Yes No 150-104-001 (Rev. 10-12) Form OR706 page 2 of 3

Basic Estate Planning and Administration 2013 5–3 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

, Estate Part 5—Recapitulation Round all amounts to the nearest whole dollar. r (a) (b) Gross Estate Alternate value Value at date of death 501. Schedule A—Real estate ...... r 501. 502. Schedule B—Stocks and bonds ...... r 502. 503. Schedule C—Mortgages, notes, and cash ...... r 503. 504. Schedule D—Insurance on the decedent’s life [attach Form(s) 712] ...... r 504. 505. Schedule E—Jointly owned property [attach Form(s) 712 for life insurance] ...... r 505. 506. Schedule F—Other miscellaneous property [attach Form(s) 712 for life insurance] .. r 506. 507. Schedule G—Transfers during decedent’s life [attach Form(s) 712 for life insurance] ....r 507. 508. Schedule H—Powers of appointment ...... r 508. 509. Schedule I—Annuities ...... r 509. 510. Total gross estate (add lines 501 through 509) ...... 510. 511. Schedule U—Qualified conservation easement exclusion ...... r 511. 512. Total gross estate less exclusion (line 510 minus line 511). Enter here and on part 2, line 1 ...... 512.

Deductions Amount 513. Schedule J—Funeral expenses and expense incurred in administering property subject to claims ...... r 513. 514. Schedule K—Debts of the decedent ...... r 514. 515. Schedule K—Mortgages and liens ...... r 515. 516. Total of lines 513 through 515 ...... 516. 517. Allowable amount of deductions from line 516 (see instructions) ...... r 517. 518. Schedule L—Net losses during administration ...... r 518. 519. Schedule L—Expenses incurred in administering property not subject to claims ...... r 519. 520. Schedule M—Bequests, etc., to surviving spouse/Oregon registered domestic partner (see instructions) or Oregon Schedule OSMP ...... r 520. 521. Schedule O—Charitable, public, and similar gifts and bequests ...... r 521. 522. Total deductions (add lines 517 through 521) (Enter here and on part 2, line 2) ...... 522.

Part 6—Estate transfer tax table Compute your tax for Part 2 line 4 by applying the rates in the table below to the amount on Part 2, line 3 (taxable estate). Example: The taxable estate, Part 2, line 3, is $1,700,000. Column 1, the taxable amount is equal to or more than $1,500,000. Column 2, the taxable amount is less than $2,500,000. Column 3, tax on the amount in column 1 is $50,000. Column 4, tax rate of 10.25 percent; apply to the taxable estate amount which is more than the amount in column 1. $1,700,000 less $1,500,000 = $200,000 X 10.25 % = $20,500 plus $50,000 = $70,500 total tax. Enter your Oregon Estate Transfer Tax on Part 2, line 4.

Column 1 Column 2 Column 3 Column 4 Tax rate on taxable estate Taxable estate equal Taxable estate Tax on amount amount more than the amount to or more than: less than: in column 1: in column 1 (percent): $ 1,000,000 $ 1,500,000 $ 0 10.0% 1,500,000 2,500,000 50,000 10.25% 2,500,000 3,500,000 152,500 10.5% 3,500,000 4,500,000 257,500 11.0% 4,500,000 5,500,000 367,500 11.5% 5,500,000 6,500,000 482,500 12.0% 6,500,000 7,500,000 602,500 13.0% 7,500,000 8,500,000 732,500 14.0% 8,500,000 9,500,000 872,500 15.0% 9,500,000 1,022,500 16.0%

Attach a copy of all required schedules and supporting documents. Mail to: Oregon Department of Revenue, PO Box 14110, Salem OR 97309-0910

150-104-001 (Rev. 10-12) Form OR706 page 3 of 3

Basic Estate Planning and Administration 2013 5–4 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

7. Using wrong tax brackets to calculate Oregon estate tax; for example, using 10% instead of 10.25%. 8. Addition errors on page 3 of the OR706 Return Part 5 Recapitulation, Lines 516 and 517 (total deductions), left blank. Also, wrong amount carried over from Recapitulation to page 1. 9. Returns not signed by the trustee, personal representative, or paid preparer. 10. Amounts on Schedule M or Schedule OSMP don’t match the amount on page 2 (line 2c of Part 4, General Information) of the return “amount received” by the surviving spouse. Amount on line 520 (page 3 of the OR706) should match the totals from Schedule M and Schedule OSMP. 11. In the instructions of OR706 ODR asks that the Oregon property be highlighted or underlined on the schedule. This is rarely done. This is for review purposes.

Note: All of the above errors and/or omissions result in processing delays and unnecessary contact via telephone or written correspondence between ODR and the estate representatives. B. Extension Applications: Does ODR Encounter Any Difficulties with Taxpayers Who Are Seeking an Extension of Time to File the OR706? 1. When is the tax return and tax payment due? The OR706 Return is due nine months after the date of the decedent’s death unless an extension has been obtained. The Oregon estate tax is also due nine months after the date of the decedent’s death. ORS 118.100(1) and 118.160(1)(c). 2. A six-month automatic extension to file an OR706 return is available if filed within nine months after the date of the decedent’s death. 3. Yes, if extensions (IRS Form 4768—marked “Oregon Only”) are not requested on a timely basis. The extension of time to file and/or pay must be postmarked [received] on or before the original due date of the return (nine months after the date of death). Many practitioners mail in the extension request with the return more than nine months after the date of death has passed, assuming the extension of time to file was granted. One can file an extension by delivery to local ODR office.

Note: Use of certified mail does constitute the filing of a return or the payment of tax as of the postmark date. ORS 305.820. This statute indicates that a writing or remittance is “deemed filed or received on the date shown by the cancellation mark or other record of transmittal.” C. Problems with Extensions of Time to Pay Oregon Estate Tax 1. An extension to pay the tax is available for up to 14 years at the discretion of the ODR, provided the application is filed within nine months after the date of the decedent’s death ORS 118.225. 2. Box checked on Form 4768 but without a written explanation as to why it is impossible or impractical to pay by the due date of the return. 3. An estimated payment is made with the coupon (Form OR706-V) and the “Extension” is marked. Preparer assumes an extension of time to pay can be requested/granted by checking the “Extension,” which is not true. 4. ODR’s process is to review the extensions and mail back a copy of the approved extensions or the denied extensions to the personal representative. If an Oregon power of attorney was received with the extension request, ODR also mails a copy to the attorney or CPA. A copy of the approved extension to pay copy must be filed with the return. 5. A copy of IRS Form 4768 marked “Oregon Only” is attached. See next page.

Basic Estate Planning and Administration 2013 5–5 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

D. Schedule OSMP: What Mistakes Does ODR See with the Schedule OSMP? 1. Assets are not specifically itemized with a description and value as required on Schedule OSMP. Everything is listed in a lump sum. Example of a description: “80% of gross assets” instead of description of each asset and the asset value. Note: OAR 150-118.010(8) allows the filing of a return with the assets to be identified later, but ODR indicates that it does not typically receive a supplemental filing that itemizes the property subject to the OSMP election. 2. No required signatures and notary. 3. A copy of the Schedule OSMP is on the following pages. E. Oregon QTIP Election vs. OSMP Election: What Is the Difference Between a State QTIP Election and a Schedule OSMP Election? 1. Background. In the classic estate plan for a married couple, the estate of the first spouse to die is divided into a credit shelter trust equal to the federal estate tax exemption ($5,250,000 for 2013) and the remainder of the estate is given to the surviving spouse, either outright or in a qualified terminable interest property (QTIP) trust or other trust that qualifies for the marital deduction. The assets distributed to the credit shelter trust are shielded from tax by the federal estate tax exemption and the state estate tax exemption, and the assets given to the surviving spouse are shielded from tax by the marital deduction, at least at the first death. The beauty of this plan is that when the first spouse dies, it uses the deceased spouse’s exemption amount plus the marital deduction for property passing to or available to the surviving spouse, resulting in no tax at the first death IRC §2010, IRC §2056. This plan worked well for Oregon residents until 2002, when Oregon broke away from the federal estate tax system. The federal exemption amount increased from $1,000,000 in 2002 to $5,250,000 in 2013. The Oregon exemption amount, however, stayed at $1,000,000 for deaths after 2005. If the classic estate plan for a married couple were followed today and the credit shelter trust were funded to the full amount of the federal exemption, the estate of the first to die would owe Oregon tax on the value of the credit shelter trust in excess of the $1,000,000 Oregon exemption. After 2005, Oregon estate plans needed to be changed to avoid the Oregon inheritance tax at the first death. Two planning choices were available. The first solution was to limit the credit shelter trust funding formula to $1,000,000, but this system had obvious problems. Most of the existing marital funding and credit shelter funding formulas were tied to the federal exemption, and therefore, by their terms, these formulas would not limit funding only up to the Oregon exemption amount. As a result, with a federal exemption formula, the credit shelter would be funding in excess of the $1,000,000 Oregon exemption amount and an Oregon estate tax would be due. However, if the funding formula was revised to use the $1,000,000 Oregon exemption amount, then the reduced funding would fail to use the full federal exemption amount for the deceased spouse. The second solution was to make an Oregon QTIP election for the assets in the credit shelter trust in excess of $1,000,000 and thereby defer the Oregon tax on the excess value over $1,000,000 until the later death of the surviving spouse. This solution would work well if the credit shelter trust distribution provisions would satisfy the marital QTIP requirements, but not all credit shelter trusts satisfied the QTIP requirements. On the second death, the OSMP or state QTIP assets will be included in the gross estate of the surviving spouse, valued as of the date of the surviving spouse’s death for Oregon purposes, but the OSMP or state QTIP assets would not be included in the surviving spouse’s federal estate. ORS 118.010(3), see former ORS 118.019 (2009) (for deaths before 2012).

Basic Estate Planning and Administration 2013 5–6 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

Oregon Only

Form 4768 Application for Extension of Time To File a Return and/or OMB No. 1545-0181 (Rev. August 2012) Pay U.S. Estate (and Generation-Skipping Transfer) Taxes Department of the Treasury Internal Revenue Service Part I Identification Decedent’s first name and middle initial Decedent’s last name Date of death

Name of executor Name of application filer (if other than the executor) Decedent’s social security number

Address of executor (Number, street, and room or suite no.) Estate tax return due date

City, state, and ZIP code Domicile of decedent (county, state, and ZIP code) Daytime telephone number

Part II Extension of Time To File Form 706, 706-A, 706-D, 706-NA, or 706-QDT (Section 6081) Automatic Extension If you are applying for an automatic 6-month extension of time to file: • Form 706, check here ...... a • Form 706-A, 706-D, 706-NA, or 706-QDT, indicate the form by checking the appropriate box below. Form 706-A Form 706-D Form 706-NA Form 706-QDT Additional Extension If you are an executor out of the country applying for an extension of time to file in excess of 6 months, check here ...... a Also you must attach a statement explaining in detail why it is impossible or impractical to file Form Enter extension date requested 706 by the due date. See instructions. Part III Extension of Time To Pay (Section 6161) Enter extension date requested You must attach your written statement to explain in detail why it is impossible or impractical to (Not more than 12 months) pay the full amount of the estate (or GST) tax by the return due date. If the taxes cannot be determined because the size of the gross estate is unascertainable, check here ▶ and enter “-0-” or other appropriate amount on Part IV, line 3. You must attach an explanation. • If this request is for the tax that will be or was due with the filing of Form 706, check here ...... a • If this request is for the tax that will be due as a result of an amended or supplemental Form 706, check here ...... a • If this request is for additional tax due as a result of an examination of your Form 706, check here ...... a • If this request is for a section 6166 installment payment, check here ...... a Part IV Payment To Accompany Extension Request 1 Amount of estate and GST taxes estimated to be due ...... 1 2 Amount of cash shortage (complete Part III) ...... 2 3 Balance due (subtract line 2 from line 1) (see instructions) ...... 3 Signature and Verification If filed by executor—Under penalties of perjury, I declare that I am an executor of the estate of the above-named decedent and that to the best of my knowledge and belief, the statements made herein and attached are true and correct.

Executor’s signature Title Date If filed by someone other than the executor—Under penalties of perjury, I declare that to the best of my knowledge and belief, the statements made herein and attached are true and correct, that I am authorized by an executor to file this application, and that I am (check box(es) that apply(ies)): A member in good standing of the bar of the highest court of (specify jurisdiction) a A certified public accountant duly qualified to practice in (specify jurisdiction) a A person enrolled to practice before the Internal Revenue Service. A duly authorized agent holding a power of attorney. (The power of attorney need not be submitted unless requested.)

Filer’s signature (other than the executor) Date For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 41984P Form 4768 (Rev. 8-2012)

Basic Estate Planning and Administration 2013 5–7 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

2. Oregon QTIP Election. Oregon follows federal law for QTIP elections (IRC 2056 and ORS 118.010(8)). As a result, all of the other federal requirements for QTIP elections apply for Oregon purposes. The QTIP election is irrevocable and must be made when the original tax return is filed. a. An Oregon QTIP election is made by filing an “Oregon-only” Schedule M that specifically identifies the property subject to the Oregon-only QTIP election. b. All net income must be paid to surviving spouse during his/her lifetime. Any power of appointment can only be appointed to the surviving spouse. Unitrust election (ORS 129.225) can be made. c. Surviving spouse must be U.S. citizen. d. Discretionary income to surviving spouse and multiple nonspouse beneficiaries do not qualify. 3. Oregon Special Marital Property Election. To make this election, the requirements described in ORS 118.013 and ORS 118.016 must be met. a. Principal and income may be accumulated or distributed but only to the surviving spouse. During the surviving spouse’s lifetime, the OSMP property can only be appointed to the surviving spouse. Surviving spouse does not have to be a U.S. citizen. b. Nonspousal beneficiaries can exist and hold property interests, but they must release all rights to any interest in the trust or property interest during the lifetime of the surviving spouse. c. OSMP can be amended. If the original return didn’t have an OSMP, an amended return can be filed to make this election. This is mainly used to cover the gap between the federal filing threshold and Oregon filing threshold. 4. QTIP vs. OSMP a. QTIP. All net income must be payable to the surviving spouse at least annually. b. OSMP. Income can be accumulated and not distributed. But if distributed, it can only be distributed to the surviving spouse. c. Noncitizen Spouses. Not qualified for QTIP but can use OSMP or QDOT. Same-sex married couples and registered domestic partners can use either QTIP (provided they are U.S. citizens) or OSMP. F. An Example of a Defective Marital Trust Provision The OSMP election is a tool to achieve the equivalent of a marital deduction for Oregon estate tax purposes for trusts and other interests that do not qualify under the QTIP requirements. An example of a trust that does not qualify as a QTIP trust is: The Trustee shall distribute the net income from the trust to my spouse at least quarterly. The surviving spouse shall have the right to continue to reside in the residence for the duration of his or her life or for such period of time as he or she shall desire to remain in said premises. In the event the surviving spouse is absent from the residence for a period exceeding 90 consecutive days, or the surviving spouse expresses a desire to the Trustee in writing not to remain in the residence, all of the rights allocated to the surviving spouse pursuant to this section shall terminate. Upon termination of the surviving spouse’s right to occupy the premises, pursuant to this Section, the Trustee shall distribute the residence to child beneficiary #1, if he is still living on the property at the time. In the event child beneficiary #1 is not surviving or is not living on the property at the time for distribution hereunder, the Trustee shall sell the property and the proceeds shall

Basic Estate Planning and Administration 2013 5–8 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

be distributed in equal shares to my children with a share by right of representation to any children of a deceased child. G. ORS 130.240 Marital Deduction Gifts (A Statutory Cleanup Provision) (4) If a marital deduction gift is made in trust: (a) The settlor’s spouse is the only beneficiary of income or principal of the marital deduction property as long as the spouse lives. Nothing in this paragraph prevents exercise by the settlor’s spouse of a power of appointment included in a trust that qualifies as a general power of appointment marital deduction trust. (b) Subject to paragraph (d) of this subsection, the settlor’s spouse is entitled to all of the income of the marital deduction property at least once a year, as long as the spouse is alive. (c) The settlor’s spouse has the right to require that the trustee of the trust make unproductive marital deduction property productive or convert it into productive property within a reasonable time. (d) Notwithstanding any provision of ORS chapter 129, upon the death of the settlor’s spouse all remaining accrued or undistributed income from qualified terminable interest property under sections 2056(b)(7) or 2523(f) of the Internal Revenue Code, as in effect on January 1, 2008, passes to the estate of the settlor’s spouse, unless the trust provides a different disposition that qualifies for the marital deduction. H. Disclaimers A very common and often used estate planning tool is the disclaimer that allows a person to refuse to accept an interest in property or a power over property that would otherwise pass to that person as a result of a lifetime transfer or a transfer at death. 1. Use of Disclaimer. The use of a disclaimer is a way to: a. Make a gift without tax consequences to the disclaimant; b. Determine which assets to place in a disclaimer exemption trust for the benefit of the surviving spouse; and c. Clean up defective trust provisions without gift tax consequences to the disclaimant. 2. Common Disclaimer Uses a. Disclaimer Trust Estate Plan for Surviving Spouse. Provisions are made in the estate plan of the first spouse to die for a disclaimer trust. Under this type of plan, all of the deceased spouse’s assets are distributable to the surviving spouse. The surviving spouse is given a choice through the use of a disclaimer to transfer all or part of the assets from the estate of the first spouse to die to a disclaimer trust for the benefit of the surviving spouse. This is a very flexible plan that allows the determination of which assets to use in funding the deceased spouse’s federal exemption amount ($5,250,000) or state exemption amount ($1,000,000). b. Disclaimer Plan for Next Generation. A parent can provide for property to be transferred to child and the child through the exercise of a disclaimer can transfer the property to his or her descendants. 3. Oregon Law. Oregon Uniform Disclaimer of Property Interests Act, ORS 105.623 to 105.649. 4. Federal Law. Internal Revenue Code Section 2518 and Regulations 25.2518-1 to 25.2518-3.

Basic Estate Planning and Administration 2013 5–9 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

Oregon Special Marital Property Schedule OSMP Calculation for Form OR706

Estate of:

Decedent’s Social Security number Date of Death

1. Gross estate, Form OR706, part 2, line 1 ...... 1.

LESS: 2. Schedule J ...... 2. 3. Schedule K ...... 3. 4. Schedule L ...... 4. 5. Schedule M (federal only) ...... 5. 6. Schedule O ...... 6. 7. Total deductions (add lines 2-6) ...... 7. 8. Net distributable estate (line 1 minus line 7)...... 8. 9. LESS: Oregon filing threshold ...... 9. 10. Minimum OSMP deduction needed to reduce Oregon tax to zero (line 8 minus line 9) ...... 10.

Speciﬁc assets for OSMP election. You may make an OSMP election for all or part of a trust or other property. If you make a partial election of any item, enter the fractional portion or percentage in column B.

A. Schedule & B. Portion C. Property description D. Amount item number

D. Total

11. Total property interests listed (from column D above) ...... 11. 12. Total from attached continuation schedules (if needed)...... 12. 13. Total OSMP (add lines 11 and 12). Enter on the Schedule M for Oregon only and add this amount to Form OR706, Recapitulation, part 5, line 520 ...... 13.

Attach to Form OR706, with Oregon only Schedule M, and notarized OSMP election consents

150-104-004 (Rev. 07-13) Schedule OSMP for Form OR706, page 1 of 2

Basic Estate Planning and Administration 2013 5–10 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

Schedule OSMP Consent to Establishment of For use with Form OR706 Oregon Special Marital Property

Election to be signed by all permissible distributees except the surviving spouse: Each of the undersigned acknowledge and consent to a portion of the ______(name of trust or other property interest) being set aside as a separate share or trust in order to qualify for the Oregon special marital property election in accordance with ORS 118.013, for the primary purpose of reducing or eliminating the Oregon estate tax due on the estate of ______(name of decedent). The undersigned together with the surviving spouse constitute all of the persons living on the date of this election who may be entitled to a distribution during the lifetime of the surviving spouse from the ______(name of trust or other property interest). Each of the undersigned, both on behalf of the undersigned and on behalf of the unborn lineal descendants of the undersigned, irrevocably agrees to release all rights to any current interest in the Oregon special marital property during the lifetime of the surviving spouse. Each of the undersigned agrees that all other provisions of the ______(name of trust or other property interest) shall remain in effect and that, upon the death of the surviving spouse, any remaining Oregon special marital property shall be distributed as otherwise provided in the trust or other property interest.

Signature of: (permissible distributee) Signature of: (permissible distributee) Signature of: (permissible distributee) Signature of: (permissible distributee) If more signature lines are needed, attach a continuation schedule.

Subscribed and sworn to before me this day of , 2 .

Notary Public of Oregon

My commission expires:

Election to be signed by the surviving spouse: I am the surviving spouse of ______(name of decedent). I acknowledge and consent to a portion of the ______(name of trust or other property interest) being set aside as a separate share or trust in order to qualify as Oregon special marital property under ORS 118.013, for the primary purpose of reducing or eliminating the Oregon estate tax due on the estate of ______(name of decedent). I, together with all of the other individuals executing the election in accordance with ORS 118.013, constitute all of the persons living on the date of this election who are permissible distributees or who may be entitled to a distribution from the Oregon special marital property to which this election applies. I agree that all other terms, conditions and provisions that apply to the ______(name of trust or other property interest) shall apply to the Oregon special marital property to which this election applies, and that upon my death, any remaining Oregon special marital property shall be distributed as otherwise provided in the trust or other property interest.

Signature of: (surviving spouse)

Subscribed and sworn to before me this day of , 2 .

Notary Public of Oregon

My commission expires:

Attach to Form OR706, with Oregon only Schedule M, and Schedule OSMP calculation

150-104-004 (Rev. 07-13) Schedule OSMP for Form OR706, page 2 of 2

Basic Estate Planning and Administration 2013 5–11 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

5. Tax Qualified Disclaimer. Must be made not later than nine months after the date of death, and the disclaimant must not have accepted any benefits from the disclaimed property. There is no provision to extend the nine-month deadline for exercising a tax qualified disclaimer. a. Disclaimed interest must pass without any direction on the part of the disclaimant. b. Must pass to the decedent’s spouse or a person other than disclaimant. c. Disclaimer must be in writing. 6. Practice Points a. Disclaimer pre-check: Who will receive the disclaimed property. b. Consider obtaining a signed statement from the person holding the disclaimer right informing him/her of his/her disclaimer right and asking him/her to advise you in writing of his/her decision whether or not to exercise the disclaimer. I. Portability Decisions 1. Oregon Portability? Can the estate of the first spouse to die on or after January 1, 2011, make a portability election under Oregon law to pass the unused portion of the deceased spouse’s $1,000,000 Oregon exclusion amount to the surviving spouse? No, there are no provisions in the Oregon estate tax law. 2. Federal Portability. Under the American Taxpayer Relief Act of 2012 (“ATRA”), the spousal portability provision under the federal estate tax law was made permanent. As a result, the surviving spouse can elect to combine the deceased spouse’s unused exclusion amount (“DSUEA”) with your own applicable exclusion amount. IRC 2010(c). 3. Example. Assuming that the husband was the first spouse to die and that he died in 2013 and made no gifts during his lifetime that would require the filing of any Form 709 gift tax returns, his DSUEA could be as much as $5,250,000. With a portability election, the surviving spouse can increase her total applicable exclusion amount to $10,500,000.1 4. Making the Election. In order to make the portability election, a Form 706 federal estate tax return must be filed in a timely manner even though no federal estate tax is due and a federal estate tax return is not required. The initial filing deadline is nine months following the date of death. If a timely extension application is filed within nine months following the date of death, the time for filing a Form 706 federal estate tax return and making the portability election can be automatically extended for an additional six months.

Note: If the estate must file an OR706, the tax return preparer must generally prepare a draft 706 federal estate tax return in order to provide the asset and deduction schedules that must be included with the OR706. 5. Remedy for Failure to Timely Elect. In the case of estates that are not required to file, the process for correcting a failure to timely file or timely apply for an extension is to apply for “9100 Relief” through the Internal Revenue Service. There is no deadline for applying for 9100 Relief, but the sooner the better. The procedure is promulgated under Treasury Regulation Sections 301.9100-2 and 301.9100-3, which allow taxpayers to seek a relief from the Internal Revenue Service requesting permission to make a late extension application and then timely file a federal estate tax return.

1 Note: The $10,500,000 is an estimate that can vary significantly depending on prior gift history, estate liabilities, estate values, and the inflation adjustments to the surviving spouse’s applicable exclusion amount. Also, if the surviving spouse chooses to remarry, the portability rules become much more complicated because of the “last such deceased spouse” requirement of IRC §2010(c)(4). A discussion of the complications following a remarriage are beyond the scope of this chapter.

Basic Estate Planning and Administration 2013 5–12 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

6. Practice Point. Consider a written explanation of the portability options to the surviving spouse and obtain a signed statement from the surviving spouse confirming whether or not he or she chooses to elect portability and file a Form 706 estate tax return. 7. Example. See attached client letter. J. Schedule NRC: What Kind of Mistakes Does ODR See with Schedule NRC? 1. Property is not separately identified with the respective values. Everything is lumped into one description with a value instead of listing each property separately with its value. 2. Credit computation errors. 3. Credit is based on different amounts than what is listed on page 1, line 8, OR706. This delays processing as this requires ODR to contact representatives of the estate. 4. Not all the beneficiaries sign the Schedule NRC. K. NRC Annual Certification Report It is not clear what period the annual certification eportr for NRC property should cover. Does it cover a calendar year, the year following with the date of death, or a year of qualified use by the owner of the inherited property? The form has a blank space at the top for the year, which suggests that it was not intended to be a calendar year. 1. The first year of filing does not need to be a full calendar year. For example, date of death is March 22, 2013. The first filing period would be for March 22, 2013–December 31, 2013, with the annual certification filing due April 15, 2014. 2. The second filing period would then be a full calendar year from January 1–December 31, 2014, with the annual certification filing due April 15, 2015. L. April 15 Due Date The annual certification eturnsr are due April 15 each year. 1. What Period Is Reported for the Initial Filing? See the answer to question K., above. 2. When Is The First Return Due If the Estate, as Opposed to the Beneficiaries, Owns the Property? See the answer to question K., above. 3. Can the Filing Date for the Annual Certification Be Extended with the Normal Extension for Filing One’s Income Tax Return? No extensions for annual reporting needed; therefore none is available. 4. What If the OR706 and the Schedule NRC Have Not Been Filed on April 15 of the Year Following Death? If no credit has yet been elected/claimed, then how can ODR require the annual certification? There is no requirement to file the annual certification until the credit is claimed on a tax return. In this situation, the first annual certification would be due when theeturn r is filed if it has been more than one year after the date of death. Here is an example: a. Date of death: April 12, 2013. b. Original due date: January 12, 2014. c. Extended due date and assume the OR706 is filed on this date also: July 12, 2014. d. The first annual certification form for periodApril 12, 2013–July 12, 2014, would be due on July 12, 2014. e. The second annual certification for period July 13, 2014–December 3, 2014, file by April 1, 2015.

Basic Estate Planning and Administration 2013 5–13 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

f. The third annual certification for period January 1–December 31, 2015, file by April 15, 2016, etc. M. NRC Use by Estate For the requirement that the beneficiaries operate the property for five of the eight years following the date of death, does this include the time the property was owned by the estate and the estate continued? Does it matter if the personal representative of the estate is a family member? Yes. The period when the estate operated the property will count toward the required five years. The personal representative can file the annual certification even if the personal representative is a family member. N. Cessation of Use/Subsequent Reuse of NRC Property lf a qualified heir ceases to use a portion of the NRC property for a period in excess of six months but intends to reuse the property in a qualified manner before the three-year nonqualified period has run, has a taxable disposition occurred? lf so, when? What was the intent? As long as the five-year requirement is met, there is no disposition. O. No Qualified Use of NRC Property ithinW Two Years/Subsequent Reuse by Family Member If the estate does not use the NRC property for a qualified use for two years and then qualified use commences by a family member, has a taxable disposition occurred with the estate since it did not use the property for a qualified use for more than six months? 1. What was the intent of not using the property for two years? 2. What is the “six-month period”? P. NRC Disposition Tax The instructions for the Oregon additional estate transfer tax return form OR706-A say: “Generally. File Form OR706-A and pay any additional taxes due within six months after you disposed of the property or ended the qualifying use.” This could get a bit tricky if one has a business that engages in repeated dispositions of qualified property, such as a tree farm, a cattle ranch, etc. Presumably, each cutting of a tree or sale of a calf would be a “disposition” for which a Form OR 706-A must be filed within six months of the disposition taking place. Could one get by with one such filing every six months? As long as the return is filed within six months from the date of disposition, ODR doesn’t see a problem. Q. Lifetime Gifting Opportunity The Oregon Estate tax law presents a significant lifetime planning opportunity. Oregon has no gift tax. For example, an elderly person with an estate of $4,900,000 (just below the 2013 federal unified credit of $5,250,000, see IRC §2010), could make a 2013 gift (deathbed or otherwise) of $4,000,000 to his or her children. The gift would not be taxable for federal gift tax purposes because the gift would be within the $5,250,000 federal lifetime gift exclusion. Although the gift would be brought back into the federal estate as an adjusted taxable gift, the total estate of the decedent would be below the federal estate tax unified credit of $5,250,000 and no federal estate tax would be due. More importantly, the decedent would die with a gross estate of $900,000, which is below the Oregon filing threshold. ORS 118.160(1)(c). As a result, no federal estate tax or gift tax or Oregon estate tax would be due. The Oregon tax savings would be $413,500. In the above illustration, significant tax savings would be experienced even if the gift did not reduce the Oregon estate below the filing threshold. For example, if the decedent in the above illustration

Basic Estate Planning and Administration 2013 5–14 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return had given away only $3,000,000 in 2013, rather than $4,000,000, his or her 2013 Oregon taxable estate would be $1,900,000, rather than $900,000. In that situation, the resulting Oregon estate tax would be $91,000. Had the gift not been made, the resulting estate tax under the new law would have been $413,500, for a tax savings of $322,500. Taxpayers and their advisors must be careful, however, because the Oregon estate tax savings from this sort of deathbed gift may be offset by the loss of a stepped-up basis for income tax purposes. Lifetime gifts generally do not receive a stepped-up income tax basis at death. In contrast, most assets transferred at death that have appreciated during a decedent’s lifetime do receive a stepped-up basis equal to the fair market value as of the date of death. IRC §1014. Consider, for example, a $1,000,000 gift in 2012 by the elderly person described above. The Oregon estate tax savings would be $112,000. If the assets given away had an income tax adjusted basis of $100,000, the donee would receive the assets with that same low basis of $100,000. Later, when the donee sells the gifted assets for $1,000,000, there would be a taxable income gain of $900,000. Using a combined Oregon and federal income tax rate of 24.5%, the combined income taxes would be $220,500, almost double the Oregon estate tax savings. R. Oregon Residents vs. Nonresidents Oregon taxes resident decedents on all types of property (tangible and intangible), wherever situated, even if located outside of Oregon. The tax is calculated on the entire taxable estate (wherever located), and then the tax is multiplied by a fraction, the numerator of which is the sum of the value of the decedent’s (1) real property located in Oregon, (2) tangible personal property located in Oregon, and (3) intangible personal property wherever located (but excluding intangible personal property subject to a death tax in another state or country). The denominator is the total value of the decedent’s entire gross estate. ORS 118.010(2)(a) and (5). Nonresident decedents are taxed based on the proportional value of real property and tangible personal property located in Oregon as it relates to the value of the entire estate. Thus, the tax is calculated on the total taxable estate (which includes Oregon assets and non-Oregon assets, both tangible and intangible), and then the tax is multiplied by a fraction, the numerator of which is the sum of the value of the Oregon tangible personal property and the Oregon real property (but no intangible property), and the denominator is the entire gross estate. ORS 118.010(2)(b) and (6). Unlike the pre-2012 Oregon inheritance tax, nonresidents are no longer taxed on intangible property located in Oregon. ORS 118.010(6); see former ORS 118.010(4)(a) (2009). That change greatly simplifies the calculation of the tax. It also avoids two murky issues: (1) whether an asset constitutes intangible personal property located in Oregon and (2) whether a nonresident’s home state taxes intangible personal property of Oregon decedents. In short, under the new Oregon statutory scheme tangible property (both real and personal) will be taxed only by the state in which it is located. This is true for estates of both residents and nonresidents. Intangible personal property held by resident estates will be taxed regardless of location. However, intangible personal property that is subject to a death tax in another state or country is excluded from the numerator of the fraction. ORS 118.010(5). Intangible personal property held by nonresident estates will not be taxed if there is no other real or personal property located in Oregon; however, if a nonresident estate holds real or personal property in Oregon, any intangible personal property will be excluded from the numerator of the fraction. ORS 118.010(2), (5), and (6). These statutes can produce some unexpected results. The filing threshold of $1,000,000 is based on the value of the decedent’s gross estate, regardless of where the assets included in the gross estate are located. ORS 118.160(1)(c), 118.005(6). As a result, a nonresident with a gross estate of $1,000,000 or more but with a small amount of Oregon tangible assets will be required to file an Oregon estate tax

Basic Estate Planning and Administration 2013 5–15 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return return and will be required to pay Oregon estate taxes if the taxable estate exceeds $1,000,000, even if the state of residence imposes no estate or inheritance tax. For example, if an Oregon resident moves to California (which has no estate or inheritance tax) but leaves behind in Oregon either real property or tangible personal property, that person’s estate will be subject to the Oregon estate tax if the taxable estate (wherever located) exceeds $1,000,000. The same result will take place if the person never lived in Oregon but happens to own real property or tangible personal property in Oregon. Because of the fractional method of calculating the tax, even a small amount of tangible property located in Oregon will trigger a tax. If all of a nonresident’s property located in Oregon passes to a surviving spouse or to a charity, the Oregon estate tax on nonresidents is not necessarily eliminated. Marital deductions and charitable deductions, like all other deductions, reduce the taxable estate, not the gross estate, and the fractional formula uses the value of the decedent’s gross estate as its denominator and the value of the decedent’s gross estate located in Oregon as its numerator. ORS 118.010(3)(b), (6). The fact that some or all of the numerator passes to a spouse or a charity does not affect the fraction or the resulting percentage. Marital deductions and charitable deductions will reduce the overall Oregon tax, but they will not reduce the percentage of the tax payable to Oregon, nor will they reduce the assets (the gross estate) to be measured against the filing threshold. As a result, the amount of tax payable to Oregon will remain the same regardless of whether Oregon assets or foreign assets pass to the spouse or to charity (assuming that the value passing to the spouse or to charity remains the same). As a further example, if the surviving spouse was an Oregon resident when the first spouse died but then moved to California (which has no estate or inheritance tax), but the surviving spouse is the beneficiary of a state qualified terminable interest property (QTIP) trust or an Oregon special marital property (OSMP) trust that holds either real property or tangible personal property located in Oregon, that surviving spouse’s estate will be subject to the Oregon estate tax if the taxable estate (wherever located) exceeds $1,000, 000. ORS 118.010(3)(b) and (6). The same result occurs if the Oregon property is subject to an encumbrance. The encumbrance reduces the taxable estate, but it does not reduce the amount of the gross estate in Oregon, nor does it reduce the gross estate located elsewhere. Thus, it is possible for a nonresident decedent to owe an Oregon estate tax even when the net value of the assets located in Oregon is negative due to an encumbrance on them. The bottom line is that nonresident clients with even a small amount of tangible assets located in Oregon should review their situation to determine whether steps should be taken to minimize or eliminate the Oregon estate tax. Those steps might include disposing of Oregon assets or moving the Oregon assets to another state, such as the state of the client’s residence, depending on the estate tax laws or inheritance tax laws of the state of residence. Or a nonresident might consider placing tangible property located in Oregon into an entity created in another state, such as a limited liability company. Even Oregon residents can reduce their Oregon estate tax by holding tangible assets in other states, but the amount of the overall tax savings will depend on the estate tax laws of those other states. Nonresident surviving spouses who are beneficiaries of a state QTIP trust or an OSMP trust present an interesting challenge. If the surviving spouse moves to another state (such as California), and the state QTIP trust or OSMP trust then liquidates all of the Oregon property held in trust, what part, if any, of the surviving spouse’s estate is reportable in Oregon? Because the trust holds no Oregon property at the time of the surviving spouse’s death, there is no property to include in the Oregon taxable estate. OAR 150-118.010(8)(4) provides: The amount to be included in the estate on the death of a surviving spouse is limited to trust property that is subject to Oregon estate tax. If a QTIP or OSMP election was taken

Basic Estate Planning and Administration 2013 5–16 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

when the first spouse dies, the property that is required to be included in the estate of the surviving spouse is dependent upon the residency status of the surviving spouse. If a resident decedent, the gross estate of a surviving spouse must include the value of any property included in the QTIP or OSMP election. If a nonresident decedent, the gross estate of a surviving spouse must include the value of any property included in the QTIP or OSMP election to the extent that the property consists of real property located in Oregon or tangible personal property located in Oregon. S. Nonresident Decedents What kind of problems does ODR see with nonresident decedents with Oregon taxable property? 1. Missing documentation supporting values of assets. 2. Most of the returns have out-of-state preparers who are not familiar with Oregon law. Returns are usually filed late with tax computation errors. 3. In the instructions of OR706, ODR asked that the Oregon property be highlighted or underlined on the schedules. This is rarely done. This is for review purposes. 4. Preliminary tax calculation based on taxable estate of worldwide assets, and then the Oregon fraction based on the gross value of property in Oregon (real property and tangible personal property but excluding intangible personal property). T. Resident Decedents with Out-of-State Property What kind of mistakes does ODR encounter with resident decedents with out-of-state property? Missing documentation supporting values of assets. U. Interest and Penalties: Installment Plan; Late Payment of Taxes Does ODR have a chart showing the interest and penalties that apply to (1) an installment plan; and (2) the late payment of taxes? 1. ODR does not have a chart. Interest charged, per ORS 305.220 (4% for 2013 and 2014), is the same for a late payment or estate under a payment plan. If the liability is not paid in full 60 days from the date of the original billing notice, then the annual interest rate increases by 4%. This is tier two interest per ORS 305.222. If an estate with a post-12/31/2011 date of death is on an approved payment plan, tier two interest does not apply, unless the estate defaults. However, the base interest rate (4% for 2013 and 2014) continues to apply. 2. If there is no payment plan or the estate defaults on the requirement of the payment plan then penalties apply as follows: a. A 5% penalty of the tax is assessed on the balance due as of the due date ORS 118.260; and b. An additional 20% penalty of the tax is assessed if the return is filed more than three months after the due date. ORS 118.260.

[Continued on next page]

Basic Estate Planning and Administration 2013 5–17 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

SAMPLE CLIENT LETTER RE PORTABILITY [Surviving Spouse] [Address] Re: Estate of Date of Death: Nine-Month Filing Date: Federal Portability Decision Dear [Surviving Spouse]: Under the American Taxpayer Relief Act of 2012 (“ATRA”), the spousal portability provision under the federal estate tax law was made permanent. As a result, you as the surviving spouse can elect to combine the deceased spouse’s unused exclusion amount (“DSUEA”) with your own applicable exclusion amount. Assuming that the deceased spouse made no gifts during [his/her] lifetime that would require the filing of any Form 709 gift tax returns, the DSUEA could be as much as $5,250,000.2 In your case, with a portability election you could increase your total applicable exclusion amount to $10,500,000.3 However, in order to make the portability election, a federal Form 706 Estate Tax Return must be filed in a timely manner. If a timely extension application had been completed on or before [insert nine- month due date], the time for filing a Form 706 Federal Estate Tax Return could have been automatically extended an additional six months. [Use if client has retained you after the nine-month due date.] Unfortunately, you contacted our office on [insert date contacted], well after the [insert date of nine-month due date] filing deadline. As a result, we can no longer file a Form 706 Estate Tax Return in a timely manner without permission from the Internal Revenue Service. When the deceased spouse died on [insert date of death], [his/her] estate was entitled to a federal exemption in the amount of approximately $5,250,000. The recently enacted portability provisions of the federal estate tax law allow the surviving spouse to elect to add the DSUEA to the surviving spouse’s exemption amount. [Insert sentence with specifics if known.] In other words, based on current estimates, the deceased spouse’s estate will use approximately $1.1 million dollars [use estimate of exemption that will be used by the decedent’s estate] of [his/her] federal exemption leaving approximately $4.0 million [insert estimate of remaining exemption] of [his/her] federal exemption unused. You have an exemption of $5,250,000 [use current applicable exemption]. If the deceased spouse’s unused exemption amount ($4,000,000) [insert estimate deceased spouse’s remaining exemption] were combined with your exemption ($5,250,000) [use current applicable exemption], you would have a total exemption of approximately $9,250,000 [insert estimate of deceased spouse’s remaining exemption plus the surviving spouse’s applicable exclusion amount]. In other words, with the portability election, you could have an estate with a value of up to $9,250,000 [insert estimate of deceased spouse’s remaining exemption plus the surviving spouse’s applicable exclusion amount] before there would be any federal estate taxes to be concerned about. Please note that the above discussion only applies to federal estate

2 Use current exemption amount—currently $5,250,000, but it will be adjusted annually for inflation. 3 Note: the $10,500,000 is an estimate of the deceased spouse’s unused exclusion amount plus your own applicable exclusion amount that can vary significantly depending on prior gift history, estate liabilities, and estate values. Also, if in the future you choose to remarry, the portability rules become much more complicated because of the “last such deceased spouse” requirement of IRC §2010(c)(4). We will not discuss those in any detail in this letter, but if you wish additional information about the effect of remarriage, please let us know.

Basic Estate Planning and Administration 2013 5–18 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

tax. The Oregon exemption amount is only $1,000,000 per decedent estate, and Oregon has no portability election. [Use this paragraph and the next if a filing deadline has passed.] In order to make a portability election, a federal Form 706 Estate Tax Return needs to be filed for the deceased spouse’s estate, even though no federal estate tax is due. Because a Form 4768 extension application was not filed to extend the filing date for the federal estate tax return, it is not possible to file a return in a timely manner without permission from the Internal Revenue Service. This process, known as a “9100 Relief,” involves requesting a private letter ruling from the Internal Revenue Service seeking permission to file a federal estate tax return late. It is impossible to give a precise estimate of the legal fees involved in seeking 9100 Relief, but it is estimated to be approximately $4,000 to $6,000 plus an application fee payable to the Internal Revenue Service in the amount of $2,000. There are two alternatives to consider. If you do not believe that your estate will ever exceed your applicable exclusion amount (currently $5,250,000) [use current applicable exemption], then the portability election to include your deceased spouse’s unused exclusion amount will not provide any benefit to you. If, on the other hand, you accumulate a significant amount of wealth in the future and have an estate subject to federal estate tax with a value in excess of $5,250,000 [use current applicable exemption], then the DSUEA could have significant benefit to you and your estate. For example, if you accumulated additional wealth to the extent that you have a federal taxable estate, you could give away assets valued in an amount equal to the DSUEA, not pay any gift tax, and not use any of your exclusion amount. If you pass away and elect to claim your deceased spouse’s unused exemption amount, you would be able to transfer an amount in excess of $9,250,000 [insert estimate of deceased spouse’s remaining exemption plus the surviving spouse’s applicable exclusion amount] to your children federal estate tax-free. In this scenario, a timely filed portability election would be extremely helpful because your estate would be able to save a significant amount of federal estate taxes. The process for correcting the failure to timely apply for an extension is to seek what is known as “9100 Relief” through the Internal Revenue Service. If you wish us to go forward, there is a procedure promulgated under Treasury Regulation Sections 301.9100-2 and 301.9100-3 that allows us to seek relief from the Internal Revenue Service requesting permission to make a late extension application and then timely file a federal estate tax return for the estate of deceased spouse. As a surviving spouse, you have a unique opportunity with the portability election that we need to review with you. We have provided two alternatives for you to consider. Please consider the alternatives provided below. If, for any reason, none of these choices are acceptable, please feel free to contact us to discuss this further. Very truly yours,

[Attorney Name] Required IRS Disclosure: You may not use any tax advice contained in this letter to avoid penalties imposed under federal tax law.

[Continued on next page]

Basic Estate Planning and Administration 2013 5–19 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

Please sign the following section and return a signed copy of this letter to us if you do not wish to file a federal Form 706 Estate Tax Return for the Estate of ______. I, the Surviving Spouse, have read the foregoing letter and have had an adequate opportunity to discuss the questions that I had concerning the pros and cons of my option to utilize the Deceased Spouse’s unused exclusion amount. [Use this paragraph if the due date has expired.] However, I understand that in order to make a timely filed election, I will need to authorize my accountant and attorney to proceed with a private letter ruling request to be allowed to file a timely estate tax return. I understand that there will be additional attorney fees and accounting fees, as well as an IRS application fee of approximately $2,000.4 I do not wish to incur those fees and direct my accountant ______and my attorneys ______not to apply for a private letter ruling request and not to file a federal Form 706 Estate Tax Return in the Estate of ______. [Use this paragraph if an OR706 is being filed.] I understand and agree that an OR706 is in the process of being prepared and that an Oregon estate tax may be due, and I want the Oregon estate tax project to continue. I understand that by directing my accountants and attorneys not to prepare and file a Form 706 Estate Tax Return, I will not be able to take advantage of the deceased spouse’s unused federal exclusion amount, and that if I have the good fortune of accumulating assets valued in excess of my applicable exclusion amount (currently $5,250,000), my estate will be responsible for paying a federal estate tax that could have been avoided. I make this decision freely and voluntarily. Dated: [Month] [Day], [Year].

Surviving Spouse

[Continued on next page]

4 Note: This fee could be higher or possibly waived. Please check Treasury Reg 301.9100-2 and 301.9100-3.

Basic Estate Planning and Administration 2013 5–20 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

Please sign the following section and return a signed copy of this letter to us if you wish to [apply for 9100 Relief and] file a federal Form 706 Estate Tax Return. I, Surviving Spouse, have had an adequate opportunity to consult with the accountants ______and the attorneys ______to evaluate the pros and cons of proceeding [with the application for a private letter ruling to seek 9100 Relief from the Internal Revenue Service to be allowed] to file a federal Estate Tax Return in connection with the Estate of Deceased Spouse for purposes of completing an election to claim deceased spouse’s unused exemption amount as my own. [Use only if 9100 Relief is being authorized.] I understand that there will be fees and costs, as well as a user fee of approximately $2,000 in connection with the application to the IRS to seek permission to file a late return. I also understand that there will be accounting fees and some attorney fees in connection with the preparation of the federal Form 706 Estate Tax Return. Notwithstanding those additional costs, I nevertheless request that my accountants and attorneys proceed [with the Private Letter application seeking 9100 Relief from the Internal Revenue Service to obtain permission] and then file a Form 706 Estate Tax Return that will be treated as a timely filed return. I make this decision freely and voluntarily. Dated: [Month] [Day], [Year].

Surviving Spouse

Basic Estate Planning and Administration 2013 5–21 Chapter 5—Tips and Traps in Preparing an OR706 Oregon Estate Tax Return

Basic Estate Planning and Administration 2013 5–22 Chapter 6 Introduction to International Successions: Mexico—Presentation Slides

Raoul Rodriguez-Walters, CFP (US Designation) International Financial Planner MexicoAdvisor Portland, Oregon Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Basic Estate Planning and Administration 2013 6–ii 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Basic Estate Planning: Introduction to International Successions

Today’s Presentation

• Why you should care

• Case Studies

• Tips

• Q&A

Basic Estate Planning and Administration 2013 6–1

1 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Why You Should Care

Two broad types of international estate planning clients:

Inbound Planning Outbound Planning

(both foreigners and (generally US persons) US persons)

Why You Should Care: Inbound Planning

Increase in wealthy Mexicans investing and immigrating to the US. • Mexicans buy more US real estate than any other nationality after Canadians and Chinese (total Spent $68 billion in 2012-2013). • 4,000 E-2 Investor visas given to Mexicans in 2012, third highest after Germans and Japanese. • $27.9 billion in total direct investment in US.

Basic Estate Planning and Administration 2013 6–2

2 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Why You Should Care: Inbound Planning

While the federal exemption for persons domiciled in the US is $5.25 million in 2013 ($1 million for OR)… • Federal exemption for non-domiciled foreigners with US property is only $60,000! • No-unlimited marital deduction if spouse is not a US citizen. Tax-free gift to foreign spouse limited to $140,000 in 2013.

Case Study No. 1

Tepoztlán

Basic Estate Planning and Administration 2013 6–3

3 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Why You Should Care: Outbound Planning

• Unofficial estimates from the US Department of State put the number of Americans living abroad at 6.3 million. • According to the Mexican census, and other sources the number of Americans in Mexico is about 738,000.

Why You Should Care: Outbound Planning

Increasing trend:

• Better economic opportunities • Baby-boomers want (need) to retire abroad • US Tax System

Basic Estate Planning and Administration 2013 6–4

4 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Why You Should Care: Outbound Planning

Mexico’s New Arrivals Mix Praise and Criticism Damien Cave, New York Times, Sept. 23, 2013 From 2005-2010, net migration between the US and Mexico: 20,000 more Americans moved to Mexico than Mexicans to the US.

Why You Should Care: Too Poor To Stay

Many Americans don’t expect to ever retire Rodney Brooks, USA TODAY, Oct. 24, 2013 Wells Fargo study found that 48% are not confident they will be able to save enough for a comfortable retirement.

Basic Estate Planning and Administration 2013 6–5

5 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Why You Should Care: Too Rich To Stay

Americans Giving Up Passports Jump Sixfold as Tougher Rules Loom Dylan Griffiths, Bloomberg News, Aug. 9, 2013 Expatriates giving up their nationality at US embassies climbed to 1,131 in the three months through June [2013] from 189 in the year-earlier period, according to Federal Register figures published today.

Legal Context for Mexico

Most of the world’s legal systems are classified in one of two systems, both of which trace their roots to Roman Law: • Common Law: Developed in Medieval England and based on the idea that current court decisions should apply to future decisions if fact pattern is similar. Used in the UK and most former colonies. • Civil Law: Developed in continental Europe and based on the idea that the legal system and court decisions should be organized around codified laws, rules and regulations.

Basic Estate Planning and Administration 2013 6–6

6 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Not Your Typical Civil Law Jurisdiction

• No forced heirship

• Long standing tradition of use of trusts

• Judicial decisions can establish precedent

Case Study No. 2

The Case of the Banamex Trust

Basic Estate Planning and Administration 2013 6–7

7 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Word about Mexican Trusts

• Normally, US persons with a beneficial interest in a foreign trust must report same using IRS form 3520 and 3520A. • PLR: 104521-12. Mexican trust not a “trust” for US purposes. • Rev. Rul. 2013-14 which concludes that Mexican land trusts used by US persons to hold an ownership interest in residential real estate in certain parts of Mexico are not “trusts” for purposes of Reg. section 301.7701-4(a). • Mexican Congress Considering constitutional amendment to abolish requirement to hold in trust.

Case Study No. 3

Estate Taxes

Basic Estate Planning and Administration 2013 6–8

8 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Case Study No. 4

Title and Marriage – Sayulita Couple

Case Study No. 5

Case of a Death Bed Will

Basic Estate Planning and Administration 2013 6–9

9 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Case Study No. 6

The Case of Mr. and Ms. “Z”

Case Study No. 7

Valid Acts / Gay Marriage in Mexico

Basic Estate Planning and Administration 2013 6–10

10 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Tips

• Amend intake questionnaires • Coordinate with foreign counsel • Consider possibility of situs wills, and other estate planning documents • Do not forget to consider foreign estate taxes • Register US documents at public registry in Mexico

Notice

NOTICE:

To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Basic Estate Planning and Administration 2013 6–11

11 11/14/2013

Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Questions?

THANK YOU! / ¡GRACIAS!

Q&A Raoul Rodríguez Walters, CFP® Mexico Advisor www.mexadv.com 503-853-0501

Basic Estate Planning and Administration 2013 6–12

12 Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Basic Estate Planning and Administration 2013 6–13 Chapter 6—Introduction to International Successions: Mexico—Presentation Slides

Basic Estate Planning and Administration 2013 6–14 Chapter 7A SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action by Trustee; Abatement1

Hilary A. Newcomb HAN Legal Portland, Oregon

Contents I. Notice of Proposed Action by Trustee ...... 7A–1 A. Example Forms 7A–1 B. Notice to Beneficiaries 7A–1 C. Consent ...... 7A–2 D. Beneficiaries’ ChoicesAfter NOPA 7A–3 E. Options After Objections ...... 7A–3 F. Transactions Involving Trustee Directly 7A–4 II. Abatement ...... 7A–4 III. Other Noteworthy UTC Changes ...... 7A–5 A. Former Trustee Accounting—ORS 130.630 ...... 7A–5 B. Compensation—ORS 130.635 7A–5 California NOPA Form ...... 7A–7 NOPA Form Modified for Use in Oregon ...... 7A–9 Enrolled SB 592 7A–11

Basic Estate Planning and Administration 2013 7A–ii Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

I. NOTICE OF PROPOSED ACTION BY TRUSTEE On June 26, 2013, changes to the Oregon Trust Code contained in Senate Bill 592 became law. The new statutes have not yet been codified. One of the new statutes in SB 592 allows a trustee to serve a notice of proposed action (“NOPA”) to beneficiaries to obtain clearance for a future action or inaction. This is an important provision for trustees when a proposed action might be controversial. If a trustee is concerned about liability exposure or the beneficiary’s reactions to a proposed action, the trustee may rely on the new NOPA statute to provide proper notice to the beneficiaries, and with the passage of 45 days, the trustee may be released from liability for the specific action proposed. NOPA is a structured method to provide notice to beneficiaries and limit the trustee’s liability by gaining all beneficiaries’ consent, either actively or passively, thereby avoiding court involvement. If a beneficiary objects, however, the trustee always has the option to seek advance court approval of the proposed action. The legislative intent was to broaden the scope of the NOPA beyond only partial and final distributions, as previously provided in ORS 130.730, to include all administrative actions. Yet the new NOPA statute does not apply to specifically itemized self-interested actions by a trustee, such as approval of trustee compensation, trustee accountings, or the sale of trust property to a trustee. Due to the restrictive parameters of a trustee’s fiduciary duties to beneficiaries, the old version of ORS 130.730 would not have applied to a trustee’s fees or trust accountings either. The NOPA is primarily a method of obtaining consent to release the trustee from liability, yet the process of providing a fully disclosed notice to the beneficiaries may also satisfy the beneficiary’s desires to be informed and involved, which may minimize future disputes as well as court involvement. A. Example Forms Our NOPA statute was based on California’s trust code statutes on NOPA. California has a mandatory form for probate matters (http://www.courts.ca.gov/documents/de165.pdf) and a discretionary form in trust matters. California’s discretionary form for a trustee’s NOPA (it is not published online) has been modified for use in Oregon—both are attached for general review and careful use. B. Notice to Beneficiaries The new NOPA statute requires notice to “the beneficiaries.” ORS 130.010(2) defines “beneficiary” as a person who “(a) [h]as a present or future beneficial interest in a trust, whether vested or contingent; or (b) [h]olds a power of appointment over trust property in a capacity other than that of trustee.” Therefore, the NOPA statute requires all present and future beneficiaries to be sent notice. If there are beneficiaries that are a minor, unborn, or financially incapable or if their whereabouts are unknown, the doctrine of virtual representation may be an option as long as there are no conflicts of interest. ORS 130.115 addresses this type of “virtual” representation by another with a substantially identical interest. If a portion of the trust has a charitable interest or is a charitable trust, the trustee must analyze whether the attorney general needs to receive notice pursuant to ORS 130.040. A trustee provides written notice of the NOPA by mailing notice to each beneficiary. Summarizing the new statute, the written NOPA must provide the following: F Clear information on the beneficiaries’ right to object; F How the beneficiary may object and the trustee’s (or attorney for trustee) address where an objection may be sent; F The date the objection must be received by, which cannot be less than 45 days after the NOPA is mailed; F Clear information that the beneficiary’s right to object may be barred if the objection is not received by the deadline (45 days or longer); and

Basic Estate Planning and Administration 2013 7A–1 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

F Sufficient information detailing the proposed action, such as the material terms, relevant dates, and legal effects. The new NOPA statute also specifies that the proposed action must be taken by the trustee “within a reasonable time” after the trustee notifies the beneficiaries. It is helpful to provide the beneficiaries with the name and telephone number of a person they may contact for additional information regarding the proposed action, such as inviting them to contact the trustee’s counsel. It is also helpful to include the date the proposed action is to be taken or is to be effective, which cannot be before the 45-day notice period has elapsed. 1. Sufficiency of Notice. Whether a trustee has provided full disclosure of the proposed action may not always be entirely clear. All details known to the trustee or details the trustee should know must be provided to the beneficiary in a NOPA. The perspective of the trustee should be to provide all relevant detail that involves the proposed action and all detail that may impact the beneficiary’s rights. This disclosure would also arguably include notifying each beneficiary of his or her right to seek independent counsel of his or her choice to advise him or her regarding the proposed action. 2. Waiver of Notice. A beneficiary may waive notice to a NOPA, as long as the beneficiary is fully aware of what he or she is waiving. A beneficiary also appears to have the right to revoke or cancel his or her waiver at any time. C. Consent At the core of the NOPA procedure is the consent doctrine. The application of the consent doctrine to minimize trustee liability is common, and it can be very effective and advantageous for a trustee. The law of trusts, established by the trust instrument, statute, and courts, is primarily designed to protect beneficiaries. After all, fiduciary duties flow from the trustee to the beneficiary, not vice versa. If a beneficiary voluntarily and knowingly withdraws from the protection of these fiduciary laws, then he or she should be permitted to do so. Like other matters involving beneficiary consent, however, the trustee has no power to demand or coerce the beneficiary to consent to a proposed act. See George G. Bogert and George T. Bogert, The Law of Trusts and Trustees § 941 (2d rev ed 1995). There are conditions that must be met in order to give legal effect to a beneficiary’s consent. Only a legally effective consent will release a trustee from future liability. Although all conditions for a valid consent are not expressly included in the new NOPA statute, they are helpful to know and apply since these conditions could be relevant, especially in a problematic NOPA. The conditions necessary for a valid consent are: F The beneficiary must be of legal age; F The beneficiary must be of sound mind; F The beneficiary must eceiver full disclosure of all material facts involved; F There cannot be any wrongful conduct by the trustee or another regarding the proposed action; and F The beneficiary must be advised of the legal effects of the proposed action and the legal effects of his or her consent. If a beneficiary is not mentally capable, due to infancy or mental illness for example, then his or her consent will not be binding. A beneficiary must be informed of the facts surrounding the action, the potential legal effect of the action, and the legal effect of the consent. In seeking consent, neither the trustee nor the trustee’s agent can commit any wrongdoing, whether by concealment, coercion, or undue influence, among other things. Where consent is obtained by duress, undue influence, concealment, misrepresentation, mistake, or fraud, the act will be voidable by the beneficiary, whether it was performed by the trustee or the trustee’s agent. See Bogert and Bogert, supra, § 941. In meeting

Basic Estate Planning and Administration 2013 7A–2 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement these requirements, it is helpful to consider that a fundamental rule of trusts is for the trustee to fully inform the beneficiary to facilitate the beneficiary’s ability to protect his or her legal interest. A beneficiary’s consent to a proposed action should be distinguished from consent to an actual breach of trust, to which ORS 130.840 and ORS 130.730 are more applicable. The NOPA statute would likely not extend to permit any type of consent to a trustee’s breach of trust. 1. Active Consent. If a beneficiary provides the trustee with written consent to a proposed action, he or she has actively consented. Sometimes the term “acquiescence” is used to indicate an advance approval of an act. Affirmative conduct by a beneficiary, e.g., by written consent to the trustee’s proposed action, may affect the trustee’s rights and actions. After a valid consent, equity will not allow the beneficiary to allege a breach of trust by the trustee due to the trustee likely relying and acting upon that consent. 2. Silence as Consent. If all necessary requirements for a valid notice are met, then this may be sufficient to constitute consent to the proposed action. The NOPA statute requires the passage of 45 days without any objection for a valid consent and, therefore, a bar against future claims of liability against the trustee. Subsection (3) of the NOPA in SB 592 states, “If a beneficiary receiving notice does not object as provided in this section, the beneficiary will be deemed to have consented to the proposed action and the beneficiary may not thereafter file an action or other civil proceeding based in tort, contract or otherwise. . . .” This passive consent is a compelling reason for the strict requirements for proper notice, full disclosure, and the exclusion of self-interested acts by a trustee in the NOPA statute. D. Beneficiaries’ Choices After NOPA After a NOPA is served on the beneficiaries, they have several choices, which are further detailed above: 1. Actively consent; 2. Actively object; 3. Do nothing and passively consent; or 4. Ask the court for a ruling on the trustee’s action. E. Options After Objections Once the trustee receives an objection to a NOPA, the trustee has several options. 1. First and foremost, the trustee has the opportunity to contact the objecting party to determine the details and rationale surrounding the objection. This communication may provide clarification, possibly undo the objection, or facilitate some changes in the trustee’s proposal. 2. The trustee can subsequently notice a modified proposed action in an attempt to remedy a prior objection. The trustee can also decide not to take the proposed action. 3. The trustee may proceed and take the proposed action, while assuming the risk of liability. A trustee that moves forward with the action proposed after it has received and is aware of a specific objection by a beneficiary may expose the trustee to a high risk of liability or at least dispute later. 4. If the objections persist, the trustee may file a petition for instructions or other equitable filing with the court requesting the court’s advance approval. Once there is court approval of the proposed action, the trustee is free from liability to proceed with that proposed action. Consider that even after an objection to a NOPA, a noticed petition to the court for approval of the proposed action may not produce an objection by the party who previously objected to the NOPA. Although unexpected and inconsistent, this does happen.

Basic Estate Planning and Administration 2013 7A–3 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

Like other matters of consent in a trust administration, the trustee will only be released from liability in a NOPA matter if either all necessary beneficiaries consent (whether actively or passively) or the court approves the proposed action. F. Transactions Involving Trustee Directly Self-interested acts involving the trustee are expressly prohibited in the NOPA, and subsection (3) of the new statute expressly states it does not apply to: (a) Allowance of the trustee’s compensation; (b) Settlement of trust accounts or the trustee’s report; (c) Sale of trust property to the trustee or sale of the trustee’s property to the trust; (d) Exchange of trust property for property of the trustee; (e) Grant of an option to the trustee to purchase trust property; (f) Allowance, payment or settlement of a trustee’s claim against the trust; (g) Compromise or settlement of a claim, action or proceeding by the trust against the trustee; or (h) Extension, removal or modification of the terms of a debt or other obligation of the trustee owing to or in favor of the trust. Acts involving the trustee directly are not allowed due to the rigid fiduciary duties a trustee owes to all beneficiaries. When a trustee deals with a beneficiary directly, these are not arm’s-length transactions. Due to the fiduciary relationship, there is opportunity for the trustee to exercise an unfair advantage or fraud against the beneficiary, so there is a presumption of invalidity. See ORS 130.655; ORS 130.800. Trustees are not prohibited from having direct dealings with a beneficiary, but these transactions are highly scrutinized by the courts and not permitted by the NOPA statute. II. ABATEMENT If assets are insufficient in a trust administration, after all administrative expenses and claims are paid, the probate code statute on abatement (ORS 116.133) has generally been adopted in SB 592. So now the trust code has an abatement statute that applies to trusts at death. If abatement applies, the trust distributions must be distributed in proportion or in a hierarchy pursuant to the abatement statute, unless there is a specific priority given within the trust agreement. The abatement statute is a default provision, so the trust can be drafted to express a particular order of abatement that the trustor prefers. Trusts may be drafted with specific assets in mind, yet in time the assets, income, and expenses fluctuate. Drafting with some flexibility to allow for this fluctuation is wise, and it is helpful to allow the trustor’s intent to prevail and avoid unnecessary time and expense to properly deal with an abatement issue. Distributions with tight margins within a trust estate and/or substantial specific and general gifts are at risk of being insufficient at death, so the estate may have to abate. In drafting the distribution provisions in trusts, this is where the ebb and flow of percentages versus specific gifts may be helpful to reduce the possibility of abatement. Abatement is not to be confused with ademption—when a specifically gifted property is gone (e.g., decedent sold the Ferrari) and the question becomes whether the sale proceeds or replacement asset from that specific gift must go to the specific beneficiary. Abatement gives us a hierarchy of priorities with distribution, based on what the law interprets the decedent’s intent to be. Going from lowest to highest priority, or general to specific, the order of abatement is basically:

Basic Estate Planning and Administration 2013 7A–4 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

1. Property of the trust not distributed by the trust agreement—e.g., intestate property; 2. Residuary gifts; 3. General gifts—e.g., cash gifts; 4. Specific gifts—e.g., specified items of personal operty,pr real property, etc. Nontrust property, like nonprobate property, does not abate (e.g., life insurance proceeds or an annuity to specifically named persons do not abate). Going from specific to general distributions, or most preferred to least preferred, these are the general definitions of the types of gifts. 1. A specific giftis a specific distribution to a specific person other than an amount of money. For example, if the trust says the Ferrari goes to son Michael, this car would be a specific gift. 2. A general gift is a monetary gift to a specific person to be satisfied out of the overall estate. For example, if the trust states that decedent leaves $500,000 to her son John, then the money would be a general gift. 3. A residual gift is who gets everything that is left—all of the rest, residue, and remainder of the estate. III. OTHER NOTEWORTHY UTC CHANGES A. Former Trustee Accounting—ORS 130.630 This amendment specifies that the court or a successor trustee may require a trustee who has resigned or been removed to account for the time he or she acted as trustee. Reasonable trustee’s fees and costs for the preparation of the former trustee’s account may be paid to that former trustee by the new trustee of the trust. The intent here is to encourage and expedite former trustees to account, when having that accounting will be useful for the present trustee and the trust’s administration. B. Compensation—ORS 130.635 ORS 130.635 was modified regarding trustee compensation. The first change clarifies that trustee compensation must reflect the total services provided to the trust by all cotrustees. The second subsection includes third parties who are also performing trustee tasks and taking a fee from the trust assets. This second change broadly applies to professionals assisting with the trust administration. So if a financial advisor is also performing trustee tasks, then the fees of the trustee and the financial advisor must be taken into account when cumulatively determining reasonable trustee fees. The purpose here is for the trust to avoid paying duplicative and/or excessive fees on behalf of the singular position of the trusteeship.

Basic Estate Planning and Administration 2013 7A–5 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

Basic Estate Planning and Administration 2013 7A–6 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

CALIFORNIA NOPA FORM NOTICE OF PROPOSED ACTION California Probate Code § 16500 TO THE BENEFICIARIES OF THE Name of Trust Pursuant to Probate Code § 16500, the trustee hereby gives notice to all beneficiaries of the above referenced trust that s/he intends to take the following proposed action: On or after ______, the trustee will take the following action:

NOTICE If you do not object in writing or obtain a court order preventing the action described above, you will be treated as if you consented to the proposed action and you may not object after the proposed action is taken. If the trustee receives a written objection within the applicable period, either the trustee or a beneficiary may petition the court to have the proposed action taken as proposed, taken with modifications, or denied. Probate Code § 16501(d) lists certain actions for which this notice may not be used.

See attachment for additional details (check if applicable) 1. The name and address of the trustee: [Name] [Address] 2. If you need additional information concerning the proposed action, please contact: [Name] [Address] [Telephone]

Dated: ___ Trustee ___ Attorney for Trustee

Basic Estate Planning and Administration 2013 7A–7 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

3. IF YOU OBJECT OR CONSENT TO THE TRANSACTION, YOU MAY INDICATE YOUR OBJECTION OR CONSENT BY SIGNING AND RETURNING THIS FORM TO THE TRUSTEE BY ______. YOU MAY SEND YOUR OWN WRITTEN OBJECTION OR CONSENT. BE SURE TO IDENTIFY THE PROPOSED ACTION AND STATE THAT YOU OBJECT OR CONSENT TO IT.

OBJECTION TO PROPOSED ACTION I OBJECT to the proposed action described above.

Notice: You may return this form (both pages) to the trustee at the address in item 1a or you apply to the court for an order that the proposed action be taken with modifications or denied. You must return the form or a court order before the date specified above. (You may want to use certified mail, with return receipt requested. Make a copy of this form for your records.)

Date: Signature of objector Print name: Address:

Telephone:

CONSENT TO PROPOSED ACTION I CONSENT to the proposed action above.

Notice: You may indicate your consent by signing and returning this form (both pages) to the trustee at the address in item 1a. If you do not object or obtain a court order before the date specified above, you will be treated as if you consented to the proposed action.

Date: Signature of consentor Print name: Address:

Telephone:

Basic Estate Planning and Administration 2013 7A–8 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

NOPA FORM MODIFIED FOR USE IN OREGON

NOTICE OF PROPOSED ACTION TO: , Beneficiary of the Name of Trust

Pursuant to ORS 130.___ (SB 592, Section 25), the Trustee hereby gives notice to all beneficiaries of the above referenced Trust that he/she intends to take the following proposed action:

NOTICE

If you do not object in writing within the time and manner allowed for objections, your right to object may be barred and you will be deemed to have consented to the proposed action and may not thereafter file an action or other civil proceeding based in tort, contract, or otherwise if the proposed action is taken by the Trustee within a reasonable time after the notice was given. ORS 130.___ (SB 592, Section 25) lists certain actions for which this notice may not be used.

If the Trustee receives a written objection within the applicable period, either the Trustee or a beneficiary may petition the court to have the proposed action taken as proposed, taken with modifications, or denied.

As beneficiary of the Trust, you have a right to seek independent legal counsel of your choice to advise you on this matter.

1. Contact Information. The name and address of the Trustee:

______, Trustee c/o [Hilary A. Newcomb, HAN Legal 5100 SW Macadam Avenue, Ste. 120 Portland, Oregon 97239 (503) 224-0499]

If you need additional information concerning the proposed action, please contact the above-mentioned person.

2. Object or Consent. If you object or consent to the proposed action described above, you may indicate your objection or consent by signing and returning this form to the Trustee at the above- mentioned address within 45 days, or by ______, 2013.

You may send your own written objection or consent. Be sure to identify the proposed action and state that you object or consent to it.

Date: ______, 2013 (Trustee or Attorney for Trustee)

Basic Estate Planning and Administration 2013 7A–9 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

OBJECTION TO PROPOSED ACTION If you OBJECT to the proposed action, please sign the Objection portion below, identify your objection(s), and deliver or mail your signed original form to the Trustee at the address in paragraph 1 above within 45 days, or by ______, 2013: _____ I OBJECT to the proposed action described above.

NOTICE: You may indicate your objection by signing and returning this form (both pages) to the Trustee. An objection must be returned before the date specified above. You may want to use certified mail, with return receipt requested. Make a copy of this form for your records.

Date: ______, 2013 Signature of objector Print name: Address:

Telephone:

CONSENT TO PROPOSED ACTION If you APPROVE the proposed action, you may sign the consent form below and deliver or mail your signed original form to the Trustee at the address in paragraph 1 above within 45 days, or by ______, 2013: _____ I CONSENT to the proposed action above.

NOTICE: You may indicate your consent by signing and returning this form (both pages) to the Trustee. If you do not object you will be treated as if you consented to the proposed action.

Date: ______, 2013 Signature of consentor Print name: Address:

Telephone:

Basic Estate Planning and Administration 2013 7A–10 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

ENROLLED SB 592

77th OREGON LEGISLATIVE ASSEMBLY--2013 Regular Session

Enrolled Senate Bill 592 Sponsored by COMMITTEE ON JUDICIARY (at the request of Oregon Law Commission)

CHAPTER ......

AN ACT

Relating to the Oregon Uniform Trust Code; creating new provisions; amending ORS 130.010, 130.045, 130.170, 130.195, 130.200, 130.215, 130.305, 130.310, 130.315, 130.525, 130.555, 130.610, 130.615, 130.625, 130.630, 130.635, 130.650, 130.655, 130.710, 130.725, 130.730 and 130.735; and de- claring an emergency.

Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 130.010 is amended to read: 130.010. For the purposes of this chapter: (1) “Ascertainable standard” means an ascertainable standard relating to an individual’s health, education, support or maintenance within the meaning of section 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code, as in effect on January 1, 2006. (2) “Beneficiary” means a person that: (a) Has a present or future beneficial interest in a trust, whether vested or contingent; or (b) Holds a power of appointment over trust property in a capacity other than that of trustee. (3) “Charitable trust” means a trust, or portion of a trust, described in ORS 130.170 (1). (4) “Conservator” means a person appointed by a court to administer the estate of a minor or adult individual. (5) “Environmental law” means a federal, state or local law, rule, regulation or ordinance relating to protection of the environment. (6) “Financial institution” has the meaning given that term in ORS 706.008. (7) “Financially incapable” has the meaning given that term in ORS 125.005. “Financially capable” means not financially incapable. (8) “Guardian” means a person appointed by a court to make decisions regarding the support, care, education, health and welfare of a minor or adult individual. “Guardian” does not include a guardian ad litem. (9) “Interests of the beneficiaries” means the beneficial interests provided in the terms of a trust. (10) “Permissible distributee” means a beneficiary who is currently eligible to receive distributions of trust income or principal, whether the distribution is mandatory or discretionary. (11) “Person” means an individual, corporation, business trust, partnership, limited liability company, association, joint venture, public body as defined in ORS 174.109 or any other legal or commercial entity. (12) “Power of withdrawal” means a presently exercisable general power of appointment, other than a power exercisable by a trustee that is limited by an ascertainable standard or that is

Enrolled Senate Bill 592 (SB 592-B) Page 1

Basic Estate Planning and Administration 2013 7A–11 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

exercisable by another person only upon consent of the trustee or a person holding an adverse interest. (13) “Property” means anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein. (14) “Qualified beneficiary” means a beneficiary who: (a) Is a permissible distributee on the date the beneficiary’s qualification is determined; (b) Would be a permissible distributee if the interests of all permissible distributees described in paragraph (a) of this subsection terminated on the date the beneficiary’s qualification is determined; or (c) Would be a permissible distributee if the trust terminated on the date the beneficiary’s qualification is determined. (15) “Remote interest beneficiary” means a beneficiary of a trust whose beneficial interest in the trust, at the time the determination of interest is made, is contingent upon the successive terminations of both the interest of a qualified beneficiary and the interest of a secondary beneficiary whose interests precede the interest of the remote interest beneficiary. [(15)] (16) “Revocable trust” means a trust that can be revoked by the settlor without the consent of the trustee or a person holding an adverse interest. (17) “Secondary beneficiary” means a beneficiary, other than a qualified beneficiary, whose beneficial interest in the trust, at the time the determination of interest is made, is contingent solely upon the termination of all qualified beneficiary interests that precede the interest of the secondary beneficiary. [(16)] (18) “Settlor” means a person, including a testator, who creates a trust or contributes property to a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person’s contribution and of the portion as to which that person has the power to revoke or withdraw. [(17)] (19) “Spendthrift provision” means a term of a trust that restrains both voluntary and involuntary transfer of a beneficiary’s interest. [(18)] (20) “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands or any territory or insular possession subject to the jurisdiction of the United States. “State” includes an Indian tribe or band recognized by federal law or formally acknowledged by a state. [(19)] (21) “Terms of a trust” means the manifestation of the settlor’s intent regarding a trust’s provisions as expressed in the trust instrument or as may be established by other evidence that would be admissible in a judicial proceeding. [(20)] (22) “Trust instrument” means an instrument executed by a settlor that contains terms of the trust, including any amendments to the instrument. [(21)] (23) “Trustee” means an original trustee, an additional trustee, a successor trustee or a cotrustee. SECTION 2. ORS 130.045 is amended to read: 130.045. (1) For purposes of this section, “interested persons” means : (a) Any settlor of a trust who is living[,]; (b) All qualified beneficiaries [of the trust who have an interest in the subject of the agreement,]; (c) Any acting trustee of the trust[,]; and (d) The Attorney General if the trust is a charitable trust [subject to the enforcement or super- visory powers of the state or the Attorney General under the provisions of ORS 128.610 to 128.750]. (2) If the trust or a portion of the trust is a charitable trust and is irrevocable, and the settlor retains a power to change the beneficiaries of the charitable trust during the settlor’s lifetime or upon the settlor’s death, the Attorney General shall be substituted as the sole interested person to represent all charitable trust beneficiaries whose beneficial interests are subject to the settlor’s retained power.

Enrolled Senate Bill 592 (SB 592-B) Page 2

Basic Estate Planning and Administration 2013 7A–12 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

[(2)] (3)(a) Except as otherwise provided in subsection [(3)] (4) of this section, interested persons may enter into a [binding] nonjudicial settlement agreement with respect to any matter involving a trust. (b) If the agreement is not filed with the court under subsection (6) of this section, the agreement is binding on all parties to the agreement. (c) If the agreement is filed with the court, the agreement is binding as provided in subsections (6) and (7) of this section unless, after the filing of objections and a hearing, the court does not approve the agreement. If the court does not approve the agreement, the agreement is not binding on any beneficiary or party to the agreement. [(3)] (4) A nonjudicial settlement agreement is valid only to the extent the agreement does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court under this chapter or other applicable law. [(4)] (5) Matters that may be resolved by a nonjudicial settlement agreement include: (a) The interpretation or construction of the terms of the trust or other writings that affect the trust. (b) The approval of a trustee’s report or accounting. (c) Direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power. (d) The resignation or appointment of a trustee or cotrustee and the determination of a trustee’s compensation. (e) Transfer of a trust’s principal place of administration. (f) Liability of a trustee for an action or failure to act relating to the trust. (g) Determining classes of creditors, beneficiaries, heirs, next of kin or other persons. (h) Resolving disputes arising out of the administration or distribution of the trust. (i) Modifying the terms of the trust, including extending or reducing the period during which the trust operates. [(5)(a)] (6)(a) Any interested person may file a settlement agreement entered into under this section, or a memorandum summarizing the provisions of the agreement, with the circuit court for any county where trust assets are located or where the trustee administers the trust. (b) After collecting the fee provided for in subsection [(7)] (8) of this section, the clerk shall enter the agreement or memorandum of record in the court’s register. (c) Within five days after the filing of an agreement or memorandum under this subsection, the person making the filing must serve a notice of the filing and a copy of the agreement or memorandum on each [person interested in] beneficiary of the trust whose address is known at the time of the filing and who is not a party to the agreement. Service may be made personally, or by registered or certified mail, return receipt requested. The notice of filing shall be substantially in the following form: ______

CAPTION NOTICE OF FILING OF OF CASE SETTLEMENT AGREEMENT OR MEMORANDUM OF SETTLEMENT AGREEMENT

You are hereby notified that the attached document was filed by the undersigned in the above entitled court on the day of , . Unless you file objections to the agreement within [120] 60 days after that date, the agreement will be approved and will be binding on all [persons interested in the trust] beneficiaries and parties to the agreement. If you file objections within the [120-day] 60-day period, the court will fix a time and place for a hearing. At least 10 days before the date of that hearing, you must serve a copy of your objections and give notice of the time and place of the hearing to all [persons interested in the trust] beneficiaries and parties to the agreement. See ORS 130.045.

Enrolled Senate Bill 592 (SB 592-B) Page 3

Basic Estate Planning and Administration 2013 7A–13 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

Signature ______

(d) Proof of mailing of the notices required under this subsection must be filed with the court. Proof of service may be made by a certificate of service in the form provided by ORCP 7 F, by a signed acceptance of service or by a return receipt from the postal authorities. (e) If no objections are filed with the court within [ 120] 60 days after the filing of the agreement or memorandum, the agreement is effective and binding on all [persons interested in the trust] beneficiaries who received notice under paragraph (c) of this subsection and all beneficiaries who waived notice under subsection (7)(e) of this section. [(6)(a)] (7)(a) If objections are filed with the court within [120] 60 days after the filing of a settlement agreement or memorandum under this section, the clerk of the court shall collect the fee provided in subsection [(7)] (8) of this section. Upon the filing of objections, the court shall fix a time and place for a hearing. The person filing the objections must serve a copy of the objections on all [persons interested in the trust] beneficiaries who are parties to the agreement and all beneficiaries who received notice under subsection (6)(c) of this section, and give notice to those persons of the time and place fixed by the court for a hearing. Service must be made at least 10 days before the date set by the court for the hearing. Service of the objections may be made personally or by registered or certified mail, return receipt requested. (b) Proof of mailing of objections must be filed with the court. Proof of service may be made by a certificate of service in the form provided by ORCP 7 F, by a signed acceptance of service or by a return receipt from the postal authorities. (c) The court shall approve an agreement entered into under this section after a hearing upon objections filed under this subsection unless: (A) The agreement does not reflect the signatures of all persons required by this section; (B) The agreement is not authorized by this section; or (C) Approval of the agreement would not be equitable to beneficiaries who are not interested persons and who are not parties to the agreement. (d) An agreement approved by the court after a hearing is binding on all [persons interested in the trust] beneficiaries and parties to the agreement. (e) [Persons interested in the trust] Beneficiaries entitled to notice under subsection (6)(c) of this section may waive the notice [required under subsection (5) of this section. If all persons interested in the trust waive the notice, the agreement is effective and binding on all persons interested in the trust upon filing of the agreement or memorandum with the court]. [(7)] (8) The clerk of the circuit court shall collect in advance the filing fees established under ORS 21.135 for the filing of an agreement or memorandum of agreement under subsection [(5)] (6) of this section and for the filing of objections under subsection [(6)] (7) of this section. SECTION 3. ORS 130.170 is amended to read: 130.170. (1) A charitable trust is a trust that: (a) Expressly designates one or more charitable organizations, or one or more classes of charitable organizations, to receive distributions as beneficiaries of the trust unless the combined interests of all charitable beneficiaries are negligible or all charitable beneficiaries are remote interest beneficiaries; or (b) Is created for the relief of poverty, the advancement of education or religion, the promotion of health, governmental or municipal purposes, or other purposes beneficial to the community[. A trust is not a charitable trust if the trust contains], but that does not contain contingencies that make the charitable interest negligible. (2) If the terms of a charitable trust do not indicate a particular charitable purpose or beneficiary, the court may select one or more charitable purposes or beneficiaries. The selection must be consistent with the settlor’s intention to the extent that intent can be ascertained.

Enrolled Senate Bill 592 (SB 592-B) Page 4

Basic Estate Planning and Administration 2013 7A–14 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

(3) The settlor of a charitable trust, in addition to other persons authorized by law or the trust instrument, may maintain a proceeding to enforce the trust. (4) A court may modify or terminate [any trust of property for charitable purposes] a charitable trust only if the Attorney General is a party to the proceedings. SECTION 4. ORS 130.195 is amended to read: 130.195. (1) In addition to the methods of termination prescribed by ORS 130.045, 130.200, 130.205, 130.210 and 130.215, a trust terminates: (a) To the extent the trust is revoked or expires pursuant to the terms of the trust; (b) If no purpose of the trust remains to be achieved; or (c) To the extent one or more of the purposes of the trust have become unlawful, contrary to public policy or impossible to achieve. (2) A proceeding to approve or disapprove a proposed modification or termination under ORS 130.045, 130.200, 130.205, 130.210, 130.215, 130.220 and 130.225, or trust combination or division under ORS 130.230, may be commenced by a trustee or beneficiary. A proceeding to approve or disapprove a proposed modification or termination under ORS 130.200 may be commenced by the settlor. The settlor of a charitable trust may maintain a proceeding to modify the trust under ORS 130.210. SECTION 5. ORS 130.200 is amended to read: 130.200. (1) An irrevocable trust may be modified or terminated with approval of the court upon consent of the settlor and all beneficiaries who are not remote interest beneficiaries, even if the modification or termination is inconsistent with a material purpose of the trust. The Attorney Gen- eral must consent to any modification or termination of a charitable trust. A settlor’s power to consent to a trust’s modification or termination may be exercised by: (a) An agent or attorney-in-fact under a power of attorney only to the extent expressly authorized by the terms of the trust or the power of attorney; (b) The settlor’s conservator with the approval of the court supervising the conservatorship if an agent or attorney-in-fact is not authorized by the terms of the trust or a power of attorney; or (c) The settlor’s guardian with the approval of the court supervising the guardianship if an agent or attorney-in-fact is not authorized by the terms of the trust or a power of attorney and a conservator has not been appointed. (2) An irrevocable trust may be terminated upon consent of all [of the ] beneficiaries who are not remote interest beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. An irrevocable trust may be modified upon consent of all [of the] beneficiaries who are not remote interest beneficiaries if the court concludes that the modification is not inconsistent with a material purpose of the trust. The Attorney General must consent to any modification or termination of a charitable trust. (3) For the purposes of subsections (1) and (2) of this section, a spendthrift provision in the terms of the trust is rebuttably presumed to constitute a material purpose of the trust. (4) Upon termination of a trust under subsection (1) or (2) of this section, the trustee shall distribute the trust property as agreed to by the beneficiaries and, in the case of a charitable trust requiring the Attorney General’s consent, as agreed to by the Attorney General. (5) A proposed modification or termination of the trust under subsection (1) or (2) of this section may be approved by the court without the consent of all beneficiaries who are not remote interest beneficiaries if the court finds that: (a) If all [of the] beneficiaries who are not remote interest beneficiaries had consented, the trust could have been modified or terminated under this section; and (b) The interests of any beneficiary who does not consent will be adequately protected. (6) A binding nonjudicial settlement agreement relating to modification or termination of a trust may be entered into by all interested persons, as defined in ORS 130.045. SECTION 6. ORS 130.215 is amended to read: 130.215. (1) After notice to the qualified beneficiaries, a trustee may terminate a trust if the trustee concludes that the value of the trust property is insufficient to justify the cost of adminis-

Enrolled Senate Bill 592 (SB 592-B) Page 5

Basic Estate Planning and Administration 2013 7A–15 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

tration. A trustee may not terminate a trust under this section if the trustee is a qualified beneficiary of the trust or has a duty of support for a qualified beneficiary of the trust. (2) The court may modify or terminate a trust, or remove the trustee and appoint a different trustee, if the court finds that the value of the trust property is insufficient to justify the cost of administration. (3) Upon termination of a trust under this section, the trustee shall distribute the trust property in a manner consistent with the purposes of the trust. (4) This section does not apply to an easement for conservation or preservation. SECTION 7. ORS 130.305 is amended to read: 130.305. (1) A spendthrift provision is valid only if the provision restrains both voluntary and involuntary transfer of a beneficiary’s interest. (2) A term of a trust providing that the interest of a beneficiary is held subject to a spendthrift trust, or words of similar import, is sufficient to restrain both voluntary and involuntary transfer of the beneficiary’s interest. (3) A beneficiary may not transfer an interest in a trust in violation of a valid spendthrift provision. Except as otherwise provided in ORS 130.300 to 130.325, a creditor or assignee of a beneficiary may not reach the interest of a beneficiary or a distribution by the trustee before the distribution is received by the beneficiary. (4) A settlement agreement entered into under ORS 130.045 is not, by itself, a transfer in violation of a valid spendthrift provision. SECTION 8. ORS 130.310 is amended to read: 130.310. (1) As used in this section, “child” means any individual for whose benefit a judgment, court order or administrative order for child support has been entered in any state, country or other jurisdiction. (2) Even if a trust contains a spendthrift provision, the holder of a judgment, court order or administrative order against a beneficiary for support or maintenance of the beneficiary’s child, spouse or former spouse or a judgment creditor who has provided services for the protection of a beneficiary’s interest in the trust, may obtain an order from a court of this state authorizing garnishment or other execution against present or future distributions to or for the benefit of the beneficiary. The court may issue an order authorizing execution against such amount as the court determines to be equitable under the circumstances but not more than the amount the trustee [would have been] is required to distribute to or for the benefit of the beneficiary. Distributions subject to execution under this subsection include distributions required by the express terms of the trust, such as mandatory payments of income, and distributions the trustee has otherwise decided to make, such as through the exercise of discretion. (3) A spendthrift provision is unenforceable against a claim of this state or the United States to the extent a statute of this state or federal law so provides. SECTION 9. ORS 130.315 is amended to read: 130.315. (1) Whether or not the terms of a trust contain a spendthrift provision: (a) During the lifetime of the settlor, the property of a revocable trust is subject to claims of the settlor’s creditors. (b) A creditor or assignee of the settlor of an irrevocable trust may reach the maximum amount that can be distributed to or for the settlor’s benefit. If an irrevocable trust has more than one settlor, the amount the creditor or assignee of a particular settlor may reach may not exceed the settlor’s interest in the portion of the trust attributable to that settlor’s contribution. (c) If a trust was revocable at the settlor’s death, the property of the trust becomes subject to creditors’ claims as provided in ORS 130.350 to 130.450 when the settlor dies. The payment of claims is subject to the settlor’s right to direct the priority of the sources from which liabilities of the settlor are to be paid. (d) Notwithstanding the provisions of paragraph (b) of this subsection, the assets of an irrevocable trust may not be subject to the claims of an existing or subsequent creditor or assignee of the settlor, in whole or in part, solely because of the existence of a discretionary

Enrolled Senate Bill 592 (SB 592-B) Page 6

Basic Estate Planning and Administration 2013 7A–16 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

power granted to the trustee by the terms of the trust or any other provision of law to pay the amount of tax owed directly to the taxing authorities or to reimburse the settlor for any tax on trust income or principal that is payable or has been paid by the settlor under the law imposing the tax. (2) For the purpose of creditors’ claims, the holder of a power of withdrawal is treated in the same manner as the settlor of a revocable trust to the extent property of the trust is subject to the power. The provisions of this subsection apply to the holder of a power of withdrawal only during the period that the power may be exercised. (3) Upon the lapse, release or waiver of a power of withdrawal, the property of the trust that is the subject of the lapse, release or waiver becomes subject to claims of creditors of the holder of the power only to the extent the value of the property exceeds the greater of : (a) The amount specified in section 2041(b)(2) or 2514(e) of the Internal Revenue Code, as in effect on [January 1, 2006, or section 2503(b) of the Internal Revenue Code, as in effect on January 1, 2006] December 31, 2012; (b) The amount specified in section 2503(b) of the Internal Revenue Code, as in effect on December 31, 2012; or (c) Twice the amount specified in section 2503(b) of the Internal Revenue Code, as in effect on December 31, 2012, if the donor was married at the time of the transfer to which the power of withdrawal applies. (4) The assets of an irrevocable trust that are attributable to a contribution to an inter vivos marital deduction trust described in section 2523(e) or (f) of the Internal Revenue Code, as in effect on December 31, 2012, after the death of the spouse of the settlor of the inter vivos marital deduction trust shall be deemed to have been contributed by the settlor’s spouse and not by the settlor. (5) The assets of an irrevocable trust for the benefit of a person, including the settlor, are not subject to claims of creditors of the settlor to the extent that the property of the trust is subject to a presently exercisable general power of appointment held by a person other than the settlor. [(4)] (6) Subsections (2) and (3) of this section do not apply to a person other than a settlor who is a beneficiary of a revocable or irrevocable trust and who is also a trustee of the trust, if the power to withdraw for the person’s own benefit is limited by an ascertainable standard. SECTION 10. ORS 130.525 is amended to read: 130.525. [ORS 130.520 to 130.575 apply only to a trust, or a portion of a trust, that comes into existence during the settlor’s lifetime and is a revocable trust at any time after the trust was created and before the death of the settlor.] (1) ORS 130.530 and 130.535 apply only to a trust, or portion of a trust: (a) That comes into existence during the settlor’s lifetime; and (b) Is a revocable trust on the occurrence of any of the events described in ORS 130.530 or 130.535. (2) ORS 130.540 to 130.575 apply only to a trust, or a portion of a trust, that comes into existence during the settlor’s lifetime and that was a revocable trust at the time of the settlor’s death. SECTION 11. ORS 130.555 is amended to read: 130.555. (1) As used in this section, “pretermitted child” means a child of a settlor who [is born or adopted], after the execution of the trust instrument, is born or adopted during the lifetime of the settlor or is in gestation at the time of the settlor’s death, who is not [provided for in the trust] acknowledged or mentioned, either by name or by class, in the trust instrument or in the settlor’s will, and who survives the settlor. (2) If a settlor has one or more children living when the settlor executes a trust instrument and no provision is made in the trust for any of those children, a pretermitted child is not entitled to any share of the trust estate.

Enrolled Senate Bill 592 (SB 592-B) Page 7

Basic Estate Planning and Administration 2013 7A–17 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

(3) If a settlor has one or more children living when the settlor executes a trust instrument and provision is made in the trust for any of those children, a pretermitted child is entitled to share in the trust estate as follows: (a) The pretermitted child may share only in the portion of the trust estate intended to benefit living children. (b) The share of each pretermitted child is equal to the total value of the portion of the trust estate intended to benefit the living children divided by the number of pretermitted children plus the number of living children for whom provision, other than nominal provision, is made in the trust. (c) To the extent possible, the interest of each pretermitted child in the trust estate shall be of the same character, whether equitable or legal, as the interest the settlor gave to the living children under the trust. (4) If a settlor has no child living when the settlor executes a trust instrument, [a pretermitted child is entitled to a] the pretermitted children are entitled to the following share of the trust estate [as though the settlor had died intestate and had not executed the trust instrument]: (a) If the settlor dies leaving a surviving spouse and all pretermitted children are the issue of the surviving spouse, the pretermitted children are not entitled to any share of the trust estate. (b) If the settlor dies leaving a surviving spouse and not all pretermitted children are the issue of the surviving spouse, the pretermitted children, as a class, are entitled to one-half of the trust estate, with shares of the trust to be divided equally. (c) If the settlor dies without leaving a surviving spouse, the pretermitted children are entitled to the entire trust estate, with shares of the trust to be divided equally. (5) A pretermitted child may recover the share of the trust estate to which the child is entitled as follows: (a) If the pretermitted child is entitled to a share of the trust estate under subsection (3) of this section, the share must be recovered from the other children. (b) If the pretermitted child is entitled to a share of the trust estate under subsection (4) of this section, the share must be recovered from the beneficiaries on a pro rata basis, out of the portions of the trust estate passing to those persons under the trust. (c) In reducing the shares of the beneficiaries under this subsection, the character of the dispositive plan adopted by the settlor in the trust must be preserved to the extent possible. SECTION 12. ORS 130.610 is amended to read: 130.610. (1) Cotrustees who are unable to reach a unanimous decision may act by majority decision. (2) If a vacancy occurs in a cotrusteeship, the remaining cotrustee or cotrustees may act for the trust. (3) A cotrustee must participate in the performance of a trustee’s function unless: (a) The cotrustee is unavailable to perform the function because of absence, illness or disqualification under other law; (b) The cotrustee is unavailable to perform the function because the cotrustee is temporarily financially incapable; or (c) The cotrustee has [properly] delegated the performance of the function to another trustee pursuant to subsection (5) of this section. (4) If a cotrustee is unavailable to perform duties because of absence, illness, disqualification under other law or temporary financial incapability, and prompt action is necessary to achieve the purposes of the trust or to avoid injury to the trust property, the remaining cotrustee or a majority of the remaining cotrustees may act for the trust. (5) Except as prohibited in the terms of the trust, a cotrustee may delegate [ to a cotrustee the performance of a function. Unless a delegation was irrevocable, a cotrustee may revoke any delegation] the performance of a function to another cotrustee, and the other cotrustee may accept the delegation of the performance of the function. The delegation and the acceptance must be in writing. A delegation shall remain in effect until it terminates by its terms, is

Enrolled Senate Bill 592 (SB 592-B) Page 8

Basic Estate Planning and Administration 2013 7A–18 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

revoked in writing by the cotrustee making the delegation or is terminated in writing by the cotrustee accepting the delegation. (6) Except as otherwise provided in subsection (7) of this section, a cotrustee who does not join in an action of another cotrustee is not liable for the action. (7) Each cotrustee shall exercise reasonable care to: (a) Prevent a cotrustee from committing a serious breach of trust; and (b) Compel a cotrustee to redress a serious breach of trust. (8) A dissenting cotrustee who joins in an action at the direction of the majority of the cotrustees and who notified any cotrustee of the dissent at or before the time of the action is not liable for the action unless the action is a serious breach of trust. SECTION 13. ORS 130.615 is amended to read: 130.615. (1) A vacancy in a trusteeship occurs if: (a) A person designated as trustee rejects the trusteeship; (b) A person designated as trustee cannot be identified, cannot be located or does not exist; (c) A trustee resigns; (d) A trustee is disqualified or removed; (e) A trustee dies; or (f) A guardian or conservator is appointed for an individual serving as trustee. (2) If one or more cotrustees remain in office, a vacancy in a trusteeship need not be filled. A vacancy in a trusteeship must be filled if the trust has no remaining trustee. (3) A vacancy in a trusteeship of a noncharitable trust that is required to be filled must be filled in the following order of priority: (a) By a person designated in the terms of the trust to act as successor trustee; (b) By a person appointed by unanimous agreement of the qualified beneficiaries; or (c) By a person appointed by the court. (4) A vacancy in a trusteeship of a charitable trust that is required to be filled must be filled in the following order of priority: (a) By a person designated in the terms of the trust to act as successor trustee; (b) By a person appointed by unanimous agreement of [the charitable organizations expressly designated to receive distributions under the terms of the trust, all noncharitable] all qualified beneficiaries and the Attorney General; or (c) By a person appointed by the court. (5) Whether or not a vacancy in a trusteeship exists or is required to be filled, the court may appoint an additional trustee or special fiduciary whenever the court considers the appointment necessary for the administration of the trust. SECTION 14. ORS 130.625 is amended to read: 130.625. (1) The settlor, a cotrustee or a beneficiary may request that a court remove a trustee, or a trustee may be removed by a court on its own motion. (2) A court may remove a trustee if the court finds: (a) The trustee has committed a serious breach of trust; (b) Lack of cooperation among cotrustees substantially impairs the administration of the trust; (c) Removal of the trustee best serves the interests of the beneficiaries because the trustee is unfit or unwilling, or has persistently failed to administer the trust effectively; or (d) Removal of the trustee best serves the interests of all of the beneficiaries and: (A) There has been a substantial change of circumstances or removal has been requested by all of the qualified beneficiaries; [(B) Removal is not inconsistent with a material purpose of the trust; and] [(C)] (B) A suitable cotrustee or successor trustee is available; and (C) The trustee fails to establish by clear and convincing evidence that removal is inconsistent with a material purpose of the trust.

Enrolled Senate Bill 592 (SB 592-B) Page 9

Basic Estate Planning and Administration 2013 7A–19 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

(3) Pending a final decision on a request to remove a trustee, or in lieu of or in addition to re- moving a trustee, the court may order such appropriate relief under ORS 130.800 (2) as may be necessary to protect the trust property or the interests of the beneficiaries. SECTION 15. ORS 130.630 is amended to read: 130.630. (1) Unless a cotrustee remains in office or the court otherwise orders, a trustee who has resigned or been removed has the duties of a trustee and the powers necessary to protect the trust property until the trust property is delivered to a successor trustee or other person who is entitled to the property. (2) A trustee who has resigned or been removed shall proceed expeditiously to deliver any trust property in the trustee’s possession to the cotrustee, successor trustee or other person who is entitled to the property. (3) A successor trustee or the court may require a trustee that has resigned or been removed to send a report as provided in ORS 130.710 (3). Reasonable compensation for preparation of the report, and reasonable fees and costs incurred in the preparation and distribution of the report, shall be paid by the trust. SECTION 16. ORS 130.635 is amended to read: 130.635. (1) If the terms of a trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances. (2) If the terms of a trust specify the trustee’s compensation, the trustee is entitled to be compensated as specified, but the court may allow more or less compensation if: (a) The duties of the trustee are substantially different from those contemplated when the trust was created; or (b) The compensation specified by the terms of the trust would be unreasonably low or high. (3) If more than one trustee is serving and the terms of the trust do not specify the trustees’ compensation, the compensation paid to all trustees under this section shall be based on the total services provided by all trustees. (4) If the terms of a trust do not specify the trustee’s compensation, the fees paid to third parties, including but not limited to financial advisors, who perform trustee functions must be taken into account in determining reasonable trustee compensation under this section. SECTION 17. ORS 130.650 is amended to read: 130.650. (1) Upon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries, and in accordance with this chapter. (2) A trustee is not required to object to a modification, reformation or termination of the trust under ORS 130.045, 130.200, 130.205, 130.210, 130.215, 130.220 or 130.225, or a trust combination or division under ORS 130.230, solely because of the existence of the duty to administer the trust under subsection (1) of this section or the duty of loyalty under ORS 130.655 (1). SECTION 18. ORS 130.655 is amended to read: 130.655. (1) A trustee shall administer the trust solely in the interests of the beneficiaries. (2) Subject to the rights of persons dealing with or assisting the trustee as provided in ORS 130.855, a sale, encumbrance or other transaction involving the investment or management of trust property entered into by the trustee for the trustee’s own personal account or that is otherwise affected by a conflict between the trustee’s fiduciary and personal interests is voidable by a beneficiary affected by the transaction unless: (a) The transaction was authorized by the terms of the trust; (b) The transaction was approved by a court; (c) The beneficiary did not commence a judicial proceeding within the time allowed by ORS 130.820; (d) The beneficiary consented to the trustee’s conduct, ratified the transaction or released the trustee in the manner provided by ORS 130.840; or

Enrolled Senate Bill 592 (SB 592-B) Page 10

Basic Estate Planning and Administration 2013 7A–20 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

(e) The transaction involves a contract entered into or claim acquired by the trustee before the person became or contemplated becoming trustee. (3) A sale, encumbrance or other transaction involving the investment or management of trust property is presumed to be affected by a conflict between the personal and fiduciary interests of the trustee if it is entered into by the trustee with: (a) The trustee’s spouse; (b) The trustee’s descendants, siblings or parents, or their spouses; (c) An agent or attorney of the trustee; or (d) A corporation or other person or enterprise in which the trustee, or a person that owns a significant interest in the trustee, has an interest that might affect the trustee’s best judgment. (4) Unless a trustee can establish that the transaction was fair to the beneficiary, a transaction between a trustee and a beneficiary that does not concern trust property but from which the trustee obtains an advantage is voidable by the beneficiary if the transaction occurs during the existence of the trust or while the trustee retains significant influence over the beneficiary. (5) A transaction not concerning trust property in which the trustee engages in the trustee’s individual capacity involves a conflict between personal and fiduciary interests if the transaction concerns an opportunity properly belonging to the trust. (6) An investment by a trustee in securities of an investment company or an investment trust to which the trustee, or an affiliate of the trustee, provides services in a capacity other than as trustee is not presumed to be affected by a conflict between personal and fiduciary interests if the investment otherwise complies with the prudent investor rule of ORS 130.750 to 130.775. In addition to compensation for acting as trustee, the trustee may be compensated by the investment company or investment trust for providing those services out of fees charged to the trust. If the trustee receives compensation from the investment company or investment trust for providing investment advisory or investment management services, the trustee at least annually shall give notice of the rate and method by which that compensation was determined to the persons entitled under ORS 130.710 to receive a copy of the trustee’s annual report. (7) In voting shares of stock of a corporation or in exercising powers of control over similar interests in corporations and other forms of business entities, the trustee shall act in the best interests of the beneficiaries. If the trust is [the sole] an owner of a corporation or other form of business entity, the trustee shall elect or appoint directors or other managers who will manage the corporation or entity in the best interests of the beneficiaries. (8) This section does not preclude the following transactions, if fair to the beneficiaries: (a) An agreement between a trustee and a beneficiary relating to the appointment or compensation of the trustee; (b) Payment of reasonable compensation to the trustee; (c) A transaction between a trust and another trust, decedent’s estate, custodianship or conservatorship of which the trustee is a fiduciary or in which a beneficiary has an interest; (d) A deposit of trust money in a financial institution operated by the trustee; (e) An advance by the trustee of money for the protection of the trust; (f) An advance by the trustee of money to the trust for the payment of expenses, losses or liabilities sustained by the trustee in the administration of the trust or by reason of owning or possessing any trust assets; or (g) A loan to the trustee for the protection of the trust, or for the payment of expenses, losses or liabilities sustained by the trustee in the administration of the trust or by reason of owning or possessing any trust assets. A loan under this paragraph may be from a lender operated by, or affiliated with, the trustee. (9) A trustee is not required to object to a modification, reformation or termination of the trust under ORS 130.045, 130.200, 130.205, 130.210, 130.215, 130.220 or 130.225, or a trust combination or division under ORS 130.230, solely because of the existence of the duty of loyalty under subsection (1) of this section or the duty to administer the trust under ORS 130.650 (1).

Enrolled Senate Bill 592 (SB 592-B) Page 11

Basic Estate Planning and Administration 2013 7A–21 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

[(9)] (10) The court may appoint a special fiduciary to make a decision with respect to any proposed transaction that might violate this section if entered into by the trustee. SECTION 19. ORS 130.710 is amended to read: 130.710. (1) A trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for those beneficiaries to protect their interests. If reasonable under the circumstances, a trustee may respond to a request for information related to the administration of the trust from a beneficiary who is not a qualified beneficiary. (2)(a) Upon request of a qualified beneficiary, a trustee shall promptly furnish to the qualified beneficiary a copy of the trust instrument. (b) Within a reasonable time after accepting a trusteeship, a trustee shall notify all qualified beneficiaries of the acceptance and of the trustee’s name, address and telephone number. (c) Except as provided in subsection (10) of this section, within a reasonable time after the date the trustee acquires knowledge of the creation of an irrevocable trust, or the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, whether by the death of the settlor or otherwise, the trustee shall notify the qualified beneficiaries of the trust’s existence, of the identity of the settlor or settlors, of the right to request a copy of the trust instrument and of the right to a trustee’s report as provided in subsection (3) of this section. (d) A trustee shall notify the qualified beneficiaries in advance of any change in the method or rate of the trustee’s compensation. (3)(a) Except as provided in subsection (10) of this section, a trustee shall send a trustee report, at least annually and upon termination of the trust, to the permissible distributees of trust income or principal and to other qualified beneficiaries who request the report. The report must include a listing of trust property and liabilities, and must show the market values of trust assets, if feasible. The report must reflect all receipts and disbursements of the trust, including the source and amount of the trustee’s compensation. (b) Upon a vacancy in a trusteeship, unless a cotrustee remains in office, [a trustee report must be sent to the qualified beneficiaries by the former trustee] and if required by the successor trustee or the court, the former trustee shall send a trustee report for the period from the prior report, if any, through the time of vacancy to the qualified beneficiaries of the trust. (c) A personal representative, conservator or guardian may send the qualified beneficiaries a trustee report on behalf of a deceased or financially incapable trustee. (4) A qualified beneficiary may waive the right to a trustee report or other information otherwise required to be furnished under this section. A qualified beneficiary may withdraw a waiver at any time for the purpose of future reports and other information. (5) A trustee may charge a reasonable fee to a beneficiary for providing information under this section. (6) A beneficiary’s request for any information under this section must be with respect to a single trust that is sufficiently identified to enable the trustee to locate the trust’s records. (7) If the trustee is bound by any confidentiality restrictions regarding a trust asset, any beneficiary eligible under this section to receive information about that asset must agree to be bound by the same confidentiality restrictions before receiving the information. (8) Despite any other provision of this section, information, notice and reports required by this section shall be given only to the settlor’s spouse if: (a) The spouse survives the settlor; (b) The spouse is financially capable; (c) The spouse is the only permissible distributee of the trust; and (d) All of the other qualified beneficiaries of the trust are descendants of the spouse. (9) Notwithstanding any other provision of this section, while the settlor of a revocable trust is alive, beneficiaries other than the settlor have no right to receive notice, information or reports under this section.

Enrolled Senate Bill 592 (SB 592-B) Page 12

Basic Estate Planning and Administration 2013 7A–22 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

(10) A trustee need not provide a qualified beneficiary with the notice of the right to a trustee’s report under subsection (2)(c) of this section, and need not send trustee reports to the beneficiary under subsection (3) of this section, until six months after a revocable trust becomes irrevocable if the beneficiary’s only interest in the trust is a distribution of a specific item of property or distribution of a specific amount of money. The trustee must provide the notice of the right to a trustee’s report required by subsection (2)(c) of this section at the end of the six-month period if the beneficiary has not received distribution of the specific item of property or specific amount of money before the end of the period. If notice is provided to a qualified beneficiary under this subsection, the trustee must thereafter send trustee reports to the beneficiary until distribution of the specific item of property or specific amount of money. SECTION 20. ORS 130.725 is amended to read: 130.725. Without limiting the authority conferred by ORS 130.720, a trustee may do any of the following: (1) Collect trust property and accept or reject additions to the trust property from a settlor or any other person. (2) Acquire or sell property, for cash or on credit, at public or private sale. (3) Exchange, partition or otherwise change the character of trust property. (4) Deposit trust money in an account in a financial institution, including a financial institution operated by the trustee, if the deposit is adequately insured or secured. (5) Borrow money, with or without security, to be repaid from trust assets or otherwise, and advance money for the protection of the trust and for all expenses, losses and liabilities sustained in the administration of the trust or because of the holding or ownership of any trust assets. Money may be borrowed under this subsection from any lender, including a financial institution operated by or affiliated with the trustee. A trustee is entitled to be reimbursed out of the trust property or from property that has been distributed from the trust, with reasonable interest, for an advance of money under this subsection. (6) Continue operation of any proprietorship, partnership, limited liability company, business trust, corporation or other form of business or enterprise in which the trust has an interest, and take any action that may be taken by shareholders, members or property owners, including merging, dissolving or otherwise changing the form of business organization or contributing additional capi- tal. (7) Exercise the rights of an absolute owner of stocks and other securities, including the right to: (a) Vote, or give proxies to vote, with or without power of substitution, or enter into or continue a voting trust agreement; (b) Hold a security in the name of a nominee or in other form without disclosure of the trust so that title may pass by delivery; (c) Pay calls, assessments and other sums chargeable or accruing against the securities, and sell or exercise stock subscription or conversion rights; and (d) Deposit the securities with a depository or other financial institution. (8) Construct, repair, alter or otherwise improve buildings or other structures on real property in which the trust has an interest, demolish improvements, raze existing or erect new party walls or buildings on real property in which the trust has an interest, subdivide or develop land, dedicate land to public use or grant public or private easements, and make or vacate plats and adjust boundaries. (9) Enter into a lease for any purpose as lessor or lessee, including a lease or other arrangement for exploration and removal of natural resources, with or without the option to purchase or renew, even though the period of the lease extends beyond the duration of the trust. (10) Grant an option involving a sale, lease or other disposition of trust property or acquire an option for the acquisition of property, even though the option is exercisable after the trust is terminated, and exercise an option so acquired.

Enrolled Senate Bill 592 (SB 592-B) Page 13

Basic Estate Planning and Administration 2013 7A–23 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

(11) Insure the property of the trust against damage or loss and insure the trustee, the trustee’s agents, and beneficiaries against liability arising from the administration of the trust. (12) Abandon or decline to administer property of no value or property of a value that is not adequate to justify its collection or continued administration. (13) Avoid possible liability for violation of environmental law by: (a) Inspecting or investigating property the trustee holds or has been asked to hold, or property owned or operated by an organization in which the trustee holds or has been asked to hold an interest, for the purpose of determining the application of environmental law with respect to the property; (b) Taking action to prevent, abate or otherwise remedy any actual or potential violation of any environmental law affecting property held directly or indirectly by the trustee, whether taken before or after the assertion of a claim or the initiation of governmental enforcement; (c) Declining to accept property into trust or disclaiming any power with respect to property that is or may be burdened with liability for violation of environmental law; (d) Compromising claims against the trust that may be asserted for an alleged violation of environmental law; and (e) Paying the expense of any inspection, review, abatement or remedial action to comply with environmental law. (14) Pay or contest any claim, settle a claim by or against the trust, and release, in whole or in part, a claim belonging to the trust. (15) Pay taxes, assessments, compensation of the trustee and of employees and agents of the trust, and other expenses incurred in the administration of the trust. (16) Exercise elections available under federal, state and local tax laws. (17) Select a mode of payment under any employee benefit or retirement plan, annuity or life insurance payable to the trustee, exercise rights under employee benefit or retirement plans, annuities or policies of life insurance, including exercise of the right to indemnification for expenses and against liabilities, and take appropriate action to collect the proceeds. (18) Make loans out of trust property. The trustee may make a loan to a beneficiary on terms and conditions the trustee considers to be fair and reasonable under the circumstances. The trustee may collect loans made to a beneficiary by making deductions from future distributions to the beneficiary. (19) Pledge trust property to guarantee loans made by others to the beneficiary. (20) Appoint a trustee to act in another state, country or other jurisdiction with respect to trust property located in the other state, country or other jurisdiction, confer upon the appointed trustee all of the powers and duties of the appointing trustee, require that the appointed trustee furnish security and remove any trustee so appointed. (21) Make a distribution to a beneficiary who is under a legal disability or who the trustee reasonably believes is financially incapable, either: (a) Directly; (b) By application of the distribution for the beneficiary’s benefit; (c) By paying the distribution to the beneficiary’s conservator or, if the beneficiary does not have a conservator, the beneficiary’s guardian; (d) By creating a custodianship under the Uniform Transfers to Minors Act by paying the distribution to a custodian for the beneficiary; (e) By paying the distribution to any existing custodian under the Uniform Transfers to Minors Act; (f) By paying the distribution to an adult relative or other person having legal or physical care or custody of the beneficiary, to be expended on the beneficiary’s behalf, if the trustee does not know of a conservator, guardian or custodian for the beneficiary; or (g) By managing the distribution as a separate fund held by the trustee on behalf of the beneficiary, subject to the beneficiary’s continuing right to withdraw the distribution.

Enrolled Senate Bill 592 (SB 592-B) Page 14

Basic Estate Planning and Administration 2013 7A–24 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

(22) On distribution or payment of trust property or the division or termination of a trust, make distributions and payments in cash or in kind, or in divided or undivided interests, allocate particular assets in proportionate or disproportionate shares, value the trust property for those purposes and adjust for resulting differences in valuation. (23) Resolve a dispute concerning the interpretation of the trust or the administration of the trust by mediation, arbitration or other procedure for alternative dispute resolution. (24) Prosecute or defend an action, claim or judicial proceeding in any state, country or other jurisdiction to protect trust property and the trustee in the performance of the trustee’s duties. (25) Sign and deliver contracts and other instruments that are useful to achieve or facilitate the exercise of the trustee’s powers. (26) On termination of the trust, exercise the powers appropriate to wind up the administration of the trust and distribute the trust property to the persons entitled to the property. (27) Allocate items of income or expense to either trust income or principal, as provided by law, including creation of reserves out of income for depreciation, obsolescence or amortization, or for depletion in mineral or timber properties. (28) Employ persons, including attorneys, auditors, investment advisors or agents, to advise or assist the trustee in the performance of administrative duties. A trustee may act based on the recommendations of professionals without independently investigating the recommendations. (29) Apply for and qualify all or part of the property in the trust estate for special governmental tax programs or other programs that may benefit the trust estate or any of the beneficiaries. (30) Deposit securities in a clearing corporation as provided in ORS 128.100. SECTION 21. ORS 130.730 is amended to read: 130.730. [(1) Upon termination or partial termination of a trust, the trustee may send to the beneficiaries a proposal for distribution. The right of any beneficiary to object to a distribution made pursuant to the proposal terminates if the beneficiary does not notify the trustee of an objection within 30 days after the proposal was sent, but only if the proposal informed the beneficiary of the right to object and the time allowed for objection.] [(2) Upon the occurrence of an event terminating or partially terminating a trust, the trustee shall proceed expeditiously to distribute the trust property to the persons entitled to the property. The trustee may retain a reasonable reserve for the payment of debts, expenses and taxes.] [(3) A release by a beneficiary of a trustee from liability for breach of trust is invalid to the extent:] [(a) The release was induced by improper conduct of the trustee; or] [(b) The beneficiary, at the time of the release, did not know of the beneficiary’s rights or of the material facts relating to the breach.] (1) Upon the occurrence of an event, satisfaction of a condition or exercise of a power that terminates or partially terminates a trust or creates an obligation for the trustee to pay or distribute all or any portion of a trust to a beneficiary, the beneficiary’s interest in the terminated trust, portion or distribution indefeasibly vests in the beneficiary as of the event, satisfaction or exercise, subject to ORS 114.600 to 114.725, rights of creditors and the administration and sale of trust property by the trustee. The trustee shall proceed expeditiously to distribute the trust property to the persons entitled to the property. The trustee may retain a reasonable reserve for the payment of debts, fees, expenses and taxes. (2) Incidental to a termination or partial termination of a trust, the trustee may request that a beneficiary execute a release of the trustee from liability for breach of trust. A release under this subsection is invalid to the extent: (a) The release was induced by improper conduct of the trustee; or (b) The trustee failed to adequately disclose to the beneficiary, at the time of the release, the material facts relating to the breach or sufficient information to enable the beneficiary to know of a potential claim or to inquire into the existence of a breach or potential claim. SECTION 22. ORS 130.735 is amended to read:

Enrolled Senate Bill 592 (SB 592-B) Page 15

Basic Estate Planning and Administration 2013 7A–25 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

130.735. (1) A trust instrument may appoint a person to act as an adviser for the purpose of directing or approving decisions made by the trustee, including decisions related to distribution of trust assets and to the purchase, sale or exchange of trust investments. The appointment must be made by a provision of the trust that specifically refers to this section. The appointment may provide for succession of advisers and for a process for the removal of advisers. An adviser shall exercise all authority granted under the trust instrument as a fiduciary unless the trust instrument provides otherwise. A person who agrees to act as an adviser is subject to Oregon law and submits to the jurisdiction of the courts of this state. (2) If a trust instrument provides that a trustee is to follow the direction of an adviser, and that trustee acts in accordance with the adviser’s directions, the trustee is not liable for any loss resulting directly or indirectly from the trustee’s decision unless the decision constitutes reckless indifference to the purposes of the trust or the interests of the beneficiaries. (3) If a trust instrument provides that a trustee is to make decisions with the approval of an adviser, and the adviser does not provide approval within a reasonable time after the trustee has made a request for approval of a decision, the trustee is not liable for any loss resulting directly or indirectly from the decision unless the decision constitutes reckless indifference to the purposes of the trust or the interests of the beneficiaries. (4) Except to the extent specifically provided by the trust instrument, a trustee has no duty to monitor an adviser’s conduct, provide advice to the adviser, consult with the adviser or give notice to any beneficiary or third party about decisions made pursuant to the adviser’s direction that the trustee would have decided differently. (5) Absent clear and convincing evidence to the contrary, all actions taken by a trustee for the purpose of implementing directions from an adviser, including confirming that the adviser’s directions have been carried out and recording and reporting activities requested by the adviser, are presumed to be administrative actions taken by the trustee solely for the purpose of allowing the trustee to perform the duties assigned to the trustee under the trust instrument. Administrative actions taken by a trustee for the purpose of implementing directions from an adviser do not constitute monitoring of the adviser or other participation in decisions that are within the scope of the adviser’s authority. (6) A court may remove an adviser if the court finds: (a) The adviser has committed a serious breach of trust; or (b) Removal of the adviser best serves the interests of the beneficiaries because the adviser is unfit or unwilling, or has persistently failed to timely and effectively advise the trustee in matters assigned to the adviser in the trust instrument under subsection (1) of this section. SECTION 23. Sections 24, 25 and 26 of this 2013 Act are added to and made a part of ORS chapter 130. SECTION 24. If the occurrence of an event, satisfaction of a condition or exercise of a power allows or creates an obligation for the trustee to divide a trust or any portion of a trust into separate shares or portions for the benefit of separate beneficiaries: (1) Each share resulting from the division of the trust will be deemed to be a new trust for the sole benefit of its beneficiaries; (2) All of the terms of the trust instrument will be applied independently to each new trust created pursuant to this section except as terms are specifically limited in the trust instrument; and (3) The trust or portion of the trust from which the new trust originates will be deemed to terminate to the extent of the new trust, subject only to the proper administration of the terminated trust occasioned by the terminating event, condition or exercise. SECTION 25. (1) Prior to a proposed action to be taken by a trustee regarding the administration of a trust, the trustee may send the beneficiaries a written notice of the proposed action informing the beneficiaries of the proposed action.

Enrolled Senate Bill 592 (SB 592-B) Page 16

Basic Estate Planning and Administration 2013 7A–26 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

(2) The right of a beneficiary receiving a notice of proposed action under subsection (1) of this section to object to a proposed action described in the notice is barred if the beneficiary does not notify the trustee in writing of an objection within 45 days after the notice was sent, or within such longer time as may be stated in the notice, but only to the extent that the notice of proposed action: (a) Clearly informs the beneficiary of the right to object, the manner in which to object and the date by which the objection must be received by the trustee; (b) States that the beneficiary’s right to object may be barred if the beneficiary does not object within the time and in the manner allowed for objection; and (c) Adequately provides sufficient information regarding the proposed action to enable the beneficiary to make an informed decision. (3) If a beneficiary receiving notice does not object as provided in this section, the beneficiary will be deemed to have consented to the proposed action and the beneficiary may not thereafter file an action or other civil proceeding based in tort, contract or otherwise if the proposed action is taken by the trustee within a reasonable time after the notice was given under this section. This subsection does not apply to the following: (a) Allowance of the trustee’s compensation; (b) Settlement of trust accounts or the trustee’s report; (c) Sale of trust property to the trustee or sale of the trustee’s property to the trust; (d) Exchange of trust property for property of the trustee; (e) Grant of an option to the trustee to purchase trust property; (f) Allowance, payment or settlement of a trustee’s claim against the trust; (g) Compromise or settlement of a claim, action or proceeding by the trust against the trustee; or (h) Extension, renewal or modification of the terms of a debt or other obligation of the trustee owing to or in favor of the trust. (4) The receipt of an objection by the trustee does not prohibit the trustee from taking the proposed action or sending subsequent notices of proposed actions to the beneficiaries regarding the same or similar proposed actions. SECTION 26. (1) As used in this section, “abate” or “abatement” means to reduce or the reduction of a gift from a trust at the settlor’s death on account of the insufficiency of the trust property to pay all claims and expenses and distribute all gifts in full. (2) If the trust instrument expresses an order of abatement, or if the plan of distribution or the express or implied purpose of the distribution from the trust would be defeated by the order of abatement stated in subsection (3) of this section, the shares of the distributees abate as may be found necessary to give effect to the intention of the settlor. (3) Except as provided in ORS 130.555 as to the shares of pretermitted children, and in ORS 114.600 to 114.725 relating to the elective share of the surviving spouse, shares of distributees abate without any preference or priority as between real and personal property in the following order: (a) Property of the trust not disposed of by the terms of the trust instrument. (b) Residuary gifts, which are gifts paid from the trust after all claims and expenses are paid and all general gifts and specific gifts are distributed under the terms of the trust instrument. (c) General gifts, which are gifts chargeable generally on the trust corpus and which are not distinguishable from other parts of the trust corpus and are not given under the terms of the trust instrument as a gift of a specific thing or of a specified part of the trust corpus. (d) Specific gifts, which are gifts of a specific thing or of a specified part of the trust corpus as described under the terms of the trust instrument and that are capable of identification. (4) A general gift charged on any specific property or fund is considered, for purposes of abatement, to be property specifically given to the extent of the value of the property or

Enrolled Senate Bill 592 (SB 592-B) Page 17

Basic Estate Planning and Administration 2013 7A–27 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

fund on which the general gift is charged. Upon the failure or insufficiency of the property or fund on which the general gift is charged, the gift is considered a general gift to the extent of the failure or insufficiency. (5) Abatement within each classification is in proportion to the amounts of property each of the distributees would have received had full distribution of the property been made in accordance with the terms of the trust instrument. (6) Persons to whom the trust instrument gives tangible personal property not used in trade, agriculture or other business are not required to contribute from that property unless the property forms a substantial amount of the total estate and the court specifically orders contribution because of the gift. (7) When the subject matter of a preferred gift is sold or used incident to administration, abatement shall be achieved by appropriate adjustments in, or contribution from, other interests in the remaining assets. SECTION 27. Sections 24, 25 and 26 of this 2013 Act and the amendments to ORS 130.010, 130.045, 130.170, 130.195, 130.200, 130.215, 130.305, 130.310, 130.315, 130.525, 130.555, 130.610, 130.615, 130.625, 130.630, 130.635, 130.650, 130.655, 130.710, 130.725, 130.730 and 130.735 by sections 1 to 22 of this 2013 Act apply to trust proceedings commenced on or after the effective date of this 2013 Act. SECTION 28. This 2013 Act being necessary for the immediate preservation of the public peace, health and safety, an emergency is declared to exist, and this 2013 Act takes effect on its passage.

Passed by Senate April 23, 2013 Received by Governor:

Repassed by Senate June 17, 2013 ...... M.,...... , 2013

Approved:

...... M.,...... , 2013 Robert Taylor, Secretary of Senate

...... Peter Courtney, President of Senate John Kitzhaber, Governor

Passed by House June 12, 2013 Filed in Office of Secretary of State:

...... M.,...... , 2013

...... Tina Kotek, Speaker of House ...... Kate Brown, Secretary of State

Enrolled Senate Bill 592 (SB 592-B) Page 18

Basic Estate Planning and Administration 2013 7A–28 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

Basic Estate Planning and Administration 2013 7A–29 Chapter 7A—SB 592 Changes to the Oregon Trust Code: Notice of Proposed Action; Abatement

Basic Estate Planning and Administration 2013 7A–30 Chapter 7B New Changes to the Oregon Trust Code: A Practical Approach

Eric J. Wieland Samuels Yoelin Kantor LLP Portland, Oregon

Contents I. Types of Beneficiaries and Applicable Fiduciary Duties Owed to Each ...... 7B–1 A. Types of Beneficiaries ...... 7B–1 B. Duties Owed to the Different Beneficiaries or Individuals ...... 7B–1 II. Nonjudicial Settlement Agreements ...... 7B–4 Appendix—Sample Filing of Notice 7B–7 Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

Basic Estate Planning and Administration 2013 7B–ii Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

I. TYPES OF BENEFICIARIES AND APPLICABLE FIDUCIARY DUTIES OWED TO EACH A. Types of Beneficiaries 1. Beneficiary means a person that: a. Has a present or future beneficial interest in a trust, whether vested or contingent; or b. Holds a power of appointment over trust property in a capacity other than that of trustee. 2. Permissible distributee means a beneficiary who is currently eligible to receive distributions of trust income or principal, whether the distribution is mandatory or discretionary. 3. Qualified beneficiary is a beneficiary who: a. Is a permissible distributee on the date the beneficiary’s qualification is determined; b. Would be a permissible distributee if the interests of all permissible distributees described in paragraph (a) terminated on the date the beneficiary’s qualification is determined; or c. Would be a permissible distributee if the trust terminated on the date the beneficiary’s qualification is determined. 4. Remote interest beneficiary means a beneficiary of a trust whose beneficial interest in the trust, at the time the determination of interest is made, is contingent upon the successive terminations of both the interest of a qualified beneficiary and the interest of a secondary beneficiary whose interests precede the interest of the remote interest beneficiary. 5. Secondary interest beneficiary means a beneficiary, other than a qualified beneficiary, whose beneficial interest in the trust, at the time the determination of interest is made, is contingent solely upon the termination of all qualified beneficiary interests that precede the interest of the secondary beneficiary. 6. Charitable trust is a trust that: a. Expressly designates one or more charitable organizations, or one or more classes of charitable organizations, to receive distributions as beneficiaries of the trust unless the combined interests of all charitable beneficiaries are negligible or all charitable beneficiaries are remote interest beneficiaries; or b. Is created for the relief of poverty, the advancement of education or religion, the promotion of health, governmental, or municipal purposes, or other purposes beneficial to the community but that does not contain contingencies that make the charitable interest negligible. 7. Interests of the beneficiaries means the beneficial interests provided in the terms of the trust. B. Duties Owed to the Different Beneficiaries or Individuals 1. Remote Interest Beneficiaries a. Very little, if any, duty owed to remote interest beneficiary. b. Not entitled to notice when trust become irrevocable. c. No duty to be informed, let alone be asked to provide consent, of proposed modification or termination, under ORS 130.200. d. If reasonable under the circumstances, a trustee may respond to a request for information related to the administration of the trust from a remote interest beneficiary. 2. Secondary Interest Beneficiaries a. More duty owed than remote interest beneficiary but less than qualified beneficiary. b. Not entitled to notice when trust become irrevocable.

Basic Estate Planning and Administration 2013 7B–1 Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

c. Notice must be provided to secondary interest beneficiaries of proposed modifications or terminations to trust. d. If reasonable under the circumstances, a trustee may respond to a request for information related to the administration of the trust from a secondary interest beneficiary. 3. Qualified Beneficiaries a. More duty owed than remote or secondary beneficiaries but less than permissible distributee beneficiary. b. Entitled to notice when trust becomes irrevocable, entitled to a copy of all applicable trust instruments, and entitled to annual accountings. c. Entitled to be kept reasonably informed about the administration of the trust and material facts necessary for those beneficiaries to protect their interests. d. Notice must be provided to qualified beneficiaries of proposed modifications or terminations to trust. e. Within a reasonable time, must furnish name of trustee, address, and phone number of the trustee, and trustee report, at least annually. f. A trustee shall notify the qualified beneficiaries in advance of any change in the method or rate of the trustee’s compensation. g. If trustee is bound by any confidentiality restrictions on a specific asset, qualified beneficiary must also agree to said restrictions prior to being given information. h. Qualified beneficiary is not entitled to any information if they ear a qualified beneficiary of revocable living trust and the settlor is still living. i. Information, notice, and reports shall be only given to the settlor’s spouse if: i. The spouse survives the settlor; ii. The spouse is financially capable; iii. The spouse is the only permissible distributee of the trust; and iv. All of the other qualified beneficiariesof the trust are descendants of the spouse. j. Notice of the right to a trustee’s report or receipt of the actual trustee’s report need not be provided to a qualified beneficiary if the qualified beneficiary’s only interest in the trust is a distribution of a specific item of property or specific amount of money and the distribution is made within six months after a trust become irrevocable. k. Exceptions: ORS 120.020(3)—The settlor may waive or modify the duties of a trustee to give notice, information, and reports to qualified beneficiaries by: i. Waiving or modifying those duties during the period that either the settlor is alive and financially capable or the settlor’s spouse, if a qualified beneficiary, is alive and financially capable; or ii. Designating a person or persons to act in good faith to protect the interests of a qualified beneficiary and to receive notice, information, or reports required under ORS 130.710 in lieu of providing notice, information, or reports to the qualified beneficiaries. 4. Permissible Distributee a. Most duty owed to the permissible distributee. b. Entitled to notice when trust becomes irrevocable, entitled to a copy of all applicable trust instruments, and entitled to annual accountings.

Basic Estate Planning and Administration 2013 7B–2 Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

c. Entitled to be kept reasonably informed about the administration of the trust and material facts necessary for those beneficiaries to protect their interests. d. Notice must be provided to permissible distributees of proposed modifications or terminations to trust. e. Within reasonable time, must furnish name of trustee, address and phone number of the trustee, and trustee report, at least annually. f. A trustee shall notify the permissible distributees in advance of any change in the method or rate of the trustee’s compensation. g. If trustee is bound by any confidentiality restrictions on specific assets, permissible distributees must also agree to said restrictions prior to being given information. h. Notice of the right to a trustee’s report or receipt of the actual trustee’s report need not be provided to a permissible distributee if the permissible distributee’s only interest in the trust is a distribution of a specific item of property or specific amount of money and the distribution is made within six months after a trust becomes irrevocable. 5. Charitable Trust a. Charitable beneficiaries should be treated like all beneficiaries. Determine if the charity is a permissible distributee, qualified beneficiary, secondary interest beneficiary, or remote interest beneficiary. Give the charity the same duty that you would any other beneficiary in the same class. b. The Oregon Attorney General has the rights of a qualified beneficiary with respect to a charitable trust having its principal place of administration in Oregon. c. A charitable organization expressly designated to receive distributions under the terms of a charitable trust has the rights of a qualified beneficiary if the charitable organization meets the definition of a qualified beneficiary. 6. Other Persons Treated as Qualified Beneficiaries a. A person appointed to enforce a trust created for the care of an animal or other noncharitable purpose has the rights of a qualified beneficiary. b. A person designated under ORS 103.020(3)(b) to act in good faith to protect the interests of a qualified beneficiary and to receive notice, information, or reports required under ORS 130.710 in lieu of providing notice, information, or reports to the qualified beneficiaries. 7. Example. Rita, during her lifetime, is the settlor of an irrevocable trust for the benefit of her husband, Victor. During Victor’s lifetime, Victor is entitled to distributions at the discretion of the trustee based upon Victor’s health, support, maintenance, and education. Upon Victor’s death, the trust is continued but divided into two shares for the benefit of Barb and Mary, Rita and Victor’s children. If either Barb or Mary is not surviving at Victor’s death, then her share goes to her issue surviving by representation. Trust shares stay in trust for the lifetime of Barb and Mary, then to their children by representation until they reach age 45. If a grandchild for whom a share is established does not survive to age 45, his or her children are to receive their share when they reach 45 years of age. If a child or grandchild for whom a share is established does not survive and leaves no issue surviving, the remaining share for that person is to be paid to Charity. Barb and Mary each have two children, all under age 45, who have no children of their own. Assume rules against perpetuity do not apply. What role do these people play in the administration of the trust?

Basic Estate Planning and Administration 2013 7B–3 Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

a. At Time of Creation Settlor: Rita Permissible Distributee: Victor Qualified Beneficiary: Barb and Mary Secondary Interest Beneficiary: Barb and Mary’s Children Remote Interest Beneficiary: Kids of Barb and Mary’s Kids and Charity Is This a Charitable Trust?: Not Now b. What If Income to Victor but Discretionary Principal to Barb and Mary? Settlor: Rita Permissible Distributee: Victor, Barb, and Mary Qualified Beneficiary: Barb and Mary Secondary Interest Beneficiary: Barb and Mary’s Children Remote Interest Beneficiary: Kids of Barb and Mary’s Kids and Charity Is This a Charitable Trust?: Not Now c. After Victor’s Death—Barb’s Share Settlor: Rita Permissible Distributee: Barb Qualified Beneficiary: Barb’s Kids Secondary Interest Beneficiary: Barb’s Kids’ Kids or Charity, If No Kids’ Kids Remote Interest Beneficiary: Charity Is This a Charitable Trust?: Not Now d. After Barb’s Death—Barb’s Share Settlor: Rita Permissible Distributee: Barb’s Kids Qualified Beneficiary: Barb’s Kids’ Kids or Charity Secondary Interest Beneficiary: Charity (Assume No Kids’ Kids’ Kids) Remote Interest Beneficiary: None Is This a Charitable Trust?: Maybe—Are There Kids’ Kids? II. NONJUDICIAL SETTLEMENT AGREEMENTS ORS 130.045—Interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust. If the agreement is not filed with the court, the agreement is still binding on all parties to the agreement. If the agreement is filed with the court, the agreement is binding, unless after the filing of objections and a hearing, the court does not approve the agreement. If the court does not approve the agreement, the agreement is not binding on any beneficiary or party to the agreement. A nonjudicial settlement agreement is valid only to the extent the agreement does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the court under ORS Chapter 130 or other applicable law.

Basic Estate Planning and Administration 2013 7B–4 Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

Matters that may be resolved by a nonjudicial settlement agreement include: 1. The interpretation or construction of the terms of the trust or other writings that affect the trust; 2. The approval of a trustee’s report or accounting; 3. Direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power; 4. The resignation or appointment of a trustee or cotrustee and the determination of a trustee’s compensation; 5. Transfer of a trust’s principal place of administration; 6. Liability of a trustee for an action or failure to act relating to the trust; 7. Determining classes of creditors, beneficiaries, heirs, next of kin, or other persons; 8. Resolving disputes arising out of the administration or distribution of the trust; and 9. Modifying the terms of the trust, including extending or reducing the period during which the trust operates. Any interested person may file a settlement agreement entered into, or a memorandum summarizing the provisions of the agreement, with the circuit court for any county where trust assets are located or where the trustee administers the trust. After collecting the fee, the court clerk shall enter the agreement or memorandum of record in the court’s register. Within five days after the filing of an agreement or memorandum, the person making the filing must serve a notice of the filing and a copy of the agreement or memorandum on each beneficiary of the trust whose address is known at the time of the filing and who is not a party to the agreement. Notice may be waived by beneficiaries entitled to notice. Service may be made personally, or by registered or certified mail, return receipt requested. Proof of service must be filed with the court. An “interested person” is any settlor who is living, all qualified beneficiaries of the trust who have an interest in the subject of the agreement, any acting trustee of the trust, and the Attorney General if the trust is a charitable trust. If no objections are filed within 60 days after the filing of the agreement or memorandum, the agreement is effective and binding on all beneficiaries who received notice or waived notice. If objections are filed within 60 days of filing, the court clerk shall collect the appropriate fee and fix a time and place for a hearing. The person filing the objections must serve a copy of the objections on all beneficiaries who are parties to the agreement and all beneficiaries who received notice and give the time and place of the hearing. This service must be made at least 10 days prior to the court hearing. The court shall approve an agreement entered into after a hearing upon objections being filed unless: 1. The agreement does not reflect the signatures of all persons required, 2. The agreement is not authorized, or 3. Approval of the agreement would not be equitable to beneficiaries who are not interested persons and who are not parties to the agreement. If an agreement is approved by the court after a hearing, it is binding on all beneficiaries and parties to the agreement.

Basic Estate Planning and Administration 2013 7B–5 Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

Basic Estate Planning and Administration 2013 7B–6 Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

APPENDIX—SAMPLE FILING OF NOTICE CAPTION OF CASE ) NOTICE OF FILING OF ) SETTLEMENT AGREEMENT ) OR MEMORANDUM OF ) SETTLEMENT AGREEMENT You are hereby notified that the attached document was filed by the undersigned in the above- entitled court on the ______day of ______, _____. Unless you file objections to the agreement within 60 days after that date, the agreement will be approved and will be binding on all beneficiaries and parties to the agreement. If you file objections within the 60-day period, the court will fix a time and place for a hearing. At least 10 days before the date of that hearing, you must serve a copy of your objections and give notice of the time and place of the hearing to all beneficiaries and parties to the agreement. See ORS 130.045.

Signature

Basic Estate Planning and Administration 2013 7B–7 Chapter 7B—New Changes to the Oregon Trust Code: A Practical Approach

Basic Estate Planning and Administration 2013 7B–8