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THE OREGON ELECTIVE SHARE STATUTE: IS REFORM AN IMPOSSIBLE DREAM?

SUSAN N. GARY

I. WHY IS ELECTIVE SHARE REFORM SO DIFFICULT? Through all of the reform efforts led by the Uniform Law Commission1 and additional changes enacted by some states,2 Oregon has steadfastly held to its idiosyncratic elective share statute.3 Although the Oregon legislature has not yet changed Oregon’s statute, committees of both the Oregon Law Commission and the Oregon State Bar’s Estate Planning and Administration Section have tackled the problem of creating a better elective share for Oregon.4 Thus far, a solution has remained out of reach, but the work continues. As Oregon continues to contemplate elective share reform, it must consider a series of policy questions. An analysis of these questions may help Oregon develop a statute that will work in the state, and as other states grapple with the same issues, Oregon’s discussion may be

  Professor of Law, University of Oregon School of Law. B.A., 1977, Yale; J.D., 1981, Columbia. I would like to thank Alan Newman and Angela M. Vallario for extremely helpful comments on a draft of this article. 1.See UNIF. PROBATE CODE (1990, as amended); UNIF. PROBATE CODE (1969). 2.See, e.g., FLA. STAT. ANN. §§ 732.201–732.702 (2007). The Florida legislature significantly revised the Florida elective share statute in 1999. 3.See OR. REV. STAT. §§ 114.105–114.165 (2005). Only Oregon provides an elective share of one-quarter of the probate estate reduced by nonprobate transfers to the surviving spouse. See id. §§ 114.105, 114.125. Tennessee provides a potentially larger share, 10%–40%, with 40% reached after nine years of marriage, but limits the elective share to probate property and reduces the elective share amount by any nonprobate transfers to the surviving spouse. See TENN. CODE ANN. § 31-4-101(c) (2007). 4.In 1996, the Estate Planning and Administration Section appointed a subcommittee to work on elective share reform. The subcommittee developed a proposal, but determined that the proposal needed further work before submission to the legislature. In 1997 the Legislative Assembly created the Oregon Law Commission (“OLC”) and the OLC created a Work Group on the elective share as one of its first projects. The author chaired the original subcommittee and has been a member of the Work Group since 1997. The Work Group, with different members over time, has worked with the Estate Planning and Administration Section and the Elder Law Section on different proposals. Most recently, the Work Group developed a bill that was introduced as House Bill 2381. The bill remained in the House Judiciary Committee when the 2007 session was adjourned. The bill stalled due to concerns expressed by the Estate Planning and Administration Section that the elective share changes would interfere with estate planning work carried on for their clients and concerns expressed by the Elder Law Section that the changes would interfere with Medicaid planning work done for their clients. The Work Group will continue to meet during the 2007–2009 interim.

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82 WILLAMETTE LAW REVIEW [44:337 of use in those states as well. Elective share statutes developed at a time when family structures created different needs for surviving spouses.5 Since then, changes in the way spouses hold title to property,6 the number of remarriages and short-term marriages,7 and federal programs that protect surviving spouses8 have all changed the stage on which the elective share currently plays. A few commentators have argued that the elective share has become unnecessary.9 Yet if each spouse receives a share of marital property when a marriage dissolves during the spouses’ lifetimes, one can argue that each spouse should receive a share of marital property if the marriage ends when one spouse dies.10 All common law states except Georgia continue to apply elective share statutes.11 An analysis of elective share reform must first address the question of whether the law should provide spouses with protection against disinheritance. If the answer is yes, then complicated questions of how to draft an elective share remain. This article assumes that an elective share statute of some sort makes sense and focuses on the many issues involved in structuring an elective share statute. In order to understand the purposes of elective share statutes, the article begins with a look at the history of spousal property rights at death in common law jurisdictions and the policies behind current elective share statutes. The article reviews current reform ideas and then tackles the difficult issues involved in constructing an elective share statute.

5.See Angela M. Vallario, Spousal Election: Suggested Equitable Reform for the Division of Property at Death, 52 CATH. U. L. REV. 519, 526-28 (2003) (describing the history of marital property rights). 6.See UNIF. PROB. CODE, Pref. Note to Art. II (1990, as amended). 7.See Lawrence W. Waggoner, The Multiple-Marriage Society and Spousal Rights Under the Revised Uniform Probate Code, 76 IOWA L. REV. 223 (1991). 8. See Employee Retirement Security Act, 29 U.S.C. § 1001 (2007). 9.See Ralph C. Brashier, Disinheritance and the Modern Family, 45 CASE W. RES. L. REV. 83, 88 (1994) (arguing that spouses can protect themselves by contract before or during the marriage); Jeffrey N. Pennell, Minimizing the Surviving Spouse’s Elective Share, 32 U. MIAMI INST. ON EST. PLAN. § 903 (1998) (noting that Georgia, a common law property state, has no elective share statute); Sheldon J. Plager, The Spouse’s Nonbarrable Share: A Solution in Search of a Problem, 33 U. CHI. L. REV. 681 (1966); Terry L. Turnipseed, Why Shouldn’t I be Allowed to Leave My Property to Whomever I Choose At My Death? (Or How I Learned to Stop Worrying and Start Loving the French), 44 BRANDEIS L.J. 737, 770-81 (2006) (using Georgia’s experience with no elective share statute to argue that elective share statutes have become unnecessary). 10.See Susan N. Gary, Marital Partnership Theory and the Elective Share: Federal Estate Tax Law Provides a Solution, 49 U. MIAMI L. REV. 567, 574 (1995); Vallario, supra note 5, at 521. 11.See Pennell, supra note 9, at § 203. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 83 II. HISTORY OF THE ELECTIVE SHARE At a time when husbands held title to family property and wives did not,12 the law protected a widow who might otherwise be left without support when her husband died. The law provided a somewhat different sort of support for a surviving husband. Under English common law, dower gave the widow a life-estate in one-third of her husband’s real property.13 Her husband could not extinguish her dower right, either during lifetime or at death.14 On her death, the widow did not control the ultimate disposition of the property; she held only a life estate.15 Protection for a surviving husband came in the form of curtesy. Curtesy provided a husband with a life estate in all of his deceased wife’s property (not just her real property), but applied only if a child or children were born to the marriage.16 Dower worked well when the bulk of assets consisted of real property, but as property interests diversified another system became necessary.17 Common law states in the United States began to shift from dower to elective share statutes.18 The early elective share statutes gave a surviving spouse the right to take a share of the deceased spouse’s probate property.19 The statutes used one-third as the fraction, probably influenced by the one-third interest of dower.20

12.See Vallario, supra note 5, at 527. 13.See 1 AMERICAN LAW OF PROPERTY §§ 5.1–5.49 (1952); 15 RICHARD R. POWELL & MICHAEL ALLAN WOLF, POWELL ON REAL PROPERTY § 85A.04 (2006); George L. Haskins, The Development of Common Law Dower, 62 HARV. L. REV. 42, 43 (1948). Dower applied only if a husband was seised of an estate in land that could be inherited by his children. 14.See id. The right applied to property sold by the husband unless the wife consented to release her dower rights. 15.See id. 16.See 1 AMERICAN LAW OF PROPERTY, supra note 13, at §§ 5.57–5.74; POWELL & WOLF, supra note 13, at § 85A.04. 17.Dower and curtesy provide inadequate protection when intangible property constitutes much of a family’s wealth, and dower and curtesy restrain the free alienability of land. See W.D. MACDONALD, FRAUD ON THE WIDOW’S SHARE 61 (1960); Sheldon F. Kurtz, The Augmented Estate Concept Under the Uniform Probate Code: In Search of an Equitable Elective Share, 62 IOWA L. REV. 981, 989 (1977). 18.Eight U.S. states, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington, follow the civil law system of community property. In addition, Wisconsin adopted the Uniform Marital Property Act (now called the Model Marital Property Act), and that act provides for a form of community property. See Howard S. Erlanger & June M. Weisberger, From Common Law Property to Community Property: Wisconsin’s Marital Property Act Four Years Later, 1990 WIS. L. REV. 769 (1990). Community property jurisdictions give both spouses rights in property earned and acquired during marriage and do not provide an elective share because both spouses already have control over marital property. See W.S. MCCLANAHAN,§ 2.34 COMMUNITY PROPERTY LAW IN THE UNITED STATES (1982). 19.See POWELL & WOLF, supra note 13, at § 85.20. 20.RESTATEMENT THIRD OF PROP.: WILLS AND OTHER DONATIVE TRANSFERS § 9.1 cmt. d (2003). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

84 WILLAMETTE LAW REVIEW [44:337 In contrast with dower, the statutes gave the surviving spouse a fee interest rather than a life estate in the elective share amount. As property ownership continued to change, elective share statutes based on the decedent’s probate property became outmoded. Property owners held increasingly large amounts of property in ways that meant the property did not pass through probate when the property owners died.21 Property held in trust, under a contract with a beneficiary designation, or in joint tenancy or tenancy by the entirety passes outside probate.22 Life insurance, retirement plans, bank accounts, and stock accounts can all be held with the direction to pay the proceeds of the account to a beneficiary at death.23 Revocable trusts became a standard tool in estate planning, used to plan for incapacity as well as to avoid probate.24 With the proliferation of these alternatives to probate, less and less property remained subject to the elective share. A spouse who wanted to avoid the application of an elective share statute could do so simply by transferring the property to other beneficiaries through nonprobate means.25 In some states courts stepped in to solve the problem, using theories such as illusory transfer or fraud on the widow’s share to apply the elective share to property held in revocable trusts.26 A judicial solution, however, meant that each case required a fact- specific analysis, so legislatures in a few states began applying the elective share to an expanded “estate” that included property that passed outside of probate as well as within the probate process.27 New York was an early example of a state whose elective share statute extended its reach beyond the probate estate,28 and the New York statute influenced the Drafting Committee of the first Uniform

21. John H. Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 HARV. L. REV. 1108, 1108–1124 (1984). 22 . See Susan N. Gary, Transfer-on-Death Deeds: The Nonprobate Revolution Continues, 41 REAL PROP., PROB. & TR. J. 529, 534–37 (2006) 23 . See id. at 534–35. 24 . See id. at 537. 25.See, e.g., Sullivan v. Burkin, 460 N.E.2d 571 (Mass. 1984) (holding that the decedent had successfully disinherited his surviving spouse by putting all of his property into a revocable trust, while announcing that in the future a revocable trust would be considered part of the estate subject to the elective share); Dumas v. Estate of Dumas, 627 N.E.2d 978 (Ohio 1994) (reaffirming its decision in Smythe v. Cleveland Trust Co., 179 N.E.2d 60 (Ohio 1961) that a revocable trust was not subject to the elective share, even though cases that predated Smythe had permitted the elective share to reach inter vivos trusts). 26.For an explanation of the tests used by courts to prevent spouses from avoiding the elective share, see MACDONALD, supra note 17, at 67–144. 27.See, e.g., PA. CONST. STAT. ANN. § 2203(a)(2)–(6) cmt. (2005) (indicating that the current elective share statute developed from a 1947 version). 28.N.Y. EST. POWERS & TRUSTS LAW § 5-1.1 (1999). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 85 Probate Code (“1969 UPC”).29 Promulgated in 1969, the Uniform Probate Code included an elective share statute that provided for an elective share of one-third of an “augmented estate,” the term used in the 1969 UPC to indicate that the estate to which the elective share applied included both probate and nonprobate assets.30 The 1969 UPC version of the elective share statute solved one problem with the early elective share statutes by expanding the reach of the elective share beyond the decedent’s probate estate.31 The 1969 UPC worked well, or at least adequately, when most couples followed a paradigm common in the 1950s and 1960s. The husband worked outside the home and managed the household’s assets, keeping title to the assets in his own name. The wife worked as an unpaid homemaker and had neither outside income nor assets titled in her name. The spouses stayed married throughout their joint lives, and if disinheritance came, it was on the death of the husband at the end of a long marriage. By the late 1980s, two problems with the 1969 UPC became evident. The 1969 UPC ignored any property the surviving spouse might own in his or her own name,32 and many people married more than once. In addition, the development of a partnership theory of marriage suggested changes in the way property owned by spouses should be treated.33 The partnership theory posits that both spouses contribute equally to a marriage, whether economically or otherwise, and both spouses deserve to share equally in the economic fruits of the marriage.34 Under the partnership theory, an elective share statute reflects a surviving spouse’s entitlement to a share of marital property, not just a need for support.35 The Uniform Law Commission convened another Drafting Committee to revise the 1969 UPC, including the elective share provisions. The Uniform Law Commission approved the revisions to the Code in 1990. The 1990 Uniform Probate Code (“1990 UPC”) made several changes to the elective share statute, attempting to

29.UNIF. PROBATE CODE § 2-201 cmt. (1983) (current version at § 2-202 (1990, as amended)). 30 . UNIF. PROBATE CODE § 2-202 (1969). 31 . Id. 32 . Id. The only property owned by the surviving spouse included in the augmented estate was property that had been transferred to the spouse by the decedent. See id. 33.See UNIF. PROBATE CODE art II, pt. 2, gen. cmt. (1990, as amended); Ronald R. Volkmer, Spousal Property Rights at Death: Re-Evaluation of the Common Law Premises in Light of the Proposed Uniform Marital Property Act, 17 CREIGHTON L. REV. 95 (1983). 34 . Volkmer, supra note 33, at 106. 35.See UNIF. PROBATE CODE art. II, pt. 2, gen. cmt. (1990, as amended); John H. Langbein & Lawrence W. Waggoner, Redesigning the Spouse’s Forced Share, 22 REAL PROP. PROBATE & TR. J. 303, 306–10 (1987). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

86 WILLAMETTE LAW REVIEW [44:337 address several issues.36 The statute determines the elective share amount by considering assets held by both spouses, which reduces the elective share if the surviving spouse already has assets in his or her own name.37 While the Drafting Committee sought to incorporate the partnership theory of marriage into elective share law, it chose not to try to limit the elective share to marital property, and instead tried to approximate marital property through a mechanical phased-in percentage for the elective share.38 The longer the marriage, the larger the percentage: the share is three percent after one year of marriage and increases over fifteen years up to fifty percent.39 The 1990 UPC increased the maximum share from one-third under the 1969 UPC to fifty percent to reflect the partnership theory and each spouse’s entitlement to one-half of the couple’s marital property.40 The Drafting Committee thought that after fifteen years of marriage, property of the two spouses was likely to be property acquired during the marriage (other than by gift or inheritance) or to be commingled with marital property and so would all be considered marital property by the spouses.41 The Drafting Committee concluded that trying to determine marital property more precisely would be too difficult and that a mechanical solution was best.42 Numerous problems remained with elective share statutes even after the improvements made by the 1990 UPC. A late-in-life marriages can create a situation in which, even after 15 years of marriage, a husband or wife may own a significant amount of separate (nonmarital) property and may prefer to leave property to children from a prior marriage rather than to a surviving spouse. Spouses may engage in estate planning using a variety of trusts to provide for each other and then for children from prior marriages. An elective share that undoes this estate planning may adversely affect a spouse who relied on plans agreed to when both spouses were alive. In the face of debilitating illnesses, some spouses find it necessary to engage in Medicaid planning. After one spouse qualifies for Medicaid, the other spouse may prefer to give his or her separate assets to children or

36.See Lawrence W. Waggoner, Marital Property Rights in Transition, 59 MO. L. REV. 21, 50- 51 (1994) (explaining the key role the partnership theory played in developing the 1990 UPC). Two theories underlie elective share statutes: the support theory and the partnership theory. See Gary, supra note 10, at 579–82. 37.UNIF. PROBATE CODE § 2-203, art. II, pt. 2, gen. cmt (1990, as amended). 38.See Waggoner, supra note 36, at 51-52 (explaining the decision not to implement either an equitable distribution system or a deferred community property system). 39.UNIF. PROBATE CODE § 2-202 (1990, as amended). 40.See id. at art. II, pt. 2, gen. cmt. 41.See Waggoner, supra note 36, at 53. 42.See id. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 87 other family members rather than to the spouse to avoid disqualifying the spouse from further Medicaid coverage.43 Disqualification may occur even if the assets left to the surviving spouse would cover his or her expenses only for a few months.44 States that have adopted the 1990 UPC have not adopted the elective share provisions uniformly.45 Some states prefer to limit the property considered in determining the elective share to the deceased spouse’s property, presumably because doing so makes a determination of the elective share amount easier.46 Some states continue to use a fixed percentage rather than a phase-in of the elective share percentage.47 And a number of states exclude life insurance from application of the elective share.48 The variety of responses to elective share reform reflects the difficulty of finding a solution that is both equitable and reasonably easy to administer.

III. CURRENT REFORM IDEAS FROM OUTSIDE OREGON

A. Revisions to the 1990 UPC’s Elective Share Provisions In 2003, Professor Lawrence Waggoner, the Reporter for the 1990 UPC, published an article reassessing the approximation approach taken by the 1990 UPC.49 Professor Waggoner analyzes the effectiveness of the 1990 UPC by looking at three types of marriages: first marriages, remarriages that follow divorce, and remarriages that follow the death of a spouse.50 Professor Waggoner cites data that

43. See Julia Belian, Medicaid, Elective Shares, and the Ghosts of Tenures Past, 38 Creighton L. REV. 1111, 1128–32 (2005). 44.See, e.g., Estate of Cross, 664 N.E.2d 905 (Ohio 1996). 45.See Susan N. Gary, Share and Share Alike? The UPC’s Elective Share, 12 PROBATE & PROP. 19 (Mar.-Apr. 1998) (reviewing adoptions of the elective share provisions of the 1990 UPC). 46.See, e.g., N.Y. EST. POWERS & TRUSTS LAW § 5-1.1-A (1999). 47.See, e.g., ALASKA STAT. § 13.12.202 (2007) (providing a one-third share); N.D. CENT. CODE § 30.1-05-01 (2007) (providing a one-half share). 48.See, e.g., COLO. REV. STAT. §§ 15-11-201–15-11-207 (West 2007); N.Y. EST. POWERS & TRUSTS LAW § 5-1.1-A (1999); N.D. CENT. CODE §§ 30.1-05-01–30.1-05-07 (2007); W.VA. CODE §§ 42-3-1–42-3-6 (2007). The insurance lobby has opposed the inclusion of life insurance in the augmented estate, and has succeeded in many states. See Letter from Carroll A. Campbell, Jr., President and CEO, American Council of Life Insurance, to Lawrence W. Waggoner, Director of Research, Joint Editorial Board for Uniform Probate Code (Feb. 29, 1996) (stating the ACLI’s opposition to enactment of the 1990 change to the UPC that included life insurance in the augmented estate) (on file with author). 49.Lawrence W. Waggoner, The Uniform Probate Code’s Elective Share: Time for a Reassessment, 37 U. MICH. J.L. REFORM 1 (2003) (recommending “a more direct and hence more understandable form of presentation” and two substantive changes). 50 . See id. at 11–29. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

88 WILLAMETTE LAW REVIEW [44:337 indicates that first marriages and remarriages following divorce are statistically likely to begin when the spouses are relatively young and still in their working years.51 Some of these marriages will end in divorce and therefore will not involve the elective share statute. For marriages in these two categories that end in death, the predicted length of the marriages is long, based on the median ages for spouses entering into these marriages.52 The median length is forty-six years for first marriages and thirty-five years for remarriages following divorce.53 In both cases the UPC will treat all assets of both spouses as marital assets because the marriage lasted more than fifteen years. 54 That treatment should be a reasonable approximation in most cases because the marriages began when the spouses were young and not likely to have much separate property and because the spouses were still working and accumulating assets during the marriage.55 Even property received by gift or inheritance may be considered marital property by the spouses and may be commingled.56 In contrast, a marriage following the death of a prior spouse is likely to begin when the spouses are older. The spouses will have accumulated more separate assets and may not continue to accumulate property because they are at or near retirement age.57 Forty-seven percent of these remarriages are predicted to last at least fifteen years,58 long enough for the statute to treat all the property as marital property even though much of the property will not be marital property. To address this concern, Professor Waggoner proposes extending the phase-in to twenty or twenty-five years.59 A longer phase-in period should not adversely affect spouses in the first two types of marriages because those marriages are projected, at the median, to last longer than twenty-five years, unless they end in divorce.60 The longer phase-in will increase fairness for couples who marry late in life, although even with an expanded schedule, the elective share may overestimate the amount of property that is marital property.61

51.See id. at 11–20. 52 . Id. at 15–18. 53 . Id. at 18. 54 . See id. at 18–19; UNIF. PROBATE CODE § 2-202 (1990, as amended). 55.Waggoner, supra note Error: Reference source not found, at 19–20. 56 . Id. at 21, n.36. 57.Id. at 21–22. 58.Id. at 17, 22. 59.Id. at 22–23. 60 . Id. at 25. 61.See id. at 26. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 89 Two circumstances suggest that the outcome will not be unjust. Spouses in a late-in-life marriage are more likely to have assets that are equally divided before death, limiting the elective share amount.62 If one spouse has significantly more assets than the other, spouses in a late-in-life second marriage are more likely to enter into a prenuptial agreement than spouses marrying at a younger age.63 Professor Waggoner concludes that lengthening the schedule will improve the approximation system for determining the elective share, but he notes that an approximation system will always be approximate.64 The approximation system saves administrative costs that would be incurred in a post-death determination of marital property.65 Professor Waggoner noted that the UPC Drafting Committee considered a deferred community property system, and that although the Committee adopted the approximation system, they did not oppose the deferred community property system.66 The revisions he recommends to the UPC’s elective share should make it easier for states to adopt the UPC format but substitute the deferred community property system for the approximation system.67 He advises a state considering elective share reform to weigh the savings in administrative costs with the potentially greater precision of the deferred community property system.68 The most recent elective share bill considered in Oregon included a fifteen-year phase-in period.69 If Oregon continues to use a phase-in model, providing for a longer phase-in period makes sense. If Oregon can create an elective share estate limited to marital assets, then a phase-in schedule may not be necessary.

B. Community Property One answer to the dilemma of how to provide a statute that limits a surviving spouse’s right to one-half of the couple’s marital property is to adopt the Model Marital Property Act.70 Only

62.See id. 63.Id. at 29 (noting that the adult children of the wealthier spouse may strongly encourage their parent to enter into a premarital agreement waiving or reducing the elective share). 64.Id. at 31–32. 65.Id. at 32. 66.Id. at 30. 67.Id. 68.Id. at 30–31. 69.See H.B. 2381, 72nd Leg. (Or. 2003). 70.The Uniform Law Commission initially promulgated this act as the Uniform Marital Property Act. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

90 WILLAMETTE LAW REVIEW [44:337 Wisconsin has taken this approach.71 In Oregon, converting from common law rules on marital property to community property would seem to be an easy transition. Many of Oregon’s neighbors have community property, and when couples move into Oregon from California, Washington, Idaho, or other community states, they bring their community property with them. Estate planning lawyers help clients maintain the community property status of their property, and a state statute, the Uniform Disposition of Community Property at Death Act,72 provides rules for the disposition of the community property when the first spouse dies. Given the appeal of community property as a way to provide a fair share for a surviving spouse, the Estate Planning and Administration Section of the Oregon State Bar considered whether Oregon should adopt the Model Marital Property Act. The difficulty is that adoption of community property would change the rules for ongoing marriages and marriages ending in dissolution. From a policy standpoint, community property remains a good answer, but as a political matter, adoption of the Model Marital Property Act may not be feasible.73

C. Deferred Community Property Another approach, one considered by the 1990 UPC Drafting Committee,74 applies community property at death but not during life. Professor Alan Newman has written in favor of using a deferred community property system to determine the elective share amount,75 and Ohio has considered adopting revisions to its elective share statute that would limit the elective share to marital property.76 Professor Newman’s proposal advocates limiting the augmented estate to the couple’s marital property and then dividing the marital property equally between the spouses.77 If the surviving spouse had less than half of the marital property when the first spouse died, the survivor would receive an elective share in the amount necessary to

71.See note 18, supra. 72.OR. REV. STAT. §§ 112.705–112.775 (2005). 73.When the Estate Planning and Administration Section suggested that Oregon convert to community property, the Family Law Section adamantly opposed the idea. 74.See Waggoner, supra note 36, at 30. 75.See Alan Newman, Incorporating the Partnership Theory of Marriage into Elective-Share Law: The Approximation System of the Uniform Probate Code and the Deferred-Community- Property Alternative, 49 EMORY L.J. 487 (2000). 76.See James R. Bright & Jeffrey L. Weiler, Ohio Spouse’s Right of Election and Augmented Estate, 13 OHIO PROBATE L.J. 87 (2003). 77.See Newman, supra note 75, at 530. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 91 raise his or her ownership of the marital property to one-half.78 By limiting the augmented estate to marital property, the share used to compute the elective share could be fifty percent and the phase-in based on the length of the marriage would be unnecessary. Professor Newman acknowledges that the drawback of a deferred community property system is the necessity of determining, after the death of one spouse, which property is marital and which is separate.79 He suggests using the law that has already developed in the jurisdiction for the division of property upon divorce.80 A state without a readily available definition of marital property could use the classification system of the Uniform Marital Property Act, of one of the community property jurisdictions, or of the American Law Institute’s Principles of the Law of Family Dissolution.81 Professor Newman argues that although a post-death classification of assets could add complexity to the determination of the elective share amount, the additional administration burden may be insignificant.82 Few spouses make an election, so the number of potential cases is small.83 Of those spouses who make an election, some will have kept their assets separate during marriage making a determination of marital assets easy.84 Issues of classification, commingling, and tracing are already addressed in connection with divorce proceedings, so states have experience with these issues.85 Also, given the prevalence of divorce, married couples are on notice of the advantages of segregating separate property or maintaining records that identify separate property.86 Ohio considered revising its elective share statute based on a deferred community property system,87 but the bill appears to have stalled. After criticism of an earlier bill based on the UPC’s approximation system, the Estate Planning Trust & Probate Law Section Council consulted with the Executive Committee of the Ohio Association of Probate Judges.88 The two groups agreed to go forward

78.See id. 79.Id. at 531. 80.Id. at 531–32. 81.Id. at 532–33. 82.Id. at 538. A deferred community system might even make administration easier in a case in which a party could identify a hard-to-value asset as separate property. No valuation would be necessary. See id. at 540. 83.Id. 84.Id. at 538–39. 85.Id. at 541–42. 86.See id. at 543. 87.See Bright & Weiler, supra note 76. 88.See id. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

92 WILLAMETTE LAW REVIEW [44:337 with a revised bill based on a deferred community property system.89 The bill created an augmented estate by starting with the federal taxable estates of the decedent and surviving spouse and then eliminating separate property and marital debts.90 Although those working on the bill hoped that it would be introduced in 2005, 91 the elective share statute in Ohio remains unchanged. Oregon does not have a statutory definition of marital property. Thus, in order for Oregon to adopt a deferred community property system, the statute would need to include a means for determining marital and separate property. The elective share statute could look to the rules developed in the law of dissolution in Oregon. A determination of marital property after the death of a spouse, based on family law concepts, may be unfair because one spouse is not available to participate in the discussion of what constitutes the couple’s marital property. This hurdle is not insurmountable, but should be considered in deciding how to approach elective share reform in Oregon.

D. Equitable Distribution Another possible system for determining the elective share amount is one based on equitable distribution. Professor Angela Vallario suggests the use of the equitable division rules from divorce law in determining the elective share amount.92 Professor Vallario’s proposal creates an elective share estate by starting with inclusion of probate and nonprobate assets of both spouses in a manner similar to the approach taken by the augmented estate of the 1990 UPC.93 The proposed elective share estate excludes property transferred for full and adequate consideration, property transferred with the consent of the spouse, and property determined to be separate property.94 To exclude property for one of these reasons, the decedent’s estate must prove by a preponderance of the evidence that the assets should be excluded.95 The surviving spouse would have to meet a higher standard to exclude assets: a clear and convincing standard.96 The difference in standards reflects an attempt to balance the playing field

89.See id. 90.See id. 91.See id. 92.See Vallario, supra note 5. 93.See id. at 562–566. 94.See id. at 567. 95.See id. 96.See id. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 93 given that the decedent spouse cannot participate directly.97 Thus, the proposal in effect creates a rebuttable presumption that all assets are marital assets, but also provides a way for either spouse to establish that certain assets should be excluded as separate assets. In addition to limiting the elective share estate to marital assets, Professor Vallario’s proposal gives the court discretion similar to the discretion a court has in a dissolution proceeding, to consider equitable factors and award a supplemental elective share.98 The supplemental elective share would provide an additional amount to a surviving spouse who needed more assets for support. Professor Vallario’s proposal builds flexibility into the elective share statute in the form of judicial discretion. Fixed rules have long been preferred in probate,99 however, so the discretionary element of Professor Vallario’s proposal may be a difficult one for states to adopt. A cost of judicial discretion is uncertainty. If the amount of the elective share depends on circumstances at the first death, estate planning will be difficult and any planning accomplished years before the first death may be undermined. Some other elements of the proposal provide useful ideas and could be incorporated into one of the other systems for determining an augmented estate.100 In Oregon, courts consider equitable factors in making determinations on divorce.101 Even in the divorce context this element of discretion has been contentious.102 In an elective share proceeding, one spouse is deceased and therefore unavailable to protect his or her interests. Because of the difficulties of using judicial discretion in the divorce context, creating discretion in awarding an elective share seems unlikely to appeal to lawyers in Oregon.

IV. POLICY QUESTIONS

A. Should a Property Owner be Able to Disinherit His or Her Surviving Spouse? Although title controls ownership of property in a common law jurisdiction, in a dissolution proceeding, a court will make an

97.See id. at 568–69. 98.See id. at 562, 569–70. 99.UNIF. PROBATE CODE § 2-203, art II, pt. 2, gen. cmt. (1990, as amended). 100.See infra Part IV, G. 101.See OR. REV. STAT. § 107.105(1)(f) (2005); Pierson and Pierson, 294 Or. 117, 653 P.2d 1258 (1982). 102.See, e.g., Taylor and Taylor, 856 P. 2d 325 (1993) (considering whether the trial court should have included one spouse’s trust interests and inheritances in the division of property). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

94 WILLAMETTE LAW REVIEW [44:337 equitable distribution of marital assets and can consider all assets of both spouses in making a decision.103 The result is, very roughly speaking, that on divorce a spouse is entitled to one-half the marital assets.104 The partnership theory of marriage and a spouse’s entitlement to half the spouses’ marital property has become the most difficult issue for an elective share statute to address. Community property states address this problem by treating property earned or acquired during marriage (other than by gift or inheritance) as marital property and permitting other property to continue as separate property of one spouse, not subject to control by the other spouse.105 A presumption that all property acquired during the marriage is community property facilitates a determination of marital property after the death of a spouse, but if one spouse keeps his or her pre-marital or inherited property separate, then that property remains that spouse’s property, to dispose of at death as he or she wishes. In common law states, divorce and dissolution statutes reflect the partnership theory of marriage. In Oregon, a court will apply equitable distribution when dividing a couple’s property.106 Factors involved in the court’s decisionmaking include the source of the property. A court will consider property kept separate by one spouse as not subject to division, although a variety of factors can cause the property to become part of the marital distribution. As under community property, property that the spouses have commingled may be considered marital property and subject to division, but the dissolution process does two things that Oregon’s current elective share does not. The dissolution rules ensure that a spouse cannot keep all of a couple’s marital property simply by titling it in a way that avoids the reach of the court, and the rules provide a means to exclude a spouse’s separate property from division. If spouses stay married, then as a policy matter, the surviving spouse should not be worse off than he or she would have been if the marriage had dissolved. The law should not encourage divorce, and an ineffective elective share statute might do that. Based on both the

103 Vallario, supra note 5, at 532–34 (describing fair and equitable distribution of marital prop- erty on divorce). 104.See BRETT R. TURNER, EQUITABLE DISTRIBUTION OF PROPERTY §§ 2.06–2.08 (2d ed. 1994); Gary, supra note 10, at 573–74; Vallario, supra note 5 at 532–34 (describing fair and equitable distribution of marital property on divorce). 105 . WASH. REV. CODE §§ 26.16.010-26.16.030 (2007). See Vallario, supra note 5, at 524- 25. 106. See OR. REV. STAT. § 107.105(1)(f) (2005); Pierson and Pierson, 294 Or. 117, 653 P.2d 1258 (1982). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 95 support theory and the partnership theory of marriage, a state should not permit one spouse to leave a surviving spouse without assets.

B. Should an Elective Share Statute Provide For a Minimum Amount? One theory underlying elective share statutes is the support theory.107 A person should not be left destitute on the death of his or her spouse.108 The 1990 UPC addresses this concern by providing a “supplemental elective share” of $50,000.109 The 1990 UPC considers assets held by both spouses, so the supplemental elective share applies only if the surviving spouse has less than $50,000 or if the elective share amount, combined with the surviving spouse’s own assets, would be less than $50,000.110 The official comments to the UPC explain that this amount, when combined with other statutory allowances available to the surviving spouse, should provide the survivor with resources necessary for support at a modest level.111 Given the spouses’ duty to support each other during their joint lives, requiring a modest amount of support for the surviving spouse makes sense. Oregon’s current elective share does not do so, and revisions should add this provision to the Oregon statute. Professor Waggoner has recently indicated his view that the $50,000 amount is inadequate.112 He suggests an increase to that amount and also suggests adjusting the amount for inflation.113

107.See Gary, supra note 10, at 579–81. 108.Elias Clark has argued that other statutory provisions adequately protect the surviving spouse. See Elias Clark, The Recapture of Testamentary Substitutes to Preserve Spouse’s Elective Share: An Appraisal of Recent Statutory Reforms, 2 CONN. L. R. 513, 544 (1970). Under ERISA, pension plan benefits must be paid to the surviving spouse unless the spouse consents, I.R.C. § 417(a)(2)(A) (2006), and social security benefits cannot be assigned away from the surviving spouse. Id. A spouse may also obtain statuory allowances under state probate law. See, e.g., UNIF. PROBATE CODE §§ 2-402, 2-403, 2-404 (1990, as amended) (Homestead Allowance, Exempt Property, and Family Allowance). Pension benefits should be part of the elective share calculation, and other benefits are relatively small, so the argument that the elective share is no longer needed is not persuasive. 109.UNIF. PROBATE CODE § 2-201(b) (1990, as amended). 110 . Id. 111.See UNIF. PROBATE CODE § 2-201(b) (1990, as amended), art. II, pt. 2, gen. cmt.; Lawrence W. Waggoner, Spousal Rights in Our Multiple-Marriage Society: The Revised Uniform Probate Code, 26 REAL PROP. PROBATE & TR. J. 683, 742-46 (1992). 112.See Waggoner, supra note 49, at 5. 113.See id. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

96 WILLAMETTE LAW REVIEW [44:337 C. Should the Calculation of the Elective Share Take Into Consideration the Surviving Spouse’s Property? Both spouses may own property when the first spouse dies. Applying the elective share only to the decedent’s property may be unfair. The surviving spouse may have significant assets already, and allowing an elective share without regard to the survivor’s assets means that the survivor will have ultimate control over the survivor’s assets as well as a share of the decedent’s assets. The 1990 UPC applies the elective share to assets of both spouses,114 and doing so seems important from a fairness standpoint. The surviving spouse may be able to hide or undervalue assets more easily than the decedent, but the risk of deception does not warrant excluding the assets of the surviving spouse.115

D. Should the Court Reduce the Elective Share if the Couple is Legally Separated or Living Apart When the First Spouse Dies? Oregon’s elective share statute provides that a court can reduce the elective share amount if the couple separated before one spouse died.116 Oregon’s statute does not require legal separation and only requires that the couple be living apart.117 The statute raises two issues. First, spouses might be living apart for reasons other than marital discord. Spouses might have jobs in different cities and they might live in those two cities, seeing each other on weekends. A spouse might need to be in a nursing home for health reasons, and the other spouse might continue to live in the family home, visiting the ill spouse frequently. Second, spouses might be living apart until a divorce becomes final. These spouses would not have divided their property through a dissolution proceeding, and permitting a decedent spouse to disinherit the survivor might leave the survivor with nothing. In any of these situations, a court, using its discretion, should not read the statute to deny one spouse an elective share. Because the Oregon statute gives the court discretion, the court can adjust the elective share as appropriate. New Jersey tailors its statute to situations in which the spouses

114.UNIF. PROBATE CODE §§ 2-204–2-207 (1990, as amended). 115.Professor Vallario agrees that taking the assets of both spouses into account is “crucial,” despite the administrative inconvenience and the “decedent’s inability to police the surviving spouse’s opportunity to commit fraud.” See Vallario, supra note 5, at 552-53. 116.See OR. REV. STAT. § 114.135 (2005) (giving the court discretion to deny a right to elect or to reduce the amount “[i]f the decedent and the surviving spouse were living apart at the time of the death of the decedent, whether or not there was a judgment for legal separation”). 117.See id. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 97 are living apart due to marital discord. The statute denies a surviving spouse an elective share if the spouses were not cohabiting when the first spouse died and if a cause of action for divorce existed.118 Although this statute limits elective share application to situations in which marital discord exists, the result can be harsh. If a couple separates and begins divorce proceedings but then one spouse dies before the divorce becomes final, the surviving spouse could have neither the distribution on divorce nor an elective share.119 An elective share statute should not automatically reduce the marital share in the event that the spouses have separated. Requiring a judicial determination of the amount of the reduction, if any, is critical. The Oregon statute, which gives the judge discretion to reduce the elective share, functions better than the New Jersey statute in addressing the issue of spouses living apart. However, if the elective share statute limits its reach to marital property, then a discretionary reduction in the elective share amount should not be necessary.

E. Should the Elective Share Vary Depending on Whether Children Survive the Decedent Spouse? And Should the Answer to That Question Depend on Whether the Children are Children of the Surviving Spouse? If the statute limits the elective share amount to marital property, then the surviving spouse is entitled to his or her share of the marital property and the existence of children should not affect the elective share amount. If, however, a state uses some version of an approximation system, then a statute might limit the elective share in order to provide a greater share for children of the decedent. One situation in which spousal disinheritance occurs involves the decedent’s desire to leave property to children from a prior marriage. An elective share statute might reduce the elective share percentage if children from a prior marriage exist. An argument could be made that the percentage should be reduced if the decedent’s property will otherwise go to the decedent’s children, even if the children are also children of the surviving spouse. It may make sense to provide a statutory preference for children over other alternative takers,

118.N.J. STAT. ANN. § 3B:8-1 (2007). 119.See Estate of Hersh, 477 A.2d 1286 (N.J. Super. Ct. App. Div. 1984). See also Christine D. Petruzzell, The Elective Share, An Often Illusory Right, N.J. L. J. (2004) (criticizing New Jersey’s elective share statute). But see Carr v. Burgess, 623 A.2d 1384 (N.J. Super. Ct. Ch. Div. 1991), aff’d 623 A.2d 1384 (N.J. Super. Ct. App. Div. 1993), cert. den. 634 A.2d 524 (N.J. 1993) (providing a distribution for the surviving wife under theories of constructive trust and quasi-contract). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

98 WILLAMETTE LAW REVIEW [44:337 particularly if the statute provides a minimum support amount for the surviving spouse. North Carolina’s statute creates different shares depending on whether the decedent had children and whether the children were children of the surviving spouse.120 If the decedent had no children or one child, the share is one-half.121 If the decedent had two or more children, the share is one-third.122 And if the child or children are not children of the surviving spouse, then the share (either one-half or one-third) is reduced by one-half.123 Ohio takes a similar approach, limiting the elective share to one-half of the estate unless the decedent left two or more children or their descendants, in which case the maximum elective share is one-third of the estate.124 In Massachusetts, the statute provides for a one-half share if the decedent left no descendants and a one-third share if descendants survived the decedent.125 The Massachusetts statute limits the elective share to $25,000 and a life estate in the remaining elective share amount.126 The decedent controls the ultimate disposition of all but $25,000 of the assets, so the decedent can provide for children or others. Providing a different, and smaller, elective share if the decedent left descendants may be appropriate. The need for a restriction will depend on which assets comprise the augmented estate and whether a phase-in method is used.

F. How Should the Statute Address Spousal Waiver? An elective share statute typically provides that a spouse can waive the right to make the election.127 The statute should require the waiver to be in writing and should require adequate disclosure of information by both spouses. The level of disclosure required for the waiver of an elective share right could be the same as that required for a prenuptial or postnuptial agreement, or a lower level of disclosure

120.See N.C. GEN. STAT. § 30-3.1 (2007). 121.See id. § 30-3.1(a)(1)–(2). 122.See id. § 30-3.1(a)(3). 123.See id. § 30-3.1(b). 124.See OHIO REV. CODE ANN. § 2106.01 (West 2007). The Ohio statute defines the elective share amount by reference to the intestacy distribution, which provides for different amounts depending upon whether the decedent left descendants and whether the descendants were also descendants of the surviving spouse. Id. 125.MASS. GEN. LAWS ch. 191, § 15. In Massachusetts the elective share applies to the probate estate and to revocable trusts controlled by the decedent. See Sullivan v. Burkin, 460 N.E.2d 572 (1984). 126.Id. 127.See, e.g., OR. REV. STAT. § 114.115 (2005); UNIF. PROBATE CODE § 2-213 (1990) (amended 1993). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 99 may be adequate. A surviving spouse seeking to prove that his or her waiver was unconscionable must show that the deceased spouse did not provide a fair and reasonable disclosure of his or her property and financial obligations, that the surviving spouse did not voluntarily waive that disclosure, and that the surviving spouse did not or reasonably could not have had adequate knowledge of that information.128 Although an elective share statute may not require separate representation,129 separate representation will strengthen the enforceability of the waiver.

G. What Form Should the Augmented Estate Take? To Which Assets Should the Elective Share Apply? Oregon’s current statute applies the elective share only to the decedent’s probate estate.130 Anyone who wishes to defeat an elective share in Oregon can easily do so. In a recent case in Rhode Island, a deceased husband defeated his wife’s rights under Rhode Island law by transferring real property through a revocable trust rather than under his will.131 For reasons of fairness, some form of augmented estate is necessary.132 An elective share system based on deferred community property or equitable division would reach the desired result of applying the elective share to marital property. Both of these systems create administrative burdens, however, and may not be politically viable in Oregon. An augmented estate system may approximate marital property, if inclusions and exclusions in the estate depend on the

128.See UNIF. PREMARITAL AGREEMENT ACT (1983). 129.The 1990 UPC is silent on this issue. 130.OR. REV. STAT. § 114.105 (2005). Oregon’s elective share statute then reduces the elective share amount if nonprobate property passes to the surviving spouse. Id. at § 114.105(2). 131.See Barrett v. Barrett, 894 A.2d 891 (R.I. 2006). Rhode Island’s elective share statute provides a life estate in real property owned by the decedent. R.I. GEN. LAWS § 33-25-2 (2007). The Rhode Island statute also provides that a conveyance of real estate, recorded prior to the transferor’s death, defeats the interest of the surviving spouse. Id. at § 33-25-2(b). Barrett held that transferring the property into a revocable trust defeated the spouse’s interest, despite an older case that adopted the illusory transfer test for property transferred through a revocable trust. 894 A.2d at 895 (finding that that the General Assembly intended for § 33-25-2(b) to supplant the illusory transfer test, set forth in Pezza v. Pezza). See also Pezza v. Pezza, 690 A.2d 345 (R.I. 1997). For a description of Barrett and its impact on Rhode Island law, see Kenneth Rampino, 12 ROGER WILLIAMS U. L. REV. 420 (2007). For other cases refusing to apply the elective share to assets held in a revocable trust, see Johnson v. La Grange State Bank, 383 N.E. 2d 185 (Ill. 1978), Soltis v. First of America Bank- Muskegon, 513 N.W.2d 148 (Mich. Ct. App. 1994), and Dumas v. Estate of Dumas, 627 N.E.2d 978 (Ohio 1994). 132 . Rampino, supra note 131, at 432–33 (describing how augmented estates make certain nonprobate transfers reachable by the surviving spouse). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

100 WILLAMETTE LAW REVIEW [44:337 likelihood that particular assets are marital property. In addition, if Oregon adopts an elective share based on an augmented estate, a phase-in of the percentage will help to approximate marital property. Because a definition of marital property may remain out of reach, an augmented estate system will likely be the basis of elective share reform in Oregon. This section analyzes options for constructing an augmented estate. Decisions about which assets to include in an augmented estate will require the balancing of benefits and costs. This section identifies the issues a drafter or legislator should consider in making those decisions. The federal government created the “gross estate,” a form of augmented estate to prevent taxpayer avoidance of the federal estate tax.133 When the Supreme Court construed the scope of the first estate tax narrowly,134 Congress added to the Internal Revenue Code provisions that included various types of property in which the decedent had an interest in the gross estate for estate tax purposes.135 The gross estate includes all property over which the decedent had a certain degree of control, and provides a good starting point for an exploration of the augmented estate for elective share purposes.136 Delaware and North Carolina have each incorporated the gross estate concept directly into the state’s elective share statute.137 The federal tax rules are familiar to most estate planning lawyers, but designing an augmented estate specifically for the elective share provides two benefits. First, the federal tax rules may change over time. Oregon statutes that link to federal rules do not automatically change when the federal rules change; the Oregon legislature must act to change the Oregon statute.138 Although a federal change could not adversely affect an Oregon elective share statute without legislative action, if the federal estate tax changed dramatically or was repealed, an Oregon elective share statute that continued to base its augmented estate on a prior version of the federal gross estate could be confusing.139

133 . The federal estate tax applies to all assets in the “gross estate” for federal estate tax purposes. See I.R.C. 2033–2042. 134.See, e.g., Helvering v. Safe Deposit and Trust Co. of Baltimore, 316 U.S. 56 (1942) (refusing to apply the estate tax to interests the decedent owned in trusts); U.S. v. Field, 255 U.S. 257 (1921) (holding that a general power of appointment was not property the decedent “owned” at death). 135.See I.R.C. §§ 2034–2042 (2006). 136.See Gary, supra note 10, at 598–99. 137.See DEL. CODE ANN. tit. 12, § 901(a) (2007); N.C. GEN. STAT. § 30-3.1 (2007). 138.Seale v. McKennon, 336 P.2d 340, 345 (1959). 139.Changes in the federal estate tax rules have affected Oregon’s inheritance tax. After Congress enacted the Tax Reform Act of 1997, its effect on Oregon decedents was unclear. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 101 A second benefit of a separately designed augmented estate is the ability to construct the augmented estate in a way that attempts to limit the estate to marital property. Certain assets included for estate tax purposes may be unlikely to be marital property and thus should be excluded for elective share purposes. The gross estate for estate tax purposes provides a good starting point, but each type of asset should be separately considered for inclusion or exclusion from the augmented estate. From a policy standpoint, the elective share should apply to marital property owned by both spouses.140 This section refers to assets owned or controlled by the decedent, but the augmented estate would include assets of both spouses, with the same rules for inclusion or exclusion applicable to both. The following subsections discuss various types of assets and whether the assets should be included in the elective share determination or excluded from that determination. 1. The Probate Estate The decedent’s probate estate includes all assets held in the decedent’s name.141 All elective share statutes cover the probate estate, and the augmented estate should include the probate estate.142 2. Revocable Trust or Other Revocable Transfer The settlor of a revocable trust controls the assets in the trust to nearly the same degree as the person controls probate assets. Even if the settlor does not act as the trustee, the settlor can revoke the trust at any time and regain outright control of the assets. The augmented estate should include assets held in a revocable trust or subject to any other form of revocable transfer. If the decedent owned the assets and retained control over the assets until death, then the augmented estate should include those assets.143

The Oregon Legislature updated the connection between Oregon laws and federal laws in 2003, indicating that federal law in effect on December 31, 2000 would apply to decedents dying after 1997. H.B. 3072. The effect was to apply the Tax Reform Act of 1997 to Oregon estates. 140.See supra Part IV.C. 141.Any references to property held by a decedent will also apply to property held by a surviving spouse. 142.See, e.g. UNIF. PROBATE CODE § 2-204 (1990, as amended). 143 . See Knell v. Price, 569 A.2d 636 (Md. 1990) (describing the dominion and control test, which is used in Maryland to include property over which the decedent retained dominion and control, in the estate that is subject to the elective share). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

102 WILLAMETTE LAW REVIEW [44:337 3. Property Subject To a Pay-on-Death or Transfer-on-Death Registration A decedent can transfer property outside probate by naming a child, other relative, friend, or anyone else as the beneficiary of the property.144 The owner can revoke the pay-on-death or transfer-on- death registration at any time before death, and the designation does not constitute a transfer until the owner dies.145 This property remains under the control of the owner and should be included in the augmented estate.146 4. Survivorship Property If the spouses own property together, as joint tenants or as tenants by the entirety, the property will pass to the surviving spouse when the first spouse dies.147 This property should be included in the augmented estate. A spouse may also own survivorship property with someone other than the surviving spouse. A bank account or stock account held in joint tenancy will be considered owned for estate tax purposes based on the contribution made by the decedent.148 If the decedent owned the bank account and added his paramour to the title, then the account remains the decedent’s until the joint tenant withdraws property.149 Following the tax approach of including the decedent’s contribution to the account makes sense for the elective share.150 As under tax law, the augmented estate provision could include a presumption that the entire account was owned by the decedent. The surviving tenant would have the burden of proving contribution by someone other than the decedent. If the decedent spouse holds real property with one person other than the spouse as joint tenants, or, in Oregon, as tenants in common with cross-contingent remainders,151 the decedent owns only one-half

144.See, e.g., UNIF. PROBATE CODE §§ 6-201–6-227 (Multi-Person Accounts, including P.O.D. bank accounts); §§ 6-301–6-310 (Uniform TOD Security Registration Act) (1990, as amended). 145 . Id. § 6-306. 146 . See id. §§ 2-204–205. 147 . Id. § 2-206(1). 148 . Id. § 2-206 cmt., illus. 25. See id. § 2-211. 149 . See id. § 2-206. 150.See Vallario, supra note 5, at 563 (including this form of provision in proposed statutory language). 151.Oregon has abolished joint tenancy in real property. OR. REV. STAT. § 93.180 (2005). Spouses hold real property as tenants by the entirety, and persons who are not married can hold the property as tenants in common with cross-contingent remainders in the fee simple estate. Id. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 103 of the property.152 If the decedent owned the entire property originally and added the other name at some time prior to death, the decedent made a gift to the other person at the time the decedent added the other name to the property.153 The amount to include in the augmented estate could either be the decedent’s one-half ownership interest or the full amount of the decedent’s contribution to the property. Because the decedent gave away one-half of the property by adding a name to the title, and because the elective share does not generally apply to gifts completed before death, the 1990 UPC includes only the decedent’s one-half in the augmented estate.154 If the augmented estate includes a look-back provision to prevent a spouse from using deathbed gifts to avoid the elective share, then limiting inclusion of real property to the decedent’s ownership interest seems appropriate. 5. General Power of Appointment Property A spouse may hold a power of appointment in a trust created by someone else. If the spouse holds a general power of appointment, then the spouse could appoint the property to himself or herself, or to his or her estate. Due to this level of control, the estate tax includes property subject to a general power in the gross estate of the decedent.155 For elective share purposes, however, property in a trust created by someone other than the spouse is not likely to be marital property. Because the decedent could have converted the property to marital property by exercising the power and commingling the property with marital property, an argument can be made that the property should be part of the augmented estate. This argument is stronger for property subject to an inter vivos power, exercisable immediately before death, than the argument to include property subject to a testamentary power in the augmented estate.156 Indeed, a settlor may have created a general testamentary power merely to avoid the generation skipping tax, and not with the intent that the power holder exercise the power.157

152.Real property held in joint tenancy can be unilaterally severed. See 7 POWELL & WOLF, supra note 13, § 51.04. Property held in Oregon as tenancy in common with cross-contingent remainders cannot be unilaterally severed. See Brazell v. Meyer, 600 P.2d 460 (Or. Ct. App. 1979). 153.The transfer is a gift for gift tax purposes, see I.R.C. §§ 2501, 2511 (2006), Treas. Reg. § 25.2511-1(h)(5) (2006), and the owner cannot revoke the gift once executed. See 38A C.J.S. Gifts § 62 (2005). 154.UNIF. PROBATE CODE § 2-205(1)(ii) (1990, as amended). 155.I.R.C. § 2041. 156.UPC 1990 includes property subject to a general power of appointment exercisable immediately before death. UNIF. PROBATE CODE § 2-205(1)(i) (1990, as amended). 157.A parent might create a trust that directed the trustee to distribute income to a child for life 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

104 WILLAMETTE LAW REVIEW [44:337 In most cases property in a trust created by someone other than one of the spouses is separate property. Although a spouse may have access to the trust assets, through a general power of appointment, a trust created by someone other than a spouse should be considered separate property, not subject to the elective share. 6. Life Insurance Life insurance can protect family members or a business from the financial loss that occurs when the insured dies. In addition, life insurance has become an investment vehicle, enhanced because the proceeds will not be subject to income tax if the owner holds the policy until the insured dies.158 Life insurance can be a significant asset in an estate, both in its cash surrender value and in the face value paid at death. The investment nature of life insurance suggests that the augmented estate should include this type of asset. In addition to the fact that life insurance may be a significant asset of an estate, if the augmented estate does not include life insurance, a spouse will be able to use life insurance to avoid the elective share. If a spouse decided to use insurance to transfer assets to someone other than the surviving spouse, the spouse might enter into a contract that involved a significant premium. Insurance might become the vehicle of choice for avoiding the elective share. The 1990 UPC includes in the augmented estate the proceeds of life insurance owned by the decedent spouse immediately before death159 and the proceeds of life insurance on the decedent’s life owned by the surviving spouse.160 The augmented estate also includes insurance owned by the surviving spouse on the survivor’s life, valued at its cash value.161 An augmented estate based on marital property should include life insurance on the either spouse’s life.

and then to distribute the remainder to the child’s descendants. The parent might give the child a testamentary general power of appointment so that the property would be included in the child’s estate for estate tax purposes. If the trust property is included in the child’s estate, then no generation skipping tax will apply when the trustee distributes the remaining property to the child’s children. Without the general power, a generation skipping tax would apply on the taxable termination of the trust. 158.I.R.C. § 101(a). 159.UNIF. PROBATE CODE §§ 2-205(1)(iv), 2-206(3) (1990, as amended). Florida includes the cash surrender value of life insurance rather than the face value. A number of states exclude life insurance, probably due to pressure from the insurance lobby. See supra note 48. 160.UNIF. PROBATE CODE § 2-207(a) (1990, as amended). 161.See id. at § 2-207(b). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 105 7. Trusts with Retained Interests Under federal estate tax rules, if a decedent created an irrevocable trust with a retained life estate or retained power of possession or enjoyment of the property, then the value of the trust will be included in the gross estate.162 The rationale for inclusion is that the decedent owned the property before transferring it to the trust and then continued to have the benefit of the property thereafter. One could imagine a spouse transferring significant assets to an irrevocable trust, retaining a life estate, and providing for the trust remainder to go to children or a friend. One concern with including trusts with retained interests in the augmented estate is that some retained interests provide financial benefit to the settlor while other retained interests simply give the settlor the right to decide who, other than the settlor, will benefit from the trust. For estate tax purposes, control may appropriately cause inclusion in the gross estate, but for elective share purposes, perhaps inclusion should be limited to the retention of a life estate or other direct financial benefits.163 Even if the augmented estate includes only trusts in which the decedent spouse retains a life estate, an additional concern involves the inclusion of charitable remainder trusts. In 2005, the Internal Revenue Service issued a revenue procedure suggesting that if a charitable remainder trust could be used to satisfy the elective share, then the charitable deduction might be in jeopardy.164 The IRS issued the revenue procedure to provide a safe harbor to protect a charitable remainder trust from disqualification. However, the safe harbor required a waiver of the use of any of the assets in the charitable remainder trust to fund an elective share, which is something that seems so unlikely at the time most charitable remainder trusts are created that most settlors and their lawyers might well skip the waiver. After estate planners expressed a great deal of concern, the IRS backed off from this position and indicated that the IRS will seek to recalculate a deduction only if assets in a charitable remainder trust are actually used to fund an elective share.165 The trust will not likely be a source of funding for an elective share, because even if a spouse elects a spousal share, assets other than the charitable remainder trust

162.I.R.C. § 2036. 163.The 1993 revised UPC includes transfers in which the decedent retained a right to possession or enjoyment of property or the income from the property or a general power of appointment over the property. UNIF. PROBATE CODE § 2-205(2) (1990, as amended). 164.See Rev. Proc. 2005-24, 2001–C.B. 909. 165. See Notice 2006-15, 2006-8 I.R.B. 501. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

106 WILLAMETTE LAW REVIEW [44:337 will be used first to provide the elective share amount. In general, if the decedent retained an interest over the use or income of property transferred by the decedent, or retained a general power of appointment over the property, then the augmented estate should include that property. The use of charitable remainder trusts for general estate planning purposes calls into question whether the augmented estate should exclude such trusts, even a trust in which one of the spouses held the interest in the income.166 A charitable remainder trust seems an unlikely vehicle for attempts to defeat a spousal election. A settlor typically creates a charitable remainder trust as part of overall estate planning. Although one spouse might keep the other in the dark about the estate planning, many couples engage in estate planning together. The exclusion of charitable remainder trusts from the augmented estate may serve as a reasonable compromise between concerns that each spouse share in marital property and a desire to minimize disruption to an estate plan established by both spouses. 8. Transfers Within Two Years of Death In order to prevent the use of deathbed transfers as an elective share avoidance technique, an elective share statute should include a provision that includes in the augmented estate gifts made to a spouse within a specified period before death, such as two or three years.167 The federal estate tax rules contain a three-year look-back rule, but only for transfers that will increase substantially in value between the date of gift and the date of death.168 The inclusion of all prior gifts in the augmented estate seems both inappropriate and impossible. However, providing a look-back period to include gifts made shortly before death could discourage deathbed tactics. The look-back period could exclude gifts below the annual exclusion amount so that the augmented estate would not include transfers made pursuant to annual tax planning gifts or small gifts to family members and friends. The inclusion provision could also exclude gifts that qualify for the medical or educational exclusions from gift tax, if the exclusion makes sense from a policy standpoint. The concern is to capture substantial gifts made to defraud the surviving spouse.

166.A proposal in Ohio recommended excluding all charitable remainder trusts. See Bright & Weiler, supra note 76. 167.See, e.g., UNIF. PROBATE CODE § 2-205(3) (1990, as amended) (including property transferred within two years of death in the augmented estate). 168.See I.R.C. § 2035 (including in the gross estate transfers within three years of death of life insurance and property subject to retained interests). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 107 9. Rebuttable Presumption An elective share statute should create an augmented estate that attempts to limit its scope to marital property. Although some of the inclusions and exclusions just described should help, some property included in the augmented estate will likely be separate property. For example, a decedent might have kept family timberland in her own name to signal that she considered it separate. If she dies first, the timberland will be probate property and will be included in the augmented estate just described. A rebuttable presumption could provide another mechanism to exclude separate property that a spouse truly kept separate. The elective share statute could provide a rebuttable presumption that all property included in the augmented estate constitutes marital property subject to the elective share. The statute would then provide that either party—the personal representative of the deceased spouse or the surviving spouse—could rebut the presumption by clear and convincing evidence that the property was the separate property of one spouse.169 A high standard of evidence will minimize litigation. The party seeking to rebut the presumption would need to establish that one spouse owned the property before marriage or received the property by gift or inheritance during the marriage and the donor intended to benefit only one spouse. Although determining whether property is marital or separate in all cases will be difficult,170 permitting a court to determine whether particular property is marital or separate, through the use of a presumption, may be feasible.

V. APPLYING THE ELECTIVE SHARE

A. What Fraction or Percentage Should be Used to Calculate the Elective Share? Elective share statutes use a variety of fractions and percentages, ranging from one-third to one-half to a phased-in percentage based on the length of the marriage. Only Oregon’s elective share statute uses one-quarter as the fraction. The appropriate fraction or percentage depends in part on whether the statute excludes non-marital assets.

169.See Gary, supra note 10, at 600-01; Newman, supra note 75, at 546–47. See, also,Vallario, supra note 5, at 568–69 (recommending the use of a rebuttable presumption with a higher standard for the surviving spouse than for the decedent); see supra text accompanying notes 95-97. Some states use a rebuttable presumption in the context of spousal protection in statutes that revoke a premarital will. See, e.g., Estate of Shannon, 224 Cal. App., 3d 1148 (1990). 170.See supra Part III.C, D. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

108 WILLAMETTE LAW REVIEW [44:337 The 1990 UPC uses a phased-in elective share percentage to approximate marital property.171 Providing a phased-in elective share based on the length of the marriage can limit the elective share for a short-term marriage, and this system does so with a mechanical formula that a court can apply relatively easily. The phased-in system provides a reasonable way to limit the elective share in some short- term marriages, but the phased-in percentages cannot deal with significant separate property that should not be subject to an election by the surviving spouse. For example, if a husband and wife marry late in life, and the wife owns a significant amount of timberland that had been in her family for several generations and that she had managed prior to her marriage, that timberland should not be considered marital property subject to division. Without a mechanism to exclude such property, however, the surviving husband will be entitled to a share of it.172

B. Should the Surviving Spouse be Forced to Accept an Interest in a Trust and Not be Permitted to Elect Against the Document Creating the Trust? One spouse may create a testamentary trust for the other spouse, providing the spouse with a life estate and perhaps permitting discretionary distributions of principal.173 The life estate and direction to the trustee to make distributions to the surviving spouse follow the support theory but not the partnership theory. The spouse receives support for life, but if the spouse is entitled to one-half of the marital assets, then the spouse should have control over the assets, both during life and at death. Thus, if the elective share applies only to marital assets, the surviving spouse should be able to take his or her share outright. Beginning in 1975, the UPC permitted the use of a trust to satisfy the elective share,174 but following criticism175 the 1993

171.See supra text accompanying notes 38–42. 172 . See supra, Part IV.9 (describing the use of a rebuttable presumption to avoid this result). 173.Under federal estate tax law, a trust that, among other requirements, provides a life estate for the surviving spouse will qualify for the marital deduction. I.R.C. § 2056A(b)(3). Estate planning lawyers use this trust, termed a Qualified Terminable Interest Property Trust or QTIP Trust, for a variety of reasons. The trust gives the settlor control over what happens to the remainder of the trust after the spouse’s death. For this reason, QTIPs are often used in second marriage situations. Whether a QTIP qualifies for the marital deduction depends on an election made on the decedent’s estate tax return. For that reason, the use of a QTIP provides an opportunity for post-mortem tax planning. Estate planners often use QTIPs to build tax flexibility into an estate plan. 174.UNIF. PROBATE CODE § 2-207(a) (1975). 175.See Ira M. Bloom, The Treatment of Trust and Other Partial Interests of the Surviving 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 109 revisions changed the provision.176 The partnership theory suggests that the surviving spouse should be permitted to elect against a trust and take the elective share outright. Three circumstances, however, support an argument that the statute should allow a spouse to create a trust to satisfy the elective share. A spouse who creates a trust that gives the surviving spouse a life estate often does so to protect assets for children from a prior marriage. A person in a second marriage with children from a prior marriage will often create a trust with a life estate for the surviving spouse and a remainder interest for the children from the prior marriage. The trust may also provide discretionary distributions of principal for the spouse. This trust may be part of an estate plan agreed to when both spouses are alive. Although the spouses may not enter into a contract agreeing not to revoke the estate plan and may not agree formally (and legally) to waive the right to an elective share, the understanding of the spouses nevertheless may be that the trust or trusts will be given effect. Permitting the surviving spouse to disrupt the estate plan may thus be unfair. A second argument in favor of forcing a surviving spouse to accept an interest in a trust focuses on the fact that an augmented estate may not limit its application to marital property. A trust can protect separate assets for the ultimate beneficiaries, typically the children. The third argument relates to planning for a surviving spouse who has qualified to receive government benefits under Medicaid. Section VI discusses Medicaid issues. Florida’s elective share statute177 allows one spouse to create a trust for the surviving spouse and then counts that trust as part of the elective share.178 The spouse cannot elect to take the share outright, as long as the trust provided by the decedent meets the requirements provided in the statute. The Florida statute provides for two types of trusts: an “elective share trust”179 and a “qualifying special needs trust.”180 An elective share trust must provide the surviving spouse with the use of the property or all the income in the trust, must give

Spouse Under the Redesigned Elective-Share System, 55 ALBANY L. REV. 941 (1992); Rena C. Seplowitz, Transfers Prior to Marriage and the Uniform Probate Code’s Redesigned Elective Share—Why the Partnership is Not Yet Complete, 25 IND. L. REV. 1, 9–10 (1991). 176.See Gary, supra note 10, at 587–88 (discussing the problem and describing the change as “a victory for partnership rights”). 177.Florida enacted substantial changes to its elective share statute in 1999, so the Florida statute provides a useful look at recent elective share reform. 178.FLA. STAT. § 732.2075(1)(d)–(e) (2007). 179.Id. § 732.2025(2). 180.Id. § 732.2025(8). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

110 WILLAMETTE LAW REVIEW [44:337 the surviving spouse the right to make the property productive, and must not give the trustee the power to distribute income or principal of the trust to anyone other than the surviving spouse during the spouse’s life.181 A qualifying special needs trust must be established with court approval for an ill or disabled spouse, either before or after the decedent spouse’s death.182 The trust must provide that the trustee can distribute income and principal to or for the benefit of the surviving spouse for life and not to anyone other than the spouse during the spouse’s life.183 Less than half the trustees can be “ineligible family trustees,” defined as the decedent’s grandparents and any descendants of those grandparents who are not also descendants of the surviving spouse.184 The concern reflected in the trustee rule is that stepchildren of the surviving spouse may be more inclined to preserve trust assets for the remainder beneficiaries— themselves—than to make appropriate distributions to the surviving spouse. The Florida statute also provides rules for valuing the shares in the trust, rules that differ from the usual methods for valuing interests in trusts.185 The Florida statute provides that the value of a qualifying special needs trust is the value of the principal of the trust.186 The value of an elective share trust depends on the spouse’s interest in the trust. A trust that meets the basic requirements of an elective share trust will be valued at fifty percent of principal.187 If the trust also gives the spouse a general power of appointment, exercisable by the spouse alone, the value increases to eighty percent of principal.188 If the trust includes the general power of appointment and also a power of invasion, held by the spouse or trustee, to distribute principal to the spouse for health, support, and maintenance, the value will be one hundred percent of trust principal.189

181.Id. § 732.2025(2)(a)–(c). 182.Id. § 732.2025(8). Court approval is not required if “the aggregate value of all property in all qualifying special needs trusts for the spouse is less than $100,000.” Id. § 732.2025(8)(b). 183.See id. 184.See id. 185.For tax purposes, the Internal Revenue Code values a life estate in a trust using actuarial tables. See I.R.C. § 7520 (2006). 186.FLA. STAT. § 732.2095(2)(c) (2007). 187.See id. § 732.2095(2)(b)3. 188.Id. at § 732.2095(2)(b)2. 189.Id. at § 732.2095(2)(b)1. Maine and Alabama use a rebuttable presumption for determining the value of trust interests. In Maine, the statute presumes the spouse’s interests in a trust to be worth 50% of the value of the trust. ME. REV. STAT. ANN. tit. 18-A, § 2-207 (2007). In Alabama, a life estate is presumed to be one-half the value of the trust, and a trust in which the spouse has a life estate and a general power of appointment is valued at two-thirds of the value of the trust. ALA. CODE § 43-8-75 (2007). Both states permit either party to rebut the 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 111 Some other states, including both Maine and Alabama, “charge” a spouse with an amount left to the spouse in trust, even if the spouse renounces the trust interest.190 The spouse must take the interest in trust or forfeit an elective share to the extent of the value of the trust interest. New York, however, repealed a statutory provision that permitted the use of a trust to satisfy the elective share.191 The treatment of a trust created for a surviving spouse raises a difficult policy question. From a theoretical standpoint, if a spouse should be entitled to one-half the marital assets and if the marital assets can be identified under the statute, then the spouse should be able to take the elective share amount outright. From a practical standpoint, the elective share statute may not be limited to marital assets. If that is so, and if many instances of disinheritance occur because a spouse wants to preserve property for his or her children, then allowing the spouse to provide support for the survivor without providing control may be an acceptable outcome. Even if a legislature decides to permit an interest in trust to satisfy the elective share, the valuation of that interest raises further questions. The drafter of the statute must determine what value will be fair, both to the survivor and to the decedent.

VI. WHAT ROLE SHOULD MEDICAID QUALIFICATION PLAY IN ELECTIVE SHARE STATUTES?

A. Medicaid Basics One reason a spouse might disinherit his or her surviving spouse relates to Medicaid qualification. If a person has a debilitating, long- term illness, he or she may have inadequate resources to be able to pay for care in a nursing home.192 The Medicaid system provides

presumption with proof of a higher or lower value. Id.; ME. REV. STAT. ANN. tit. 18-A, § 2-207 (2007). 190.See id. 191.See Donna Litman, The Interrelationship Between the Elective Share and the Marital Deduction, 40 REAL. PROP. PROBATE & TR. J. 539, 557 (2005). 192.The costs of private nursing home care range from an average of $116 per day in Louisiana to a high of $524 per day in Alaska. See AARP Bulletin: Average Daily Cost for Nursing Home Care by State, 2006, http://www.aarp.org/bulletin/longterm/Articles/a2003-10-30- dailycost.html (last visited Oct. 7, 2007). The yearly cost for someone paying $200 per day (and in many states the average cost is higher than $200 per day) is $73,000. See Julia Belian, Medicaid, Elective Shares, and the Ghosts of Tenures Past, 38 CREIGHTON L. REV. 1111, 1113- 18 (2005) (describing rising medical costs, the burden on the Medicaid system, and the growing challenges of who will pay for care). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

112 WILLAMETTE LAW REVIEW [44:337 assistance with the financial costs of long-term care, but only if the person receiving the care does not have adequate assets or income available to pay for the care.193 Through Medicaid, the government194 provides access to healthcare for those too poor to pay for it themselves. To ensure that only the truly needy receive Medicaid benefits, a person can qualify only if the person’s income and available resources are very low.195 Medicaid rules set a maximum amount of assets and income the person may have in order to qualify, and the rules also cover the amount of assets the non-qualified spouse (referred to as the community spouse) can have.196 Spouses are expected to use their assets to care for each other, but the rules provide that the community spouse can keep some assets so that the he or she will not be impoverished.197 Ultimately, however, the state may reach the assets retained by the community spouse for reimbursement of amounts paid for the care of the qualified spouse.198 If one spouse has qualified for Medicaid and the other spouse dies first, the decedent spouse will likely have assets in his or her name. If the decedent leaves those assets to the qualified spouse, the qualified spouse may become disqualified for Medicaid purposes and will receiving benefits.199 Although the ill spouse can reapply for Medicaid benefits after using the inherited assets for care, re- qualification may take time and a gap may occur between the time the ill spouse uses all the inherited assets and the time he or she re- qualifies for Medicaid. In addition, the Medicaid rules on qualification may change, and a person who qualified at one point

193.See U.S.C. § 1396p (2006); see also Belian, supra note 192, at 1118–27 (providing a history of Medicaid, including the policies behind the program and the changes in rules since Medicaid began in the 1960s). 194.Both the federal government and the state governments fund Medicaid benefits. See DEP’T OF HEALTH AND HUMAN SERV., CTR. FOR MEDICARE AND MEDICAID SERV., MEDICAID AT-A- GLANCE 2005: A MEDICAID INFORMATION SOURCE (2005), available at http://www.cms.hhs.gov/MedicaidGenInfo/Downloads/MedicaidAtAGlance2005.pdf. 195.The amounts necessary to qualify vary by state and change from year to year. In Oregon the resource limit is $2,000 and eligibility depends on that number and on monthly income, averaged over 3 months. OR. DEP’T. OF HUMAN SERV., THE OREGON HEALTH PLAN, AN HISTORICAL OVERVIEW, 18 (2006), available at http://www.oregon.gov/DHS/healthplan/ data_pubs/ohpoverview0706.pdf. 196.See Belian, supra note 192, at 1118-19. 197.See Spousal Impoverishment, http://www.cms.hhs.gov/MedicaidEligibility/ 09_SpousalImpoverishment.asp#TopOfPage (last visited Oct. 13, 2007) (explaining that the amount of the share for the community spouse is one-half the couple’s assets, up to a maximum of $101,640 in 2007, although a state can reduce the maximum amount). 198 . See Belian, supra note 192, at 1129. 199.Because the resource limit for the qualified spouse is $2,000 and the community spouse can keep much more than that, any amount transferred to the qualified spouse may put the qualified spouse over the resource limit. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 113 may not qualify at a future time. The community spouse will not want to cause a spouse who has already qualified for Medicaid benefits to lose his or her qualification status. Further, if the government will pay for the survivor’s care, the community spouse may want to give his or her remaining assets to children or other family members.200 For both these reasons, an elder law lawyer may advise the community spouse to transfer assets at death to family members rather than giving assets to the qualified spouse, and the advisor may recommend doing so in a way that avoids the elective share statute. In Oregon, because the elective share does not apply to assets held in a revocable trust,201 transferring assets to family members other than the surviving spouse has been easy to accomplish.

B. Right to Elect as a Countable Resource for Medicaid In order for the elective share to protect a surviving spouse’s rights in marital property, the elective share should reach all marital property controlled by the deceased spouse.202 If reform accomplishes this goal, a spouse in a state like Oregon will no longer avoid the elective share with ease. Reform will protect a surviving spouse, but reform will also create a legal right to an elective share for a spouse who might not choose to make the election. If the surviving spouse has already qualified for Medicaid benefits, he or she (or his or her representative) may prefer not to make the election knowing that the election will cause loss of benefits. In recent years, several courts and at least one state legislature have considered the question of whether the right to an elective share becomes a countable resource for a surviving spouse. Most cases have held that the right to elect, even if the spouse does not make the election, constitutes a resource available to the surviving spouse.203 A New York court took this approach, ordering that the guardian was deemed to have exercised the election, and the amount of the election

200 . See Belian, supra note 192, at 1120 (citing statistics showing that most Americans believe “that one should leave an inheritance to one’s children”). 201.See OR. REV. STAT. § 114.105 (2005) (limiting the reach of the elective share to the probate estate). 202.See supra Part IV.G. 203.Contra In re Estate of Dorothy Street, 616 N.Y.S.2d 455 (N.Y. Sur. Ct. 1994) The Surrogate’s Court of Monroe County denied a request to direct a guardian ad litem to exercise the right to take an elective share. The court noted that under New York statutes and case law, a competent person who chose not to exercise a right of election would be disqualified from receiving Medicaid benefits. Id. at 455. The court found no convincing authority that failure to exercise the election would result in disqualification of an incompetent surviving spouse and refused to order the election. This ruling appears to be an aberration. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

114 WILLAMETTE LAW REVIEW [44:337 was the amount necessary to continue care during the period of Medicaid ineligibility that would result from the election and to establish burial and luxury funds permitted under Medicaid.204 In New Jersey a court affirmed the termination of Medicaid benefits to a woman who did not take her elective share.205 The amount she could have elected to receive counted as a resource and disqualified her. A North Dakota case dealt with the release of an elective share right in connection with a settlement agreement.206 Husband and wife were both residents of a nursing home.207 After the wife’s death, the representative of her estate and her husband executed mutual releases relating to nursing home claims.208 The wife’s estate paid the nursing home claims and the husband released his elective share right and his right to inherit from his wife.209 Although the husband received consideration for his release, the consideration was less than adequate.210 The court considered the difference between the value of the release and the value of the elective share a disqualifying transfer for Medicaid purposes.211 The husband would be required to expend that amount before he would be entitled to benefits.212

C. Medicaid Rules on Trusts The federal and state rules on Medicaid provide guidance on when trusts will be considered countable resources.213 The Medicaid rules draw a basic distinction between self-settled trusts and trusts created by someone other than the person seeking to qualify for Medicaid.214 The rules consider a trust created with the applicant’s own assets as an available resource if the trustee has discretion to make distributions to the applicant.215 Even if a trustee has sole discretion over distributions and the applicant retains no enforceable

204.See In re Rose Mattei, 647 N.Y.S.2d 415 (N.Y. App. Div. 1996). 205.See I.G. v. Dep’t of Human Serv., 900 A.2d 840 (N.J. Super. Ct. App. Div. 2006). 206.See Hinschberger v. Griggs County Soc. Serv., 499 N.W.2d 876 (N.D. 1993). 207 . Id. at 877. 208.See id. at 878. 209 . Id. 210.See id. at 882 (finding that the surviving husband received consideration of $3,855 less than the value of the release and holding that he must expend that amount before being entitled to Medicaid benefits). 211.See id. 212 . Id. 213.42 U.S.C. 1396p(d). See Belian, supra note 192, at 1123-27 (describing the use of trusts in Medicaid planning). 214.See Belian, supra note 192. at 1124–27 (citing Ralph J. Moore & Ron M. Landsman, Planning for Disability, 816 TAX MGMT. (BNA) (2000)). 215.42 U.S.C. 1396p(d)(2)(C) (2007). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 115 rights in the trusts, the fact that the trustee could distribute assets to the applicant is enough.216 The amount the trustee could distribute will be considered a countable resource, whether or not the trustee ever makes a distribution to the applicant.217 The definition of self-settled trusts for Medicaid purposes encompasses trusts created by the applicant or by someone acting in place of or on behalf of the applicant.218 If the assets used to fund the trust either belong to the applicant or are subject to an enforceable claim by the applicant, the trust will be considered established by the applicant.219 Even if the applicant’s spouse, a conservator for the applicant, or a court creates the trust, the rules consider the trust self- settled by the applicant.220 The Medicaid rules consider assets belonging to the community spouse assets of the qualified spouse, so a self-settled trust includes a trust created by the community spouse for the qualified spouse.221 The rules provide an exception for a testamentary trust created by the community spouse for the qualified spouse.222 Under these rules related to trusts, a trust created by or on behalf of the qualified spouse using assets subject to an enforceable claim of the qualified spouse will be considered countable resources.223 An elective share right is a claim enforceable by a surviving spouse, so to the extent assets of the community spouse are subject to the elective share, the assets will be considered assets of the qualified spouse. To the extent the assets of the community spouse are not subject to the elective share, then a testamentary trust created with those assets will not be considered assets of the qualified spouse. In Kansas and Colorado, courts have held that assets subject to the elective share were available assets for Medicaid purposes, even though in each case the decedent spouse transferred the assets into a testamentary trust.224

D. Policy Concerns Two competing policy considerations involving Medicaid

216 . Id. § 1396p(d)(2)(C). 217.Id. 218. Id. § 1396p(d)(2). 219 . Id.§ 1396p(h). 220.Id. § 1396p(d)(2). 221 . Id. § 1396p(h). 222 . Id. § 1396p(d)(2). 223 . Id. 224.See Estate of Faller, 66 P.3d 114 (Colo. App. 2002); Miller v. Dep’t of Soc. and Rehab. Serv., 64 P.3d 395, 400 (Kan. 2003). 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

116 WILLAMETTE LAW REVIEW [44:337 qualification make constructing an effective elective share statute difficult. A disruption in medical care could occur if a person becomes disqualified for Medicaid and then runs out of resources before he or she can re-qualify. The government’s policy of providing care for those who truly need it argues against a rule that disrupts care. At the same time, government resources are limited. As the population ages, the government faces an increasing burden as it provides funds to cover the costs of long-term care for a growing number of persons.225 The government’s policy of providing care to those who need it argues in favor of requiring a person with access to non-government resources to use those assets to pay for care.

E. The Solution: An Elective Share Trust Subject to Reimbursement How could an elective share statute attempt to meet both of these policy goals? If a state has a workable elective share statute, one that allows a surviving spouse to reach an appropriate share of marital assets, then the existence of that statute may result in a surviving spouse’s losing benefits without being able to pay for care during the rest of his or her life. If the law permits a community spouse to create a testamentary trust for the qualified spouse and have that trust not be subject to the elective share and therefore not considered an asset of the qualified spouse, then that trust can distribute assets to family members upon the qualified spouse’s death, leaving the state without an opportunity to seek reimbursement for expenses paid on behalf of the qualified spouse. A compromise between these two all-or-nothing results would be to permit the community spouse or the court to create a testamentary, elective share trust for the qualified spouse, funded with the amount of assets necessary to satisfy the elective share. The trust would provide for discretionary distributions in a way that would not disqualify the spouse from Medicaid, and then on the qualified spouse’s subsequent death, be available to the state for reimbursement. To the extent the state had paid for care, the state could reach trust assets to pay for those costs. If the assets in the trust exceeded the amounts paid for care, any remaining amounts could be distributed under the trust to the named beneficiaries. The elective share trust would be a testamentary trust, and might appear to be subject to the exception for trusts created by the community spouse.226 However, the trust would consist of assets used

225.See Belian, supra note 192, at 1113–17 (providing data on the increasing numbers of people who will likely need long-term care in the near future). 226.See supra, Part VI.C. 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

2007] OREGON ELECTIVE SHARE STATUTE 117 to meet the elective share. In other words, the trust would hold assets to which the surviving spouse had a legal right and therefore can rightly be considered a self-settled trust and not a testamentary trust created by the community spouse. If the community spouse wants to leave additional assets in trust for the surviving spouse, the community spouse could do so in a second trust. That second trust would consist of the community spouse’s own assets, and not assets used to satisfy the elective share. The second trust would not be a countable resource for the surviving spouse and would not be subject to Medicaid reimbursement. The fact that the community spouse creates the trust, even though the assets used are those to which the qualified spouse has a legal claim, may cause some to argue that the trust should not be available for state claims for reimbursement. A way to solve this concern and satisfy the elective share is to require that the trust provide that on the surviving spouse’s death, the assets be paid to the estate of the surviving spouse. This requirement would force a probate at the surviving spouse’s death and for that reason is somewhat unappealing, but the requirement would solve two problems. First, the right of the state to file reimbursement claims will be clear. Second, because the trust assets rightfully belong to the surviving spouse, permitting the spouse to direct their ultimate destination by a will executed while the spouse was competent, comports with the partnership theory of marriage.

VII.CONCLUSION Competing policies make elective share reform difficult. Legislatures considering a change to a state’s elective share will consider many goals: ease of administration of assets after a person dies, protection of each spouse when one spouse controls all the marital assets, fair treatment of spouses whether a marriage ends in divorce or death, protection against the loss of Medicaid benefits, and protection of the state’s need for reimbursement when assets become available to a person who has received government assistance in paying for long-term medical care. No elective share statute can meet all of these competing policies equally, but a carefully constructed elective share statute can come closer than many existing statutes. An elective share statute could base the elective share on marital assets, defined in the statute by reference to certain types of assets held by the spouses and adjusted in some cases by the use of a rebuttable presumption. The use of an elective share trust to defer Medicaid reimbursement until the second death could benefit the qualified 00A43DEE953369348CA7ACCCB461FE7B.DOC 5/8/2018 5/8/2018

118 WILLAMETTE LAW REVIEW [44:337 spouse without cheating the state. Oregon’s elective share statute applies only to those persons who either want it to apply or who do not have access to good legal counsel. An optional elective share statute has no place in the law. Reform could substantially improve the law applicable to marital assets and result in more fair treatment to spouses and to the state. It is hoped that this article will serve as a useful resource for law reform in Oregon and in other states considering changes to their elective share statutes.

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