Do NOT Sit on Your Estate Plan (especially if it’s in the couch) – Learning From Aretha Franklin

After five years and a family battle over two handwritten wills left by the singing legend Aretha Franklin, a jury ruled that the later executed will – found in the cushions of Ms. Franklin’s couch – was her validly executed will.

While we all Respect (1967) Aretha Franklin, you need to Jump to It (1982), Rock Steady (1972), and Think (1968) Who’s Zoomin’ Who (1985) to prepare an estate plan that doesn’t eat up five years of time and legal fees. The estate planners at SYK are saying, “Call Me” (1970) and “Break It To Me Gently” (1977) to put your affairs in order. In short, Do Right Woman, Do Right Man (1967) and you will soon be on the Freeway of Love (1985).

Death of the Death Tax?

On January 10, 2017, Rep. Kristi Noem (R-S.D.) introduced H.R. 631, the “Death Tax Repeal Act of 2017.” While this bill resembles a similar bill that failed to become law in 2015, with the 2016 elections, the political landscape in Washington has changed considerably. In brief, H.R. 631 provides that:

  • The estate tax will be repealed for descendants dying on or after the date of enactment.
  • The generation-skipping transfer (GST) tax is repealed for GST transfers occurring on or after the date of enactment.
  • The gift tax is retained with its current lifetime exemption of $5.49 million, but its tax rate is reduced to 35% (down from 40%). The gift tax exemption amount will continue to be adjusted annually for inflation.
  • The special “anti-freezing” tax rules, also known as Chapter 14, are retained, presumably to maintain the overall effectiveness of the current gift tax system.
  • The estate tax will continue to be imposed on principal distributions from pre-existing qualified domestic trusts (also known as “QDOTs”) with respect to non-citizen decedents dying before the date of enactment, but only for the 10-year period following the date of enactment.

Notably absent from this bill is any reference to a change in the current system in which the tax basis of an appreciated asset received from a decedent’s estate is “stepped-up” to the fair market value of such asset on the decedent’s date of death. This system effectively eliminates the capital gains on the pre-death appreciation of the value of such inherited assets. In earlier reports, many speculated that this rule would be changed either to a carryover basis system (where inherited assets would retain the same tax basis of the decedent), or even the “Canadian system” (whereby capital gains would be immediately recognized on the appreciated assets of a decedent, with such a tax payable shortly after death).

H.R. 631 is unlikely to pass simply as a stand-alone piece of legislation. Rather, as Congress begins to assemble a larger tax reform bill later in 2017, many tax experts feel that it’s likely that such legislation will include provisions that will repeal the current estate tax rules. Whether the tax basis rules will be changed, and whether a tax reform bill ultimately passes, will ultimately depend upon the political and fiscal realities that arise as the legislative process moves forward.

If the New England Patriots can win the Super Bowl from 25 points down, then anything can happen in 2017!

Digital Will? Not Recommended. Ever.

An Australian court has held that a will created on an iPhone was valid and could be probated. In re Yu, 2013 WL 6175174.  Shortly before Kartur Yu took his own life, he created an estate document on his iPhone. The question before the court was whether the will on the iPhone was valid and enforceable.

The Australian judge applied a three part test to determine whether the will was valid:

(1) it had to be a document
(2) it has to purport to state the testamentary intent of the decedent
(3) the decedent had to have intended the document to form a will.

Using the definition of document from the controlling legislation, the court held that even though the iPhone was an electronic document, that it was indeed still a document. Secondly, the court recognized that the document was created when the decedent was contemplating his death and it dealt with all of the decedent’s property so it satisfied the testamentary intent requirement. Lastly, the court held that the decedent intended the document to form his will because the will was created with a clear intention of it being a legal and operative will to dispose of the decedent’s assets upon his death.

While this may have worked Down Under, Oregon law requires, among other things, that to be enforceable a will has to be in writing, signed by the person who created the will, and signed by two witnesses. ORS 112.235.  So while electronic devices serve to make our lives easier in many ways, do not confuse convenience with a legally enforceable document.  Talk to your estate planner.

Court orders Thomas Kinkade’s former girlfriend to pay $11,000 a month in rent to Kinkade’s estate

The probate process continues to unfold in the administration of the estate of American painter Thomas Kinkade. This week, lawyers from both sides argued in court about the amount of rent that Amy Pinto-Walsh (Mr. Kinkade’s girlfriend at the time of his death on April 6, 2012) must pay to Mr. Kinkade’s estate. The judge set the amount at $11,000 per month, without utilities, dated retroactively to July 1, 2012. The property is under 24 hour surveillance. The judge added the security costs to the rental estimate to arrive at the $11,000 figure.

I wrote earlier blog posts about the issues surrounding Mr. Kinkade’s Last Will(s) and the other issues that have come up in the administration of his estate. These issues will be decided in future hearings.

Most estates will never own mansions that require 24-hour security details; however most estates will own interests in real property of some sort. These property interests can lead to all sorts of disputes, including fights like the one that is playing out in the administration of Mr. Kinkade’s estate.

One reason that real estate can be a cause of confusion is that it can be owned in a number of different ways – individually, jointly (with or without survivorship rights), in trust, or by an entity like an LLC. The picture has been further complicated in Oregon by the adoption of the transfer-on-death deed (“TOD Deed”) in early 2012. The TOD Deed allows a property owner to record testamentary transfer instructions on the deed itself. At the owner’s death, the property transfers subject to the instructions on the deed, not as directed under the owner’s Last Will or trust. With all of the different ways real property can transfer, confusion is common.

Revocable living trusts and Last Wills usually include provisions to deal with the distribution of real estate that an individual owns at death, and some of these documents allow for tenants to continue then-existing rental agreements. If a person dies without a Last Will, the property will likely pass to the decedent’s heirs at his or her death. Estates occasionally have to act as landlords and sometimes even evict tenants after a property owner has died. The best way to avoid problems with the administration of real estate is to plan properly by discussing all of your property interests (and their ownership) with your financial and legal advisors.

There are many lessons to be learned from the administration of Mr. Kinkade’s estate. Like many celebrities, Mr. Kinkade had complicated family relationships and a lot of money. Mr. Kinkade did not leave clear instructions for the handling of his affairs, and now the dirty laundry is being aired in public. History is littered with examples of celebrities who planned properly, those who planned poorly, and those who did not plan at all. Michael Walker and I will be discussing the lessons that can be learned by analyzing some of these examples at an upcoming seminar in our office. We will review the estates of Jacqueline Kennedy Onassis, Michael Jackson, Marilyn Monroe, "MCA" and others

If you would like to join us for a discussion about "Famous and Infamous Estates" from 7:30-9:00 am, on October 11, please rsvp by calling our office at (503) 226-2966 or by email at Light refreshments will be provided

The Administration of the Estate of Darth Vader

A long time ago, in a galaxy far, far away, Darth Vader (“Vader”) died at the end of the movie ‘Return of the Jedi’. Movie-goers around the world flocked to the cinema to see the story of Vader’s redemption and to learn about the twisted Skywalker family tree. I was 9 when ‘Jedi’ was released, and it was awesome.

When I see the Star Wars movies now, I know I am getting old because I start asking questions like, “Did someone have to administer Vader’s estate?”, “How much did Vader get paid”, and “what sort of property would a guy like that have in his estate?” In this blog post, I’ll take a look at what administering Vader’s estate may have looked like. In my next post I will analyze some of the property interests he may have owned at his death and see if there are some lessons to be learned from Vader’s estate. First, a few assumptions:

1. If Vader lived in the United States in 2012, he would probably choose to live in Vader, WA for obvious reasons. Let’s instead assume that Vader was based out of the Empire’s Portland, OR office and maintained a sweet penthouse condo in Portland’s Pearl District as his home.

2. Let’s also assume that Vader died in 2012 and that he had no estate planning documents. If there was important property that was going to pass via Vader’s Last Will or that was stored in a safe deposit box, Vader probably would have mentioned it to Luke as Vader was dying in Episode 6. He did not.

3. Luke’s Aunt Beru and Uncle Owen were killed by stormtroopers on Tatooine during the early part of the first Star Wars movie (Episode 4). For our analysis, let’s assume that Beru and Owen had no living parents, siblings, or children when they died. Let’s also assume that Owen and Beru never legally adopted Luke (in order to stay off of the Empire’s radar).

4. In Episode 1, we learn that Anakin Skywalker (the little kid who would become Darth Vader) had no father. His mother claims that his birth was the result of some sort of immaculate conception. According to Google, Anakin may have been conceived by Darth Sidious’ master using the Dark Side of the Force. We do not have a statute for immaculate conception via Sith Lords in Oregon, so let’s assume that Vader’s father (whomever it is) died before Vader did.

5. We will treat Vader as a member of the armed forces, rather than a high-ranking government employee, independent contractor, or owner of a partnership interest. We will further assume that the families of all of Vader’s victims have no valid claims for the wrongful death, murder, torture, etc of their loved ones.

6. Finally, let’s assume that the commentators on Fox News are correct when they allege that the current federal government is analogous to the Empire in Star Wars. For our example, that means the same tax code, same forms and the same procedures (and the same relaxed gun control policies).

Note: For our not-so-geeky readers, there are 6 Star Wars movies: Episodes 4-6 were released from 1977 – 1985 and Episodes 1-3 were released from 1999 – 2005.

Here is how the estate administration would probably shake out here in Oregon:

At the time of Vader’s death in ‘Return of the Jedi (Episode 6), he had two living children (Princess Leia and Luke Skywalker). Vader’s wife (Padme Admidala) predeceased Vader, as she died at the end of Episode 3 in one of the more foolish deaths in cinematic history when she “lost the will to live”. Vader’s mother died during Episode 2 and we are assuming Vader’s father predeceased him. Vader’s step-brother Owen was killed early in Episode 4. No reference was ever made to Vader having any other siblings. In summary, Vader’s parents, step-brother, and spouse predeceased him, he had no other siblings, he left two surviving children, and he had no grandchildren.

ORS § 112 includes provisions for the distribution of assets of Oregon residents who die intestate (without a will). Vader’s estate would be administered under Oregon’s intestacy statutes in our example. Because Vader did not have a surviving spouse, the administrators of Vader’s estate would look to ORS § 112.045 to determine the distributions passing to people other than a surviving spouse. Under ORS §112.045(1), property would pass, “To the issue of the decedent. If the issue are all of the same degree of kinship to the decedent, they shall take equally, but if of unequal degree, then those of more remote degrees take by representation.”

In our example, since Luke Skywalker and Princess Leia were Vader’s children, they are of the same degree of kinship. Vader had no other children (alive or dead), so Luke and Leia would each inherit 50% of Vader’s assets. Vader did not name a Personal Representative to handle his affiars (since he left no will). The court would appoint a Personal Representative in this case. While most of our clients are not Jedi Masters or Sith Lords, many of them do die without valid Last Wills in place. This is the sort of analysis we have to go through when that happens.

One remaining issue to be discussed in our analysis of Vader’s estate distribution is as follows: Luke was arguably responsible for Vader’s death. If a court found that Vader died as a result of Luke striking Vader during their final lightsaber battle in Episode 6, then Leia would likely inherit 100% of Vader’s estate. ORS 112.465 provides that, “property that would have passed by reason of the death of a decedent to a person who was a slayer or an abuser of the decedent, whether by intestate succession, by will, by transfer on death deed or by trust, passes and vests as if the slayer or abuser had predeceased the decedent.” My collegue Steve Kantor was quick to point out that Luke could likely argue self defense. I countered by arguing that Luke started the fight. Steve countered by calling me a nerd. There is also the possibility that it was an assisted suicide ("Luke, help me take this mask off…"). These (and other) arguments about the slayer statute are beyond the scope of this article.

The distribution of Vader’s assets is fairly straightforward, since he left two surviving children and no one else. The composition of Vader’s assets is more complex and will be the subject of a future post.

Need a LIFT? Oregon Online Search for Missing Life Insurance

The Insurance Division of the Oregon Department of Consumer and Business Services launched Life Insurance Finder Tool ("LIFT").  LIFT facilitates internet searches for individual life insurance policies or annuity contracts of a deceased family member.

The website provides a printable form when once completed, notarized, and returned with a death certificate to the address in Salem, triggers an electronic search and online connections for certain policies and annuities.

Hopefully this provides a speedy and easy way to put the picture together if an estate plan is missing pieces of the puzzle. 

Recent Legislation: Oregon Health Authority & Probate

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

Oregon House Bill 2009 (pdf)

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

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

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

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

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

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

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

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

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

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

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