The Oregon Elective Share Statute: Is Reform an Impossible Dream?

–(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).

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).

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. 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).

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.

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 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).

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.

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).

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.

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 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).

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 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).

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.

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.

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).

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).

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.

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