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Estate Planning, Trust and Probate Law

II.      Estate Planning, Trust and Probate Law

Senate Bill 157    Guardianship; adult incompetent child

A product of the OSBA Estate Planning, Trust and Probate Law Section

Effective May 15, 2008  

 

Prior Ohio Law did not permit a parent to designate a guardian for the parent’s adult child who has been developmentally disabled since birth or who has had a catastrophic injury or illness as an adult resulting in a determination of incompetence by a probate court.  Section 2111.121 of the Revised Code allows a parent to designate a guardian for a minor child in the parent’s will or other writing. 

 

Senate Bill 157: 

 

-                   permits a parent to designate a guardian in the parent’s will, power of attorney, or other writing as described in the statute for the parent’s adult incompetent  child, if the adult child does not have a spouse, or adult children, or has not designated a guardian for him or herself prior to becoming incompetent;

 

-                   allows for the designation of a non-resident of the state of Ohio as guardian; and

 

-                   leaves discretion in the appointment of the designee with the probate court. 

 

With a significant number of developmentally disabled children surviving well into adulthood when they will be determined to be incompetent according to Section 2111.01 (D) of the Revised Code, the need for statutory authority for parents to designate a guardian for an adult incompetent child is great. 

 

The designee will receive preference when the probate court is making its determination as to who should be appointed as guardian of the incompetent, but the court retains discretion in determining the suitability of the nominee. 

 

Adapted from testimony presented by Samuel A. Peppers, III of the OSBA Estate Planning, Trust and Probate Law Section. 

 

House Bill 160     Ohio disclaimer law

A product of the OSBA Estate Planning, Trust and Probate Law Section

Effective June 20, 2008

 

House Bill 160 clarifies and streamlines Ohio’s disclaimer law.  A “disclaimer” is a person’s refusal to accept the economic benefit of a bequest, joint account, life insurance policy, annuity, or other economic arrangement which passes to the disclaimant.  The act has no effect on Ohio tax revenues. 

 

-                   Substantive change - timing of disclaimers

 

Prior Ohio law required a disclaimer to be made within nine months of the death of the decedent who made the bequest.  This requirement stems from federal tax law permitting disclaimed property not to be taxed as a gift by the disclaimant if made within nine months of the death which triggered the transfer.  Repealing the nine month time limit will allow Ohioans to disclaim after the existing nine month period. 

 

Under House Bill 160, a person would be able to disclaim any time prior to the acceptance of benefits. 

 

Under federal gift tax law, a disclaimer made more than nine months after the death of the decedent who created the interest is treated as a taxable gift.  A disclaimer within nine months is not a taxable gift.  The federal credit for tax-free gifts is now $1,000,000.  Under the bill, disclaimers more than nine months after the disclaimed interest is created will be possible in many cases without adverse tax results since relatively few inherited interests are over the $1 million amount.  Thus, the proposal disconnects Ohio disclaimer law and federal gift tax law so as to give Ohioans a much more flexible system for disclaiming inheritances. 

 

A disclaimer of a property interest not capable of valuation, such as a discretionary right to principal, or a testamentary limited power of appointment, will be disclaimable without being a taxable transfer even though more than nine months has passed.  

 

-                   Clarification of existing law 

 

Disclaimers by fiduciaries.  There has been some confusion with the IRS over whether the executor of the estate of a deceased beneficiary could disclaim that beneficiary’s interest.  The act clarifies the law allowing a such a disclaimer, while retaining the probate court’s control over such disclaimers is preserved. 

 

Disposition of disclaimed interest.  Prior law allows only for the disclaimant to be treated as predeceasing.  When the will or trust of the deceased person provides a different disposition, the practicing bar has always believed the will or trust controls.  The act clarifies that result. 

 

Different interests created by one instrument.  Prior law was not clear where one instrument creates two trusts and a beneficiary wants to disclaim rights in one but not the other.  The act expressly permits such a disclaimer. 

 

House Bill 160 also clarifies the limited liability company (LLC) act by making it clear that nonprofit LLCs can be formed. The clarification to the LLC statute was made after the Secretary of State indicated that the LLC law was unclear as to whether an LLC could be formed as a nonprofit entity and includes some related changes to the tax law. 

 

Adapted from testimony presented by J. Donald Cairns of the OSBA Estate Planning, Trust and Probate Law Section. 

 

 

House Bill 499     Ohio Trust Code Update

A product of the Estate Planning, Trust and Probate Law Section

Effective September 12, 2008

 

The Ohio Trust Code, which was effective on January 1, 2007, is based on the Uniform Trust Code, and was drafted primarily by a joint committee of members of the Ohio State Bar Association and the Ohio Bankers League. 

 

After the Ohio Trust Code’s (OTC) enactment, the joint committee received numerous proposals for amending the OTC from lawyers and bankers across the state. House Bill 499 is the result of a thorough review of the proposals by the joint committee, the persons who made the proposals, and others. Each of the amendments included in House Bill 499 has the overwhelming support of the lawyers, bankers, and others who participated in the process.

 

Most of the amendments in House Bill 499 are clarifying and technical in nature, although some are substantive. The bill’s clarifying amendments will eliminate uncertainties and make the administration of trusts in Ohio more certain and efficient. Some of the other amendments will increase the flexibility trusts offer with respect to, for example, the ability of the trustee to combine or divide trusts, the ability of the settlor and beneficiaries to modify or terminate a trust, and the ability of those interested in a trust to resolve issues by private settlement agreement rather than by a judicial proceeding. Several of the amendments will facilitate the use of revocable trusts, which are very popular in Ohio as will substitutes that avoid probate. 

 

In summary, through its various improvements to the OTC, House Bill 499 will benefit all who deal with trusts in Ohio: those who create them, trustees, beneficiaries, lawyers, and judges.

 

Adapted from testimony by Professor Alan Newman for the Estate Planning, Trust and Probate Law Section; a more complete outline is attached as Appendix B. 

 

 

Senate Bill 302    Will attestments

A product of the Estate Planning, Trust and Probate Law Section

Effective September 11, 2008

 

Former R.C. 2107.03 generally provided that a will must be signed by the testator at the end in the presence of two witnesses. The term “presence” has been construed under Ohio law to mean in the direct line of sight so that the testator and witnesses see each other sign.  The strict direct line of sight requirement has been liberalized by other states.  Thirteen states have adopted the “conscious presence” approach set forth in Uniform Probate Code Section 2-502 promulgated by the National Conference of Commissioners on Uniform State Laws. 

 

Senate Bill 302 modifies the requirement that a will be signed in the direct line of sight of the witnesses and testator by permitting the will to be signed in the “conscious presence” of the testator. The term “conscious presence” means within the range of any of the testator’s senses. 

 

When a testator is infirm, difficulties arise with having the will witnessed in a manner that strictly complies with the direct line of sight requirement.  First, the testator may not be able to move his or her head sufficiently to observe the witnesses signing the will.  Second, if the testator is afflicted with a contagious infection, not only is it difficult to obtain witnesses, the witnesses risk becoming infected by coming into relatively clost contact with the testator. 

Over the past several years, concern has been expressed about major medical issues, such as a very contagious avian flu pandemic or terrorist-induced smallpox infections.  Businesses and health care institutions have been planning for a pandemic situation.  Senate Bill 302 R.C. 2107.03 provides witnesses to wills a procedure that can result in greater protection against infection to the witnesses.  For example, the testator may be isolated due to a contagious, airborne infection.  Rather than require the witnesses to be close enough to the testator to see the signature of the testator, or the testator see the witness sign the will, the witnesses could be at the doorway of the testator’s room and within the testator’s sense of hearing when the witnesses sign the will.

Adapted from testimony presented by Jeffry Weiler of the OSBA Estate Planning, Trust and Probate Law Section. 

 

 

House Bill  522    Uniform Prudent Management of Institutions Funds

A product of the Estate Planning, Trust and Probate Law Section

Passed the House on May 20, 2008; pending in the Senate Judiciary-Civil Justice Committee

 

In 2006, the National Conference of Commissioners on Uniform State Laws (“NCCUSL”) finalized its draft of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), intended to be the “modern” updated version of the 1970’s Uniform Management of Institutional Funds Act (“UMIFA”).  To date, UPMIFA already has been adopted in 13 states and the District of Columbia.

 

It is proposed that Ohio’s current version of UMIFA (Ohio Revised Code §§ 1715.51-1715.59) be replaced by the more modern UPMIFA provisions contained in the Bill (new Ohio Revised Code §§ 1715.51-1715.60).  The proposed Ohio version of UPMIFA generally tracks the NCCUSL provisions. 

 

UMIFA and UPMIFA are designed to provide clear statutory rules that govern the management and investment of endowment funds under the control of charitable institutions.  UMIFA (if adopted, UPMIFA) complements Ohio’s Institutional Trust Funds Act (“ITFA”)—the ITFA provides statutory rules governing wholly-charitable trust funds that are managed by trustees other than the charitable institution for which the trust funds are held.

 

Ohio adopted its current version of UMIFA in 1975, and UMIFA generally governs the management and administration of endowment funds by charitable institutions.  Since 1975, there have been numerous developments in the law governing prudent investment of funds by fiduciaries, generally to apply “modern portfolio” or “total return” investing principles and to clarify rules regarding prudent delegation with respect to investment matters.  Within the past decade, Ohio already has adopted its version of several uniform acts that apply the principles of modern portfolio theory to both (1) the management of investments by fiduciaries, and (2) the determination of appropriate amounts of “income” distributions to be made out of trust funds to trust beneficiaries. 

 

In addition to updating statutory definitions and administrative provisions, the proposed Ohio version of UPMIFA would change and improve Ohio’s current version of UMIFA in the following three important ways: 

 

-                  Modern Portfolio Investing Principles.  Uniform Prudent Investor Act (“UPIA”) factors and principles of modern portfolio investing (already applicable to private trusts) would be applied in the proposed new Ohio UPMIFA, rather than the general “ordinary business care and prudence under the facts and circumstances” standard now contained in UMIFA.  This would harmonize the fiduciary investment standards and duties generally applicable to private trust funds since 1999 (under UPIA) with the investment duties and standards applicable to the investment of endowment funds (under UPMIFA). 

 

-                  Solving the “Underwater” Endowment Fund Problem by Applying a Percentage-of-Fund-Value Distribution Standard to Replace UMIFA’s “Net Appreciation over Historic Dollar Value” Standard.  Ohio’s version of UPMIFA would include a new “safe-harbor” 5%-of-fund-value annual spending rule for charity-managed endowment funds, similar to the 5% safe harbor already contained in Ohio’s ITFA (the ITFA would continue to apply to charitable trust funds managed by third-party trustees).  This safe-harbor spending rule would eliminate the problem of so-called “underwater” endowment funds:  Under Ohio’s old/current version of UMIFA, distributions may be made out of “net appreciation” (both realized and unrealized) in the fair value of the assets of the endowment fund over the “historic dollar value” of the fund.  UMIFA’s concept of utilizing “net appreciation” has created problems when there was a market dip shortly after a significant contribution to a new endowment fund—in that case, the endowment fund often was “underwater” relative to its “historic dollar value” (basically, the dollar value of all contributions to the fund, measured as of the date of contribution), so there might be no “net appreciation” to distribute for several years.  The proposed Ohio UPMIFA, by replacing UMIFA’s “historic dollar value” standard with its “5%-of-value” safe harbor, would allow endowment funds to budget expenditures more effectively, since an “underwater” fund still would be permitted (within the safe harbor) to distribute 5% of its value each year (generally, with the “value” computed as a rolling average of the endowment fund values over the preceding three years, or if less, over the life of the fund), even if that value may have declined somewhat from the “historic dollar value” of donor contributions.  

 

-                   Easing Administrative Burdens for Modification or Release of Restrictions.  UPMIFA would include a new provision to permit charitable institutions (under special, limited circumstances) to modify or release a donor-imposed restriction on endowment funds with a value of less than $250,000, without resort to judicial procedures (that would be uneconomical for such relatively small endowment funds).  Ohio’s current UMIFA has no provisions allowing for nonjudicial modifications except with the donor’s consent (impossible to obtain if the donor is deceased). 

 

Adapted from testimony presented by Kevin Robertson of the OSBA Estate Planning, Trust and Probate Law Section. 

 

 

House Bill 255     Probate law; guardianship; privilege

Pending in the House Judiciary Committee

 

House Bill 255 was initiated by the Ohio Association of Probate Judges, and is supported by the Ohio Judicial Conference. 

 

House Bill 255 would: 

 

-                   authorize a probate judge to appoint a public agency to serve as guardian of an estate or of a person and to appoint a nonprofit corporation to serve as guardian of a person;

 

-                   create exceptions to the physician-patient testimonial privilege in cases involving guardianships and conservatorships, protective services for elderly and incapacitated adults, hospitalization of mentally ill individuals, and treatment of mentally retarded or developmentally disabled individuals;

 

-                   authorize the executor or administrator of a decedent's estate to accept the county auditor's valuation of real property in the estate when filing an inventory with the probate court; and

 

-                   eliminate the authority of a probate court to act as a school board when the board fails to perform its duties and requires that the probate court promptly fill a vacancy on the board if the board fails to do so within 30 days after the vacancy occurs. 

 

Several interested parties have raised concerns with the privilege provisions, including due process, HIPPA, and even concerns about the way the exemption to the privilege works.

 

House Bill 3         Estate taxes

Pending in the House Ways and Means Committee

 

House Bill 3 would: 

 

-       eliminate the estate tax as of December 31, 2007;

 

-       permit municipalities and townships to retain the tax through the levy of a local estate tax; and

 

-       if the estate tax is approved by the voters, the exemptions would be increased as follows: 

 

                   Current - $338,333

          2008 - $400,000

          2009 - $500,000

          2010 - $600,000

 

 

House Bill 4         Estate taxes

Pending in the House Ways and Means Committee

 

House Bill 4 would:

 

-    increase the amount of the estate tax local government receives from 80% to 100%;

 

-       the State receives nothing;

 

-    permit local government the right to repeal the estate tax by a vote of city council or the board of trustees (township);

 

-    permit the citizens of a political subdivision to repeal the estate tax through a ballot issue; and

 

-    increase the exemption (threshold) to $362,000 and then every year based upon the Consumer Price Index. 

 

The OSBA recommends tracking the federal exemption, that is $2 million in 2008 and $3.5 million for deaths in 2009 and thereafter. 

 

House Bill 96     Probate fees waived for military who die in combat

Reported by the House Judiciary Committee; awaiting a House floor vote  

 

House Bill 96 would exempt from certain fees the estate of a decedent who died while in active service as a member of the United States armed forces if the death occurred while the decedent was serving in a combat zone or as a result of wounds, disease, or injury incurred while serving in a combat zone.

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