Chapter 84 Oregon Laws 2003

AN ACT

HB 2269

Relating to trusts; creating new provisions; amending ORS 128.009 and section 18, chapter 593, Oregon Laws 2001; and declaring an emergency.

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

SECTION 1. Definitions. For the purposes of sections 1 to 11 of this 2003 Act:

(1) “Grantor” means the individual who created a trust described in subsection (3) of this section.

(2) “Specific distribution” means a distribution of specific property to a specific beneficiary that is required under the terms of a trust instrument.

(3) “Trust” means a trust as defined in ORS 128.005, or a portion of a trust as defined in ORS 128.005, that comes into existence during the grantor’s lifetime and is revocable by the grantor at any time after the trust was created and before the death of the grantor.

SECTION 2. Effect of marriage. Unless otherwise provided by the terms of the trust instrument, a trust is not revoked by the marriage of the grantor after the trust instrument is executed.

SECTION 3. Revocation by divorce or annulment. (1) Unless otherwise provided by the terms of the trust instrument, a grantor’s divorce or the annulment of the grantor’s marriage, after the trust instrument is executed:

(a) Revokes all provisions of the trust in favor of the former spouse of the grantor;

(b) Revokes all powers of appointment, general or nongeneral, in the trust exercisable by the former spouse; and

(c) Revokes any provision in the trust naming the former spouse as trustee.

(2) Unless otherwise provided by the terms of the trust instrument, a trust shall be construed as though the former spouse predeceased the grantor if, after the trust instrument is executed, the grantor divorces the spouse or the marriage of the grantor to the spouse is annulled.

SECTION 4. Contract of sale of property not a revocation. Unless otherwise provided by the terms of the trust instrument, a contract of sale made by a trustee to convey property that is the subject of a specific distribution is not a revocation of the specific distribution. If all or part of the property that is the subject of the contract of sale has not been delivered at the time set in the trust instrument for the specific distribution, the property passes by the specific distribution but is subject to the terms of the contract of sale.

SECTION 5. Encumbrance or disposition of property after trust instrument executed. Unless otherwise provided by the terms of the trust instrument:

(1) A disposition of a portion of property that is subject to a specific distribution does not affect the operation of the trust upon the remaining portion of the property; and

(2) If property subject to a specific distribution is encumbered, the property passes under the specific distribution but is subject to the encumbrance.

SECTION 6. When trust assets pass to issue of beneficiary; anti-lapse; class gifts. Unless otherwise provided by the terms of the trust instrument, when property is to be distributed under the trust to any beneficiary who is related by blood or adoption to the grantor, and the beneficiary dies leaving lineal descendants either before the grantor dies or before the time set in the trust instrument for distribution, the descendants take by right of representation the property the beneficiary would have taken if the beneficiary had not died. Unless otherwise provided by the terms of the trust instrument, this section applies to a beneficiary who is entitled to receive property under a class gift if the beneficiary dies after the trust instrument is executed.

SECTION 7. Children born or adopted after trust instrument executed. (1) As used in this section, “pretermitted child” means a child of a grantor who is born or adopted after the execution of the trust instrument, who is not provided for in the trust or mentioned in the trust instrument and who survives the grantor.

(2) If a grantor has one or more children living when the grantor executes a trust instrument and no provision is made in the trust for any of those children, a pretermitted child is not entitled to any share of the trust estate.

(3) If a grantor has one or more children living when the grantor executes a trust instrument and provision is made in the trust for any of those children, a pretermitted child is entitled to share in the trust estate as follows:

(a) The pretermitted child may share only in the portion of the trust estate intended to benefit living children.

(b) The share of each pretermitted child is equal to the total value of the portion of the trust estate intended to benefit the living children divided by the number of pretermitted children plus the number of living children for whom provision, other than nominal provision, is made in the trust.

(c) To the extent possible, the interest of each pretermitted child in the trust estate shall be of the same character, whether equitable or legal, as the interest the grantor gave to the living children under the trust.

(4) If a grantor has no child living when the grantor executes a trust instrument, a pretermitted child is entitled to a share of the trust estate as though the grantor had died intestate and had not executed the trust instrument.

(5) A pretermitted child may recover the share of the trust estate to which the child is entitled as follows:

(a) If the pretermitted child is entitled to a share of the trust estate under subsection (3) of this section, the share must be recovered from the other children.

(b) If the pretermitted child is entitled to a share of the trust estate under subsection (4) of this section, the share must be recovered from the beneficiaries on a pro-rata basis, out of the portions of the trust estate passing to those persons under the trust.

(c) In reducing the shares of the beneficiaries under this subsection, the character of the dispositive plan adopted by the grantor in the trust must be preserved to the extent possible.

SECTION 8. Failure of specific distribution. (1) Subject to this section, a specific distribution does not fail by reason of the destruction, damage, sale, condemnation or change in form of the property that is the subject of the specific distribution unless:

(a) The trust instrument provides that the specific distribution fails under the particular circumstances; or

(b) The grantor, during the lifetime of the grantor, or the trustee gives property to the beneficiary of the specific distribution with the intent of satisfying the specific distribution.

(2) If part of the property that is the subject of a specific distribution is destroyed, damaged, sold or condemned, the remaining interest in the property passes pursuant to the specific distribution. The part of the property that is destroyed, damaged, sold or condemned is subject to subsections (3) to (6) of this section if the property would have been adeemed under the common law.

(3) If property that is the subject of a specific distribution is insured and the property is destroyed or damaged, the beneficiary of the specific distribution is entitled to receive the following amounts, less any amount expended or incurred by the grantor or trust estate in restoration or repair of the property:

(a) Any insurance proceeds for the destroyed or damaged property unpaid at the time set in the trust instrument for the specific distribution; and

(b) An amount equal to all insurance payments paid to the grantor, and such proceeds or awards paid to the trustee for the destroyed or damaged property, during the six-month period immediately preceding the time set in the trust instrument for the specific distribution.

(4) If property that is the subject of a specific distribution is sold by the grantor or the trustee, the beneficiary of the specific distribution is entitled to receive:

(a) Any balance of the purchase price unpaid at the time set in the trust instrument for the specific distribution, including any security interest in the property and interest accruing before the time set in the trust instrument for the specific distribution; and

(b) An amount equal to all payments paid to the grantor or the trustee for the property during the six-month period immediately preceding the time set in the trust instrument for the specific distribution. Acceptance of a promissory note of the purchaser or a third party is not considered payment under this paragraph, but payment on the note is payment on the purchase price.

(5) If property that is the subject of a specific distribution is taken by condemnation before the time set in the trust instrument for the specific distribution, the beneficiary of the specific distribution is entitled to receive:

(a) Any amount of the condemnation award unpaid at the time set in the trust instrument for the specific distribution; and

(b) An amount equal to the sums paid under the condemnation award to the grantor or the trustee during the six-month period immediately preceding the time set in the trust instrument for the specific distribution.

(6) If securities as defined in ORS 59.015 are the subject of a specific distribution, and after the execution of the trust other securities of the same or another entity are distributed to the trustee or trust estate by reason of a partial liquidation, stock dividend, stock split, merger, consolidation, reorganization, recapitalization, redemption, exchange or any other similar transaction, the specific distribution includes the additional or substituted securities.

(7) The amount that a beneficiary of a specific distribution receives under this section must be reduced by any expenses of the sale or of the collection of the proceeds of insurance, sale or condemnation award and by any amount by which income is increased by reasons of items provided for in this section. Expenses subject to this subsection include attorney fees.

SECTION 9. Effect of failure of specific distribution. If a specific distribution, other than a specific distribution that governs the residue of the trust estate, fails for any reason, the property that is the subject of the specific distribution becomes part of the residue and must be distributed as provided by the terms of the trust instrument for the residue.

SECTION 10. When gift made by grantor is an advancement. Property that the grantor gives during the grantor’s lifetime to a beneficiary of the trust is an advancement against the beneficiary’s share of the trust only if either the grantor makes a written statement that the property constitutes an advancement or the beneficiary makes a written statement acknowledging that the property constitutes an advancement. For purposes of applying the property against the beneficiary’s share of the trust, the property must be valued as of the time the beneficiary takes possession or enjoyment of the property, or as of the time of death of the grantor, whichever occurs first.

SECTION 11. Effect of advancement on distribution. (1) If the value of an advancement made to a beneficiary under section 10 of this 2003 Act exceeds the beneficiary’s share in the trust estate, the beneficiary shall be excluded from any further share of the trust estate, but the beneficiary is not required to refund any part of the advancement. If the value of the beneficiary’s share in the trust estate is greater than the value of all property received as advancements, the beneficiary is entitled to receive from the trust estate the balance of the share owing to the beneficiary after deducting all amounts received as advancements.

(2) For the purpose of determining the shares of the beneficiaries of either a residuary gift or a class gift under a trust, the value of all advancements made by the grantor to beneficiaries of such gift shall be added to the value of the total property distributed pursuant to the gift, the sum then divided among all beneficiaries of the gift, and the value of the advancement then deducted from the share of the beneficiary to whom the advancement was made.

SECTION 12. Marital deduction gifts. (1) As used in this section:

(a) “Marital deduction” means the federal estate tax deduction allowed for transfers under section 2056 of the Internal Revenue Code, as in effect on the effective date of this 2003 Act, or the federal gift tax deduction allowed for transfers under section 2523 of the Internal Revenue Code, as in effect on the effective date of this 2003 Act.

(b) “Marital deduction gift” means a transfer of property that the grantor intended to qualify for the marital deduction.

(c) “Trust” means a trust as defined ORS 128.005.

(2) If a trust contains a marital deduction gift:

(a) The provisions of the trust, including any power, duty or discretionary authority given to a fiduciary, must be construed as necessary to comply with the marital deduction provisions of the Internal Revenue Code.

(b) The fiduciary may not take any action or have any power that impairs the tax deduction for the marital deduction gift.

(c) The marital deduction gift may be satisfied only with property that qualifies for the tax deduction.

(3) If a trust executed before September 12, 1981, indicates the grantor intended that a gift provide the maximum allowable marital deduction, the trust gives the recipient an amount equal to the maximum amount of the marital deduction that would have been allowed as of the date of the gift under federal law as it existed before September 12, 1981, with adjustments for:

(a) The provisions of section 2056(c)(1)(B) and (C) of the Internal Revenue Code in effect immediately before September 12, 1981.

(b) Reduction of the amount passing under the gift by the final federal estate tax values of any other property that passes under the trust, or by other means, that qualifies for the marital deduction. This paragraph does not apply to qualified terminable interest property under section 2056(b)(7) of the Internal Revenue Code, as in effect on the effective date of this 2003 Act.

(4) If a marital deduction gift is made in trust:

(a) The grantor’s spouse is the only beneficiary of income or principal of the marital deduction property as long as the spouse lives. Nothing in this paragraph prevents exercise by the grantor’s spouse of a power of appointment included in a trust that qualifies as a general power of appointment marital deduction trust.

(b) Subject to paragraph (d) of this subsection, the grantor’s spouse is entitled to all of the income of the marital deduction property at least once a year, as long as the spouse is alive.

(c) The grantor’s spouse has the right to require that the trustee of the trust make unproductive marital deduction property productive or convert it into productive property within a reasonable time.

(d) Notwithstanding any provision of ORS 129.005 to 129.125, upon the death of the grantor’s spouse all remaining accrued or undistributed income from qualified terminable interest property under sections 2056(b)(7) or 2523(f) of the Internal Revenue Code, as in effect on the effective date of this 2003 Act, passes to the estate of the grantor’s spouse, unless the trust provides a different disposition that qualifies for the marital deduction.

(5)(a) Except as provided in paragraph (b) of this subsection, if a trust that makes a marital deduction gift includes a requirement that the grantor’s spouse survive the grantor by a period of more than six months, or contains provisions that could result in a loss of the spouse’s interest in the trust if the spouse fails to survive the grantor by at least six months, the spouse need only survive the grantor by six months to receive the marital deduction gift.

(b) If a trust that makes a marital deduction gift includes a requirement that the grantor’s spouse survive a common disaster that results in the death of the grantor, the spouse need only survive until the final audit of the federal estate tax return for the grantor’s estate, if any, to receive the marital deduction gift.

(6) A trustee is not liable for a good faith decision whether to make any election referred to in sections 2056(b)(7) or 2523(f) of the Internal Revenue Code, as in effect on the effective date of this 2003 Act.

(7) Subsections (4) and (6) of this section do not apply to a trust that qualifies for the marital deduction under section 20.2056(e)-2(b) of the Code of Federal Regulations, as in effect on the effective date of this 2003 Act.

SECTION 13. ORS 128.009 is amended to read:

128.009. (1) From time of creation of the trust until final distribution of the assets of the trust, subject to ORS 128.194 to 128.218, a trustee has the power to perform, without court authorization, every act which a prudent person would perform for the purposes of the trust including but not limited to the powers specified in subsection (3) of this section.

(2) In the exercise of powers including the powers granted by ORS 128.003 to 128.051, 128.065 and 128.194 to 128.218, a trustee has a duty to act with due regard to the trustee’s obligation as a fiduciary.

(3) A trustee has the power, subject to subsections (1) and (2) of this section:

(a) To collect, hold, and retain trust assets received from a trustor until, in the judgment of the trustee, disposition of the assets should be made;

(b) To receive additions to the assets of the trust;

(c) To continue or participate in the operation of any business or other enterprise, and to effect incorporation, dissolution, or other change in the form of the organization of the business or enterprise;

(d) To acquire an undivided interest in a trust asset in which the trustee, in any trust capacity, holds an undivided interest;

(e) To invest and reinvest trust assets in accordance with the provisions of the trust or as provided by law;

(f) To deposit trust funds in a bank, including a bank operated by the trustee when adequately secured;

(g) To acquire or dispose of an asset, for cash or on credit, at public or private sale; and to manage, develop, improve, exchange, partition, change the character of, or abandon a trust asset or any interest therein; and to encumber, mortgage, or pledge a trust asset for a term within or extending beyond the term of the trust, in connection with the exercise of any power vested in the trustee;

(h) To make ordinary or extraordinary repairs or alterations in buildings or other structures, to demolish any improvements, to raze existing or erect new party walls or buildings;

(i) To subdivide, develop, or dedicate land to public use; or to make or obtain the vacation of plats and adjust boundaries; or to adjust differences in valuation on exchange or partition by giving or receiving consideration; or to dedicate easements to public use without consideration;

(j) To enter for any purpose into a lease as lessor or lessee with or without option to purchase or renew for a term within or extending beyond the term of the trust;

(k) To enter into a lease or arrangement for exploration and removal of minerals or other natural resources or enter into a pooling or unitization agreement;

(L) To grant an option involving disposition of a trust asset, or to take an option for the acquisition of any asset;

(m) To vote a security, in person or by general or limited proxy;

(n) To pay calls, assessments, and any other sums chargeable or accruing against or on account of securities;

(o) To sell or exercise stock subscription or conversion rights; to consent, directly or through a committee or other agent, to the reorganization, consolidation, merger, dissolution, or liquidation of a corporation or other business enterprise;

(p) To hold a security in the name of a nominee or in other form without disclosure of the trust, so that title to the security may pass by delivery, but the trustee is liable for any act of the nominee in connection with the stock so held;

(q) To insure the assets of the trust against damage or loss, and the trustee against liability with respect to third persons;

(r) To borrow money to be repaid from trust assets or otherwise; to advance money for the protection of the trust, and for all expenses, losses, and liability sustained in the administration of the trust or because of the holding or ownership of any trust assets, for which advances with any interest the trustee has a lien on the trust assets as against the beneficiary;

(s) To pay or contest any claim; to settle a claim by or against the trust by compromise, arbitration, or otherwise; and to release, in whole or in part, any claim belonging to the trust to the extent that the claim is uncollectible;

(t) To pay taxes, assessments, compensation of the trustee, and other expenses incurred in the collection, care, administration, and protection of the trust;

(u) To allocate items of income or expense to either trust income or principal, as provided by law, including creation of reserves out of income for depreciation, obsolescence, or amortization, or for depletion in mineral or timber properties;

(v) To pay any sum distributable to a beneficiary under legal disability, without liability to the trustee, by paying the sum to the beneficiary or by paying the sum for the use of the beneficiary to any person having custody of the beneficiary under legal disability or to any person who, or corporation which, shall be furnishing maintenance, support or education to the beneficiary who is under legal disability;

(w) To effect distribution of property and money in divided or undivided interests and to adjust resulting differences in valuation;

(x) To employ persons, including attorneys, auditors, investment advisors, or agents to advise or assist the trustee in the performance of administrative duties; to act without independent investigation upon their recommendations;

(y) To apply for and qualify all or any part of the property in the trust estate for special governmental programs, tax or otherwise, which may benefit the trust estate or any of the beneficiaries thereof;

(z) To prosecute or defend actions, claims, or proceedings for the protection of trust assets and of the trustee in the performance of duties;

(aa) To execute and deliver all instruments which will accomplish or facilitate the exercise of the powers vested in the trustee; and

(bb) To resign as trustee, if:

(A) The trustee obtains the approval of a court of competent jurisdiction for the resignation; or

(B) The resignation of the trustee is expressly authorized by the trust instrument, the trust instrument provides for the appointment of a successor trustee and the successor trustee agrees to serve.

(4) In making distributions of property under the trust to more than one beneficiary, a trustee need not divide individual items of property according to the relative share of each beneficiary, but may satisfy the interest of each beneficiary by choosing and distributing undivided items of property so long as a total value of the property distributed to each beneficiary is sufficient to satisfy the beneficiary’s interest.

[(4)] (5) Subject to subsections (1) and (2) of this section, if at any time the trustee has determined that, in relation to the costs of administration thereof, the continuance of the trust pursuant to its existing terms, will defeat or substantially impair the accomplishment of the purposes of the trust, the trustee may, in its sole discretion, terminate the trust and distribute the trust property, including principal and undistributed income, to the beneficiaries in a manner which conforms as nearly as possible to the intention of the trustor. The trustee may enter into such an agreement or make such other provisions that it deems necessary or appropriate to protect the interests of the beneficiaries and to carry out the intent and purpose of the trust. The existence of spendthrift or similar protective provisions in the trust [shall] does not make this section inapplicable. A trustee may not terminate a trust under this section if the trustee is a beneficiary of the trust or has a duty of support for the beneficiary of the trust. Any termination of a trust under this section requires notice of the termination to current income beneficiaries and ascertainable remainder beneficiaries. If a charity is a current or remainder beneficiary, notice of the termination must be given to the Attorney General.

SECTION 14. Section 18, chapter 593, Oregon Laws 2001, is amended to read:

Sec. 18. [Sections 1 and 17 of this 2001 Act] ORS 115.335 and 128.256 apply only to claims against trust estates that [arise] are based on debts or liabilities of grantors who die on or after [the effective date of this 2001 Act] January 1, 2002.

SECTION 15. The section captions used in this 2003 Act are provided only for the convenience of the reader and do not become part of the statutory law of this state or express any legislative intent in the enactment of this 2003 Act.

SECTION 16. This 2003 Act being necessary for the immediate preservation of the public peace, health and safety, an emergency is declared to exist, and this 2003 Act takes effect on its passage.

Approved by the Governor May 24, 2003

Filed in the office of Secretary of State May 27, 2003

Effective date May 24, 2003

__________