“Nothing is certain except death and taxes.” We might as well plan for both, right? Planning for the future does not have to be a touchy subject. In fact, there are nothing but benefits to estate planning and protecting the assets you have worked so hard for.
Recent studies have shown that less than half of Americans have wills. Shockingly, only about a third of adults with children under age 18 have a will or living trust. Do not be a statistic. Protect your assets and provide for your surviving family members by planning your estate now.
All types of families should have a Will and undergo estate planning; whether young or old, rich or poor. Do you want your estate to be settled in the manner you envision, or do you want to let the state decide?
Estate planning is the process of planning, managing and arranging for the handling of one’s estate at death. Estate planning typically attempts to eliminate uncertainties over the administration of an estate, insures the wishes of the decedent are implemented, and maximizes the value of the estate by reducing taxes and other expenses. With the assistance of our attorneys, some property can be legally removed from the probate process through efficient estate planning by passing the property to beneficiaries before a person dies or by arranging for it to transfer directly upon death.
Estate planning can involve the use of a Last Will and Testament, trusts, beneficiary designations, gifting, powers of attorneys, health care directives and different types of property ownership such as joint tenancy with rights of survivorship, tenancy in common or tenancy by the entirety.
The term "estate" consists of all the property a person owns or controls, whether in his or her sole name, held in a partnership, in a joint ownership arrangement, or through a trust, and all other monies that would be generated on the person's death, such as through life insurance, pension plans, IRAs, Keoghs and 401(k) accounts.
Contrary to popular belief, estate planning involves much more than preparing a Last Will and Testament (and it is not only for the rich!); anybody who wants to control where and to whom their property and monies pass, needs a Will. It is estimated that almost 60% of Americans die without any sort of estate planning.
A Last Will and Testament is a legal document by which a person, the testator (male) or testatrix (female), names one or more persons to manage his or her estate and provides for the transfer of property at death. A Will may also include trusts that may benefit minor or adult children, third parties, or eliminate or reduce estate taxes. The primary purpose of a Will is to transfer the assets of the decedent to named beneficiaries per the decedent’s wishes. Additionally, parents with minor children can designate a guardian for their minor children in the event that the parents die prior to a child’s 18th birthday. Here are some basic requirements for a Will to be valid in Washington:
In Oregon two (2) witnesses are required for a valid Will.
Oregon law requires that a Will be notarized. Any person over the age of 18 in Oregon who is of sound mind can sign a Will. Additional requirements may vary, depending on the jurisdiction, but generally include the following requirements:
The testator or testatrix must identify himself or herself as the maker of the will, and that the document he or she is signing is his or her Last Will and Testament; this is commonly called "publication" of the Will and is typically satisfied by the words "Last Will and Testament" on the face of the document.It is helpful if the testator or testatrix declares that he or she revokes all previous Wills and codicils. Otherwise, a subsequent Will may only revoke earlier Wills and codicils only to the extent to which they are inconsistent. However, if a subsequent Will is completely inconsistent with an earlier one, the earlier Will is considered completely revoked by implication.
The testator or testatrix must demonstrate that he or she has the capacity to dispose of his or her property, and does so freely and willingly. The testator must sign and date the Will, usually in the presence of at least two disinterested witnesses (persons who are not beneficiaries). There may be extra witnesses (called "supernumerary" witnesses) if there is a question as to an interested-party conflict. In a growing number of states, an interested party is only an improper witness as to the clauses that benefit him or her.
The testator's signature must be placed at the end of the Will. If this is not observed, any text following the signature will be ignored, or the entire Will may be invalidated if what comes after the signature is so material that ignoring it would defeat the testator's intentions.
As stated above, one important aspect of a Will is to name the executor or the person that will be in charge of wrapping up the affairs of the estate. In Oregon, we typically refer to executors as Personal Representatives. Wrapping up the affairs includes gathering the assets and paying final expenses.
The other important aspect of any proper Will is to specify how property will be disbursed to the beneficiaries. If there is no Will, the property will be disbursed according to state law. In Oregon there is an intestate (one who dies without a will) succession statute that dictates who is entitled to receive the assets of the estate.
The short answer is…everybody needs a Will! We often hear people say that since they do not have many assets, they do not need a Will. Others say that their kids know how the assets are to be divided and therefore, they do not need a Will.
Whether you have just a few assets or a very complicated estate with a large amount of assets, you should have a Will. Not all Wills need to be complicated or even written by an attorney. To be safe however, we recommend that you consult an attorney in the preparation of your Will. Doing so can prevent many problems and make sure that your Will is written according to the laws of your state.
You may think that everyone understands how your assets are to be divided and indeed they may. However, many families’ relationships have been ruined over relatively minor misunderstandings or because terms of the Will have been changed. If you do not have a valid Will, your wishes may not be followed, either due to misunderstanding or state law.
A Codicil is supplement to a Will that can add to, subtract from, or modify the terms of an original Will or a prior codicil(s). It is a testamentary instrument intended to alter an already executed Will or codicil. Amendments made by a codicil may add or revoke small provisions (e.g., changing the Personal Representative), or may completely change the majority, or all, of the gifts under the Will.
Each codicil must conform to the same legal requirements as the original Will, such as the signatures of the testator or testatrix and witnesses. As an alternative to a codicil, a testator may modify a Last Will and Testament by writing a new Will revoking any previous Wills and codicils. With the advent of word-processors, this is now becoming the recommended practice.
When the person dies, both the original Will and the codicil are submitted for approval by the probate court and form the basis for administration of the estate and distribution of the belongings of the testator or testatrix.
A trust is an agreement under which money or other assets are held and managed by a trustee for the benefit of the beneficiary(s). Different types of trusts may be created to accomplish specific goals. Each kind may vary in the degree of flexibility and control it offers. The common benefits that trust arrangements offer include:
Certain elements are necessary to create a legal trust. The basic elements include a trustor, a trustee, one or more beneficiaries, trust property, and generally a written trust agreement.
The trustee is the individual, institution, or organization that holds legal title to the trust property and is responsible for managing and administering those assets. If not designated by name, a trustee will be appointed by the court. In some cases, a trustor can serve as the trustee. It is also possible for two or more trustees to serve together, or for both an individual and an organization to act as co-trustees. Separate trustees may also be named to manage different parts of a trust estate.
The beneficiary is the person or entity who is to receive the benefits (such as income) of a trust. In general, any person or entity may be a beneficiary, including individuals, corporations, associations, charities, units of government, or animals.
A trust must hold property to be administered. The trust property may be any asset such as stocks, real estate, cash, a business or insurance. In other words, either "real" or "personal" property may constitute trust property. Trust property may also include some future interest or right to future ownership, such as the right to receive proceeds under a life-insurance policy when the insured dies. Property is made subject to the trust by transfer to the trustee.
The trust agreement is a contract that formally expresses the understanding between the trustor and trustee. It typically contains instructions to describe the manner in which the trust property is to be held and invested, the purposes for which its benefits (such as income or principal) are to be used, and the duration of the trust.
Trust agreements may be expressed in writing, by oral agreement or may be implied, and the trustor usually has considerable latitude in setting the terms of the trust. A trust involving an interest in land must be in writing in order to be enforceable.
There are many kinds of trusts. Trusts may be classified by their purposes, by the ways in which they are created, by the nature of the property they contain, and by their duration. One common way to describe trusts is by their relationship to the trustor's life. In this regard, trusts are generally classified as either living trusts ("inter vivos" trusts) or testamentary trusts.
Living Trusts. Living Trusts are created during the lifetime of the trustor. Property held in a living trust is not normally subject to probate (the court-supervised process to validate a Will and transfer property on the death of the trustor). In Oregon, because such property is not subject to probate, it need not be disclosed in the court record and confidentiality may be maintained. Such trusts are widely used because they allow the trustor to designate a trustee to provide professional management.
Under some circumstances, Living Trusts will allow income to be taxed to a beneficiary and result in income tax savings to the trustor. However, it should be noted that income earned by a trust established for a beneficiary under the age of 14 may be taxed at the beneficiary's parent's tax rate. The transfer of property to a living trust may also be subject to a gift tax.
Testamentary Trusts. Testamentary Trusts are created as part of a Will. This type of trust becomes effective upon the death of the person making the Will (the "decedent") and is commonly used to protect, conserve or transfer wealth. The Will provides that part or all of the decedent's estate will go to a trustee who is charged with administering the trust property and making distributions to designated beneficiaries according to the provisions of the trust.
Before the trust property transfers to the Testamentary Trust, it will normally pass through the decedent's estate. When the estate is probated, those trust assets will be subject to probate. The assets, which will form the corpus of a Testamentary Trust, also are potentially subject to creditor claims and to an estate and generation-skipping transfer tax at the time of the decedent's death.
A Testamentary Trust gives the trustor substantial control over his or her estate distribution. It also may be used to achieve significant savings in the future. For example, by using a Testamentary Trust, a trustor can provide for a child's education or can delay the receipt of property by a child until the child gains financial maturity. Moreover, given the proper form of trust, property may be exempted from death taxation on the later death of a trust beneficiary. However, a generation-skipping transfer tax may still apply.
Living Trusts can be "revocable" or "irrevocable." The trustor may change the terms or cancel a Revocable Living Trust. Upon revocation, the trustor resumes ownership of the trust property. In general, a Revocable Living Trust is used when the trustor does not want to lose permanent control of the trust property, is unsure of how well the trust will be administered, or is uncertain of the proper duration for the trust. With a properly drafted revocable trust, you may:
The assets in this type of trust will generally be includable in the trustor's taxable estate, but may not be subject to probate.
An Irrevocable Living Trust may not be altered or terminated by the trustor once the agreement is signed. There are two distinct advantages of irrevocable trusts:
However, these benefits will be lost if the trustor is entitled to (1) receive any income; (2) use the trust assets; or (3) otherwise control the administration of the trust in a manner that is inconsistent with the requirements of the Internal Revenue Code.
In creating a trust, you should consider several factors and obligations, including:
There is no specified time during which a trust must remain in effect. Each situation must be evaluated separately. In general, however, Oregon law will not allow a private trust to continue longer than 21 years after the death of the last identifiable individual living who has an interest in the trust at the time the trust was established. Charitable trusts, on the other hand, may continue indefinitely.
A trustee - whether an individual or institution - holds legal title to the trust property and is given broad powers over maintenance and investment. To ensure that these duties are properly carried out, the law requires that the trustee act in a certain manner. In general, a trustee must:
The trustee must administer the trust property only for the designated beneficiaries and may not use trust principal or income for his or her own benefit. In other words, a trustee is usually prohibited from borrowing or buying from the trust, from selling his or her own property to it, and from using the trust assets as collateral for a personal debt.
In selecting a trustee you should consider the potential trustee's competence and experience in managing business or financial matters and the potential trustee's availability and willingness to serve.
Individuals and certain corporations (or a combination of both) may serve as trustee. Each selection offers distinct advantages and drawbacks that should be considered. For example, an institution, such as a bank, usually offers specially trained managers to provide administrative, counseling and tax services. Other typical advantages include the institution's continuity and reliability of service, and its ready availability. Most banks charge a fee for trust services, and some may not want to manage small trusts, so you may want to compare options.
As an alternative, an individual, such as a relative, family friend or business associate, may serve as trustee. An individual, unlike an institution, may be willing to serve for little or no fee. Furthermore, this person could add a more personal touch for special understanding to the needs of the beneficiaries. However, you will want to be certain that any nominated individual has the skill and experience necessary to properly manage the trust property.
Trusts come in a variety of forms and can be established in many different situations. Some common forms of Trusts include:
There are many different reasons why you might want to have a Trust:
If any of the above situations apply to you, you should consider using a Trust as part of your estate planning.
Probate is the legal process where a court oversees the payment of debts and distribution of property under a Will or by the laws of intestate succession (decedent dies without a Will). This can be a slow and costly process if the estate is even moderately large and complicated, and certain details of the estate are made public as part of the court proceedings. Several states have summary procedures for small estates, but if your estate doesn’t qualify for a summary procedure, your estate typically goes through probate. If you transfer assets to a Trust while you are alive, then when you die, the assets belong to the Trust, not to you (or your estate), so they are not included in probate, but will be distributed in the way you direct in the Trust documents. The process of distribution will be private and confidential.
Minor children cannot inherit property, but require an adult to manage property for them until they reach the legal age of majority in the state where they live. A parent can nominate a guardian for the child’s financial matters in a Will, but the probate court will have the final say on whether to approve the appointment. If you transfer assets to a Trust that is for the benefit of your children while you are alive, you can name the Trustee(s) and alternate Trustee(s) who will control the Trust when you die. It’s possible for a court to remove a Trustee you have appointed, but generally only for a breach of the trustee’s fiduciary duties, so you have more control over who will control your children’s assets.
If you leave assets to children in a Will, the children receive full control of the assets when they come of legal age. In most states this is 18, and if the assets are large, an 18 year old may not be ready to manage that amount of money. If you set up a Trust, you can control when the young person will receive full control of the assets, such as at age 25 or 30. Some older adults are also unable to manage money well. This may be the result of a developmental disability or just because the person lacks appropriate financial judgment. If you want to leave assets to a Beneficiary in that situation, you might want to set up a Trust that will control the assets throughout the life of the Beneficiary. People also want to leave money for the care of pets that survive them, and a Trust is a good way to do that.
If you want to make sure that certain property is not divided between beneficiaries, which might result in the property being sold, you can put property in separate Trusts and give separate instructions for distribution. That way, it will not be possible for a court to decide that the property can be divided and/or sold.
If you become incapacitated from old age or some accident or illness, someone will need to take care of your financial affairs for you. By setting up a Trust where another Trustee will take control of your assets if you become incapacitated, you can prevent someone from filing a petition to be named your Conservator. A court will only appoint a Conservator if no other arrangements have been made, so the court is not likely to grant a conservatorship to someone else if you have already made adequate arrangements for your own care. This allows you to choose who you want managing your affairs and allows you to exercise future control in the way you set up the Trust.
A Trust, if properly drawn and funded, can be extremely helpful in many situations such as:
The cost of creating and administering a Trust can vary considerably, depending on its type and duration. Our lawyer's fees to create a Trust will be based on the time involved in consulting with you and in planning and preparing documents. Most Trusts we prepare are quoted on a flat fee basis so you can know exact costs upfront.
A trustee's fee may vary with the skill and expertise the trustee offers. Charges may also be influenced by the size and complexity of the Trust estate. This affects the nature and amount of services required, such as record-keeping, asset management and tax planning.
In addition to legal and trustee expenses, there may be accounting, real estate management or other service fees. Other common charges include annual, minimum, withdrawal and termination fees.
A power of attorney is a legal document that gives an agent of your choosing the power to act on your behalf. If you were ever to become mentally incapacitated, you would need a "durable" power of attorney for your finances and medical care. A durable power of attorney means the document remains in effect even if you become incapacitated and are unable to handle your own affairs. An ordinary, or "nondurable," power of attorney automatically ends if the person who makes it loses mental capacity.
If you have a valid power of attorney, the person you name will be legally permitted to take care of important matters for you such as pay your bills, manage your investments, and direct your medical care if you are unable to take care of these matters yourself. You may also name an entity as your agent under a power of attorney such as a bank, trust company, or a professional guardianship and trustee company.
It is well worth the cost and time required to set up a power of attorney. If you do not have a durable power of attorney and something happens to you, your loved ones may have to go to court and initiate a guardianship in order to handle your affairs.
In order to cover all the issues related to power of attorneys it makes sense to have two separate documents: one that addresses your financial affairs and one that addresses health care issues. You may wonder why you cannot cover finances and health care in one single power of attorney document. Technically, you could but it is usually not a good idea. Making separate documents will keep life simpler for your agent and others.
For example, your health care documents will likely be full of personal details that your financial agent does not need to know. Likewise, your doctors do not need to be burdened with your financial information.
That being said, though you should make separate power of attorney documents for your financial affairs and your health care decisions, it may make a good deal of sense to name the same agent under both documents. If not, you must be sure to name people who will work well together.
Your agent can handle simple tasks such as sorting through your mail and depositing your Social Security checks, as well as more complex jobs like watching over your retirement accounts and other investments, or filing your tax returns. Your agent does not have to be a financial expert, just someone you trust completely who has a good dose of common sense. If necessary, your agent can hire professionals (paying them out of your assets) to assist them in managing your affairs.
A financial power of attorney is a good document to make for yourself, and it can also be a great blessing for your family. If you become unable to make decisions for yourself and you have not prepared a durable power of attorney, a court guardianship proceeding is probably necessary. Your spouse, closest relatives, or companion will have to petition the court to be appointed as your guardian to obtain authority over at least some of your affairs.
A financial power of attorney can be drafted so that it takes effect either immediately or upon your incapacity. Many spouses have active financial power of attorneys for each other in case something happens to one of them - or if one spouse is regularly out of town. You should specify that you want your power of attorney to be "durable." If you do not, in most states, it will automatically end if you later become incapacitated.
You can specify that the power of attorney does not go into effect unless one or more doctors certify that you have become incapacitated. This is called a "springing" durable power of attorney. It allows you to keep control over your affairs unless and until you become incapacitated, when it springs into effect. Again, you must specify that you want your power of attorney to be "durable." If you do not, in this case, your document will never take effect at all.
When you create and sign a durable power of attorney, you give another person legal authority to act on your behalf. This person is called your Agent or, in some states, your attorney-in-fact.
Commonly, people give their Agent broad powers to handle all of their finances. But you can give your Agent as much or as little power as you wish. You may want to give your Agent authority to do some or all of the following:
The Agent is required to act in your best interests, maintain accurate records, keep your property separate from his or hers and avoid conflicts of interest.
To create a legally valid durable power of attorney, you must sign the document and if your agent is to handle any real estate transactions the power of attorney must be signed in the presence of a Notary Public. The issues addressed in a power of attorney can be complex and it is never a good idea to draft your own power of attorney.
Some banks and brokerage companies have their own durable power of attorney forms. If you want your Agent to have an easier time with these institutions, you may need to prepare two (or more) durable power of attorneys: the form we draft for you and any forms provided by the institutions with which you do business.
In Oregon, you must sign the document in front of a Notary Public if the Agent is to handle real estate matters on your behalf. In some states, witnesses must also witness your signature.
Your durable power of attorney automatically ends at your death. That means that you cannot give your Agent authority to handle things after your death, such as paying your debts, making funeral or burial arrangements, or transferring your property to the people who inherit it. If you want your Agent to have authority to wind up your affairs after your death, use a Will to name that person as your Personal Representative (“executor”).
Your durable power of attorney also ends if:
A Health Care Power of Attorney is a document that allows you to designate a person (an "Agent") who will have the authority to make health care decisions on your behalf if you are unconscious, incapacitated, or otherwise unable to make such decisions. In many states you can also express your wishes regarding whether you wish to receive "life-sustaining procedures" if you become permanently comatose or terminally ill. This will help your Agent to know your wishes as he or she makes decisions for you. Even if you do include this in the document, you should still discuss the Health Care Power of Attorney with the Agent, expressing your wishes, values and preferences regarding health care.
Your health care agent will work with your physicians and other health care providers to make sure you get the kind of medical care you wish to receive. When arranging your care, your agent is legally bound to follow your treatment preferences to the extent that he or she knows about them.
A Health Care Power of Attorney is different from a Living Will because it allows you to appoint someone to make health care decisions for you. A Living Will only allows you to express your wishes concerning life-sustaining procedures.
Both Living Wills and Health Care Power of Attorneys are considered "Advance Health Care Directives" because you are giving instructions on what you would want to happen in the event that you become unable to make health care decisions in the future. Some states also have a specific "Advance Health Care Directive" document that combines elements of a Health Care Power of Attorney and a Living Will.
Even if you have executed a Health Care Power of Attorney, you still have the right to give medical directions to physicians and other health care providers as long as you are able to do so. This document only becomes effective when you do not have the capacity to give, withdraw or withhold informed consent regarding your health care.
Probate is the process by which a person’s debts are settled and legal title of property is transferred from the decedent's estate to his or her heirs or beneficiaries. The court will make a determination of who gets what whether or not you have a Will. Goodfellow & Cottle can help ensure that your wishes are followed and assist your beneficiaries and personal representative in making the probate process efficient and easier to handle while avoiding costly mistakes. While it is common to use the same attorney for both probate and estate planning, please note that it may be more convenient (and perfectly ethical) for a personal representative to use a different attorney for the probate than the one who originally drafted the decedent’s Will (feel free to contact our Law Office if you have any questions).
If a person dies with a Last Will and Testament ("testate"), the probate court determines if the Will is valid, hears any objections to the Will, orders that creditors be paid and supervises the process to assure that property remaining is distributed in accordance with the terms and conditions of the Will.
If a person dies without a Last Will and Testament ("intestate"), the probate court appoints a person to receive all claims against the estate, pay creditors and then distribute all remaining property in accordance with the laws of the state.
The major difference between dying testate and dying intestate is that an intestate estate is distributed to beneficiaries in accordance with a plan established by state law, and a testate estate is distributed in accordance with the instructions provided by the decedent in his or her Will.
For a free consultation with a lawyer from Goodfellow & Cottle call: (503) 472-9090 or CONTACT US online. Our firm can handle all of your estate planning needs.