Basics of an Oregon Estate Plan (Part 2)

Part 2. What is a Trust.

This is the second article in our basics of estate planning series.  In this article, we will explain what a Revocable Trust is, what it can be used for and what it can’t do.

The first article in the series is Part 1. What is a Will.

What is a Living Trust?

A living trust is simply a contract with yourself.   You establish a trust by written agreement and by “funding” the trust by transferring your property into it.  The trust will appoint a “trustee” to administer the assets of the trust.  The trust agreement will also provide instructions for how the trust is to be administered.  A living trust can be a used to avoid Probate or Conservatorship.  

How does a Living Trust Work?

By retitling all of your property from yourself to the living trust while you are living and providing instructions for the “successor trustee” to distribute your property after your pass, very little of your property will pass through probate.

A diagram explaining the mechanics of a living trust.

A “Pour Over Will” is often used alongside a living trust to move property into the trust that was missed or was acquired after the trust was formed.  A downside of this method is that “Pour Over Will” may have to be settled through a probate proceeding before the assets of the living trust can be distributed.  Another option is to transfer the property not included in the living trust directly to the heirs by a small estate proceeding.  

How does a Living Trust avoid Conservatorship?

Conservatorship is when the court determines that you are unable to manage your financial affairs and appoints a conservator to do so.  By transferring your property to a revocable living trust and providing detailed instructions for the successor trustee in the event you become incapacitated, you can avoid the court oversight and costs involved in a conservatorship.

Drawbacks of a Living Trust.

The main drawbacks of a Revocable Living Trust are:

1.    Complexity.  Trusts are often left unfunded and property acquired after the formation of the trust is not moved into the trust.  Living Trusts require more maintenance and ongoing administration than a will.
2.    Costs.  Living Trusts are more expensive than creating a will.  For young and healthy individuals, the costs of probate and conservatorship are likely many years down the road.  For these individuals, they are often times better off investing the money they would have spent setting up a Living Trust.  Older individuals will more quickly see the benefits of probate and conservatorship avoidance and may want to consider a living trust.
3.    Unforeseen Consequences.  Family’s change and the law changes.   Companies may want to review the trust documents if you purchase or insure property.  Stock in certain corporations may not be held in some trusts without serious tax implications.  You may also have difficulty acquiring assets in other Countries.

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Elements of an Oregon Estate Plan

What is Estate Planning?

There is much confusion about what estate planning is and what you actually need to do.  I will go through some of the most common estate planning tools, how they work and when they are useful.

1. The Do-Nothing Option

This is probably the most common estate planning technique in Oregon and rarely is it ideal.  If you die in Oregon without a will, your assets will be distributed by the laws of intestate succession.  These laws are the Oregon Legislature's best guess of how most people would have wanted their assets divided among their heirs.  Typically your assets will be inherited by your surviving spouse or equally among a class of heirs.  If you are more interested, I have a full post dedicated to the common intestate scenarios linked here.  You can also learn more about Oregon Probate on my practice area page.

2. Last Will and Testament

The basic Will is the simplest and most well known estate planning tool.  They are generally assumed to have been invented in Ancient Greece around 600 BC.  (Wikipedia has an article on the History of Wills.)   At its simplest, a Will appoints someone to manage your estate after your death and provides them instructions on how to distribute your assets.

In Oregon you must have "testamentary capacity" in order to create a will.  Testamentary capacity defined:

ORS 112.225 Who may make a will

Any person who is 18 years of age or older or who has been lawfully married, and who is of sound mind, may make a will.

Now, there are several formalities that you have to follow in order have a duly executed will.  I often hear complaints about these formalities.  It is best to think about these formalities not as burdens but rather as quality control measures that make sure people don't steal from you after you die.

Oregon outlines the formalities of a duly executed Will in the ORS.

112.235 Execution of a will

A will shall be in writing and shall be executed with the following formalities:

(1) The testator, in the presence of each of the witnesses, shall: (a) Sign the will; or (b) Direct one of the witnesses or some other person to sign thereon the name of the testator; or (c) Acknowledge the signature previously made on the will by the testator or at the testators direction. (2) Any person who signs the name of the testator as provided in subsection (1)(b) of this section shall sign the signers own name on the will and write on the will that the signer signed the name of the testator at the direction of the testator. (3) At least two witnesses shall each: (a) See the testator sign the will; or (b) Hear the testator acknowledge the signature on the will; and (c) Attest the will by signing the witness name to it. (4) A will executed in compliance with the Uniform International Wills Act shall be deemed to have complied with the formalities of this section.

There is much more to cover on the topic of Wills but this post is meant as an overview for estate planning.

3. Revocable Trusts

Sometimes marketed a "living trusts" or "loving trusts," a revocable trust is a contract with yourself that you can "revoke" if you change your mind.  I've written about revocable living trusts in Oregon before but I will recap their uses here as well.

Many people have difficulty understanding how a revocable trust works so I've diagrammed it below.

Copy of Living Trust

The two most common uses for revocable trusts in estate planning are the avoidance of probate and conservatorship.

Avoiding Probate

The most common reason why probate proceeding are started in Oregon is because the titled property of the estate exceed the statutory amounts for small estate proceedings.  (I will go into small estate proceedings later.)  What that means in non-lawyer speak is that your home is worth more than $200,000.  There are other ways to exceed the small estate limits but for most people it is the value of their home.

So, by placing your home and other assets into a revocable trust you can avoid probate all together or be able to settle your estate by Affidavit of Claiming Successor.  When done properly, a revocable trust can avoid several thousand in probate administration fees and save months of time.  Revocable trusts don't avoid estate taxes or shield assets from creditors.  There are other tools that can be used to minimize taxes and protect assets and I will discuss those in a later post.

Avoiding Conservatorship

Conservatorship is a kind of protective proceeding in Oregon where the court appoints a conservator to manage the assets and finances of a protected or incapacitated person.

ORS 125.005 (3) defines financially incapable:

Financially incapable means a condition in which a person is unable to manage financial resources of the person effectively for reasons including, but not limited to, mental illness, mental retardation, physical illness or disability, chronic use of drugs or controlled substances, chronic intoxication, confinement, detention by a foreign power or disappearance. Manage financial resources means those actions necessary to obtain, administer and dispose of real and personal property, intangible property, business property, benefits and income.

As people aged they sometimes experience diminished mental capacity or conditions that make it difficult to manage their financial affairs.  In these instances it may be necessary to go to court to establish a conservatorship and appoint a conservator.  These can be expensive and time consuming proceedings so it is best to avoid them.

A revocable trust can avoid conservatorship by appointing a successor trustee if you become incapacitated.  You can provide instructions in your trust on who you want to manage it and how you want it managed in the event you become incapacitated.

4. Advanced Medical Directives and POLST

For many people how they die is often more important than what happens to their belongings.  I've written extensively on Advanced Medical Directives and Substituted Healthcare Decision Making before and how a person's faith influences medical decision making.

In a nutshell, Advanced Medical Directives allow you to appoint a Healthcare decision maker and leave instructions for end-of-life treatment.  POLST (Physicians Orders for Life Sustaining Treatment) all you to decide what treatment you want if you have a terminal disease.  I encourage all of my clients to complete their Advanced Medical Directives and POLST if they do no other estate planning.  I will often hear from a family member who had to guess at their loved-one's desires for medical treatment in the ICU and are traumatized by the experience.

If you have any questions about Advanced Medical Directives, please follow the links above or leave a comment.

5. Virtual Asset Instruction Letter

This is a new area of estate planning that deals with virtual assets and how you would like them handled after your passing.  For many of us the majority of our communications and photographs now exist on the servers of Google, Facebook, Apple and Microsoft.  I wrote about this before (What is going to happen to your Facebook account when you die?)  I've also written about Grieving Online.

How these accounts are handled after your death depends on the Terms of Service of each of the companies.  What is important is that you decide who you want to have access to these accounts and what you want them to do with them.  Facebook allows you to add a legacy contact to manage your account or to delete your account after your death.  Below is a snip from the Facebook Legacy Account Page.  Other companies are creating similar programs to help you manage your accounts if you die.

facebook memorialization

The Virtual Asset Instruction Letter (VAIL) can work alongside your other estate planning documents and provide guidance to the person administering your estate.  The VAIL can contain the passwords and logins for your accounts along with directions.  Logins and access to financial institutions should be controlled by the Will or Trust but you may want to list them here as well but that is not what VAILs are typically designed to manage.

I would use a VAIL to give instructions about who you want to have copies of your emails or photos after your death.  For example, you may have quite a bit of email correspondence with your grandchildren in a gmail account and you may want to provide copies of those emails to them.

For those of you who have monetized Youtube, Instagram or other accounts I would contact an estate planning attorney to advise you on the managing those accounts.

6. Beneficiary Designations and Payable on Death

Certain property does not need to pass through probate in order to be transferred to your heirs or devises.  Most often this non-probate property are accounts that allow you designate a beneficiary.  These accounts are basically contracts between you and the company holding your account.  When you pass away the company will pay or allow access to the account without going through probate.

I explain beneficiary designations and non-probate property in more detail in a previous post.   This most important thing to remember is to keep your beneficiary designations up to date and to review them regularly.

7. Specialty Trusts

There are many other specialty trust that are used in estate planning.  The most common are Special Needs Trusts, Gun Trusts and Pet Trusts.

Special Needs Trusts

Special Needs Trusts are designed to hold property for a disabled person while at the same time allowing them to utilize government benefits.  When creating a special needs trust, great care should be taken so that any government benefits under medicaid or SSI are not disrupted.  I will discuss Special Needs trusts in more depth in a later post.

National Firearm Act Gun Trusts

These are trusts created to hold and purchase weapons regulated under the National Firearms Act.  The purpose of a Gun Trust is to eliminate much of the burden of owning and transferring what are known as Title 2 devices (machine guns, sawed-off shotguns, grenade launchers, etc.)  I think most of the marketing around gun trusts is based on fear mongering but there are some legitimate uses if you have NFA Firearms or a large/unique firearm collection.

Pet Trusts

A pet trust provides for the care of your pet if you are to die or become disabled.

Conclusion

I hope you have found this overview of common estate planning tools helpful.  This is by no means an exhaustive list of options nor is it meant as advice for your situation.

If you have any questions please search the blog, contact me or leave a comment below. As always, please read the Disclaimer in the sidebar before commenting. It is there for your protection.

Faith Based Estate Planning in Oregon

Everyone that creates an estate plan wants it to be consistent with their beliefs whether they are religious or secular.  In Oregon, any estate plan is enforceable so long as it complies with the requirements of Oregon law.   The typical issues that of faith based estate planning are specialized inheritance rules and medical treatments.   Some people may also wish to set money aside for faith based education and travel.

Faith Based Inheritance

If you pass away without a Will or and estate plan, your belongings will be distributed according to Oregon law.  This "default plan" is called intestate succession and I have diagrammed common scenarios for inheriting property without a will in Oregon.   These are the rules created by the Oregon Legislature and many faiths require a different distribution of property than that of the Oregon law.

For example, Surah An-Nisaa 4:11 says:

Allah instructs you concerning your children: for the male, what is equal to the share of two females. But if there are [only] daughters, two or more, for them is two thirds of one's estate. And if there is only one, for her is half. And for one's parents, to each one of them is a sixth of his estate if he left children. But if he had no children and the parents [alone] inherit from him, then for his mother is one third. And if he had brothers [or sisters], for his mother is a sixth, after any bequest he [may have] made or debt. Your parents or your children - you know not which of them are nearest to you in benefit. [These shares are] an obligation [imposed] by Allah . Indeed, Allah is ever Knowing and Wise.

In order to achieve a Shariah compliant estate plan, the distribution must be written into the will or trust documents.  Many other faiths and traditions differ from the laws of intestate succession so don't assume that your wishes will be followed if you don't prepare a will.

End of Life Decision Making and Medical Care

The end of one's life is an ethically and morally fraught time for most people.  Whether or not to use life sustaining treatment or to opt for treatment that may affect the unborn are concerns you may have when faced with a medical issue.  Advanced Medical Directives  allow you to specify what treatments you wish in these situations.

Using an advanced medical directive allows you to appoint someone to make medical decisions if you become incapacitated.  You can also state whether or not you want to be connected to a ventilator or be provided other life sustaining treatments.   Another tool used is the Physician Orders for Life Sustaining Treatment (POLST).  You will need to complete your POLST with a physician and they will place it with your medical documentation.

Other common concerns are whether to donate organs or if you would like a spiritual leader to visit you in hospital.  You may also want to provide instructions for burial or cremation.

Religiously based Incentive Trusts

These are trusts with strings attached to them.  The religious education of your grandchildren may be important to you and you would like to set money aside for religious schooling.  You may also want to place money in a trust to provide travel costs for the Hajj or religious pilgrimages to the Holy Lands when children or grandchildren marry or reach a certain age.  Special care should taken when drafting incentives because the future is unknown and unforeseen consequences are common.   Terms that are too harsh may cause resentment among your heirs and lead to the opposite of what you intended.

Work with and Educate your Estate Planning Attorney

Often times the attorney drafting your estate plan will not understand the religious requirements of your faith.  If that is case you may want them to contact your faith leader to discuss the requirements.  Of course you do not have to follow the guidance of any faith leader and are free to draft your last wishes however you want.

As with all estate planning, it is important that they understand your wishes when creating your documents so be sure to clearly communicate with your attorney and thoroughly review any document before signing it.