Wills and trusts can both be used to direct where and to whom your property passes once you have passed on.
Trusts can also be used to allow someone else to manage your property during your lifetime if you wish to have someone else do this, or if you become incompetent.
Trusts in Oregon are now governed by the new Oregon Uniform Trust Code. While this allows you to serve as your own trustee, and manage your own trust assets if you wish in many cases, and while this allows you to safeguard your privacy in many circumstances, sometimes this can result in required disclosures, annual reports, and the like being sent to a wide range of people who might, under some circumstances, have rights to trust property.
In fact, in some circumstances, it may now be more time consuming and troublesome to administer a trust following a person’s death than it might be to probate the same estate.
In addition, trusts prepared with different goals in mind can have very different results.
As an example, many trusts are created with the goal of avoiding estate taxes. This is often unnecessary, and even counter productive, unless a person or a couple has significant wealth. For most couples it is more likely that the couple may someday need to qualify for Medicaid, rather than that they will need to avoid estate taxes. A trust designed to avoid estate taxes may cause harm in such a situation, by trapping assets which will then have to be spent down for health care and long term care costs. A properly drafted trust designed for such a situation might instead allow such assets to be saved for the well spouse (i.e. the spouse who does not need to qualify for Medicaid). Having a trust with the wrong focus can be tragic if a couple is of modest means, as it can severely limit the options of the well spouse, while producing only limited benefit at best for the ill spouse.
On the other hand, of course, a trust drafted with possible Medicaid qualification in mind can cause significant difficulties for a couple who is wealthy enough to have to pay estate taxes.
In this regard, it should remembered that a single individual in Oregon can pass one million dollars ($1,000,000.00) without any state or federal estate taxes as matters now stand. A married couple can pass considerably more tax free with minimal planning.
While there are times when trusts may not be necessary or even beneficial, there are times when they can provide great advantages. Trusts can provide a wide variety of benefits in a wide range of circumstances. A skilled elder law attorney can help you to work out whether a trust or some other arrangement would be better given your particular circumstances and goals.
Sometimes wills and trusts can even be combined, with a testamentary trust embedded in a will. A testamentary trust is a trust that is set forth in will, so that the trust will spring into existence once the will is probated, if certain circumstances exist. Examples of situations where this can be useful include testamentary trusts for children who are minors now, but who may or may not be adults when the parent dies and the will needs to be probated.
Joint Property with Right or Survivorship
Other ways of passing property can also be integrated into a well developed estate plan. As an example, it can be wise, in some situations, to hold property jointly with a right of survivorship, bypassing both trust administration and probate.
It can be very important to carefully plan and integrate an estate plan. Sometimes people make a careful estate plan, relying on specific gifts in wills, or on specific trust provisions, and then defeat their plan by holding property in a way that is different than was planned. As an example, if a person has a house worth $200,000, and another $300,000 in the bank, and has the goal of benefitting their two children equally, but then puts the bank account into their own name and the name of one of their children jointly with right of survivorship, it is likely that each child would receive one half of the residue of the estate (which would consist of the house only), while one child would receive the full bank account. Such actions would, therefore, result in one child receiving $100,000, while the other received $400,000. It can be very important to periodically review one’s estate plan, and compare it with one’s holdings and desired goals.
Sometimes, even if someone has passed on after having made a mistake such as the one above, if all parties are cooperative, a skilled elder law attorney can rectify matters without unintended consequences. It should be noted that, if handled incorrectly, simply gifting the excess money from one child to the other could result in significant tax consequences or other problems.
It is best, of course, if such matters can be rectified prior to death, as the options available to fix problems after death are often limited, and less than perfectly successful.
Another thing which is worth considering is the value of a probate. Although some people have been told that a probate is something to be avoided at all costs, in some cases, a probate can actually have considerable advantages. Among other things, a probate can pass a very clean title to property in some circumstances. Even more important, in some cases a probate will cut off the claims of creditors and prevent many kinds of lawsuits which otherwise might later be filed against the decedent and his or her estate.
Probates are formal affairs, and take at least four to six months. The cost of a probate can vary widely depending on the issues which arise in a probate.
Small Estate Proceeding
Sometimes a shorter and less expensive proceeding called a small estate proceeding can be used instead of a probate. Small estate proceedings are available only for fairly small estates in Oregon. Small estate proceedings, even if available, may or may not be wise, depending on the circumstances, given the additional protections inherent in a probate, the advantages of court oversight, the protections provided by court orders in certain cases, and other issues. Once again, a skilled elder law attorney can help work out which of these options is most suitable in any given situation.
Probate can even be avoided altogether through appropriate uses of trusts and/or other probate avoidance mechanisms, including property which is held jointly with right of survivorship. As with small estate proceedings, avoiding probate may be wise in some circumstances, but may have unintended consequences in other cases.
Regardless, as outlined above, it can be important to ensure that a probate which is not needed is avoided. Situations in which probates often are required, but could have been avoided with foresight, include situations where property or other assets are acquired after a trust is created, but are never properly transferred into the trust. Other such situations arise when a trust is created but some or all property is not conveyed into the trust.
Funding a Trust
Conveying property into a trust is called funding a trust. Sometimes a failure to properly fund a trust may defeat the entire purpose of the trust (and render the cost of having a trust prepared a pointless expense). It is for this reason that attorneys who work with a person to create a trust also often work with the person to ensure that all property is appropriately conveyed into the trust immediately thereafter. Such assistance with funding can significantly increase the cost of legal services, but failure to properly fund a trust may render the legal work and the expense of creating the trust pointless.
Defunding a Trust
Another problem that can arise occurs when property such as a house is taken out of a trust for some reason, and then is not reconveyed back into the trust. This particular situation often occurs when a house is refinanced, or when a home equity loan is taken out. In such situations, the bank or other financial institution often requires that the home be held privately, outside of trust, during the refinance. Even though there is often no reason not to reconvey the home back into the trust after completing the re-finance or the home equity loan (and before the loan or mortgage is paid off), people often neglect to do this. If this situation exists when the person passes on, it is then usually necessary to probate the person’s estate, so that the home can be transferred into the trust or passed on to the intended beneficiaries.
For all of these reasons, it can be important to work with a skilled elder law attorney to develop an estate plan; to determine whether to plan for a probate, or whether to plan for probate avoidance; and to make sure that the plan will be properly articulated, and will work as intended when the need arises.
NOTE: Wills, trusts, probates, and estate planning are very complex matters. The above address only a very few of the issues which may be of relevance in these matters, and should not be considered legal advice, nor should the above be taken as a statement of the only time that one might benefit from consulting a legal or other professional.