and Probate Law Firm
As an experienced Portland estate planning law firm, we guide our clients through the entire process of estate planning. The following information will explain to you how estate planning works in Oregon. After going over some basics, we will then dive into a real-life scenario that will put it all together for you.
Your “Estate” and what Happens to it
Your “estate” essentially refers to the sum of your assets minus your liabilities. Your assets include real estate, cars, checking accounts, savings accounts, individual retirement accounts (IRAs), brokerage accounts, business interests, memorabilia etc. When you work with a Portland estate planning lawyer, the “estate plan” is the plan that you have put in place for the control and transfer of your assets in times of illness, disability or death. When an individual passes away, his or her estate must go through a court process known as “probate”. During probate, the court oversees the distribution of an individual’s estate in accordance with his or her will if the individual had one. If the individual did not have a will, then the court will follow legally pre-set parameters to distribute the estate.
All About Living Trusts and Their Popularity
A trust is a popular estate planning tool that we utilize for a majority of our clients. A trust is a legal arrangement whereby a trustee ensures that your assets are managed according to your wishes both during your lifetime and after your death. The trustees of a majority of our trusts are the clients themselves, allowing for a seamless transition into the utilization of the trust. Trusts are popular because a properly set up trust allows the members of an individual’s family to completely avoid the probate process and therefore stay out of the court system when transferring assets upon the family member’s passing. Furthermore, trusts are completely private, meaning that “nosy neighbors” will not have access to an individual’s net worth upon their passing. Probate, on the other hand, is a public process, allowing any interested party to inquire about that individual’s estate. Given the public nature of probate and the fact that it is administered through the courts, an experienced estate planning attorney in Portland will generally advise their clients to avoid probate if possible.
The type of trust that we commonly use is what is known as a “revocable living trust.” First and foremost, the trust is a “living trust” meaning that it takes effect as soon as it is properly signed and executed. This has benefits over a will, because a will only takes effect upon a person’s passing. Furthermore, the trust is “revocable” meaning that it can be revoked or modified at any time. What we have found is that there are certain times when you may feel one way about certain beneficiaries, but then feel quite differently at other times. The trusts that we design are built with this flexibility in mind. Although the trust is a living trust, it also provides certainty even after an individual passes because it outlines which family members will receive which assets upon that individual’s passing.
The final, and great, benefit of a trust is that it is very tax advantageous and saves a family a lot in taxes. In the State of Oregon, an individual’s estate passes tax-free at any value of $1,000,000 or less. Thereafter, the estate is taxed. By employing trusts, we can maximize the value of this estate tax exclusion ceiling. For example, let’s assume that a husband and wife have a net estate of $2,000,000. In this situation, after the first spouse passes away, the remaining spouse will be entitled to the entire estate and it will pass to the surviving spouse tax-free per Oregon law. However, when the surviving spouse passes away, the estate will face a tax bill of approximately $100,000 which the family will have to pay. By employing sophisticated tax and trust planning, we would be able to save our clients this entire $100,000 tax bill.
Real-Life Estate Planning Scenario
In order to help you better understand the estate planning process, we have put together a real-life scenario that will help you understand the nuts and bolts of the process. This scenario will discuss a few estate planning options and their pros and cons.
Let’s take the case of Richard and Cynthia, a married couple who are 70 and 64, respectively. They have one child together, Mark, who is 35. Richard also has one child, Cheryl, from a previous marriage. Cheryl is 40.
Richard and Cynthia’s joint estate consists of the following:
- A $900,000 home in Tigard with a remaining mortgage of $125,000. The total equity in their house is $775,000.
- Checking and savings accounts with total assets of $500,000.
- Richard’s 401(k) is worth $295,000 and Cynthia’s IRA is worth $350,000. The total value of their retirement accounts is $645,000.
- Two jointly-owned vehicles with a combined value of $60,000.
- Personal belongings and family heirlooms worth $20,000.
- Joint estate: $2,000,000
Let’s assume that Richard passes away years later and their estate remains at the same value. Richard’s desire has always been to leave his entire estate to Cynthia. At the time of his death, his estate is worth half of the joint estate, or half of $2,000,000, which is $1,000,000. In this situation, one of three events will unfold:
- Scenario 1 (Worst): Richard dies without a will and did not consult with a Portland estate planning attorney. In this scenario, his estate may need to be probated and thus Cynthia may be tied up in court for the foreseeable future. Furthermore, under Oregon law, only half of Richard’s estate may go to Cynthia while the other half will go to Cheryl. Mark will receive nothing. Furthermore, upon Cynthia’s death, her family will receive a large tax bill of approximately $100,000. Not only did Cynthia not receive Richard’s entire estate, as he intended, but his family will have to grapple with an unnecessary $100,000 tax bill and approximately $5,000 in fees to pay for a Portland probate lawyer. The total cost to his family is $105,000 and a lengthy court process.
- Scenario 2 (Ok): Richard dies with a will in which he leaves his entire estate to Cynthia. In this scenario, Cynthia will be entitled to his entire estate. However, Cynthia may still be tied up in the courts for the foreseeable future because wills generally are put through the probate process. Furthermore, upon Cynthia’s death, her family will still have to contend with the $100,000 tax bill mentioned above and the $5,000 in Oregon probate lawyer fees. The total cost to Richard’s family is still $105,000 and a lengthy court process.
- Scenario 3 (Best): Richard sets up a properly executed trust whereby he leaves his entire estate to Cynthia. Since Richard has set up a trust, his estate will not need to be probated and his family completely avoids the courts. Within the framework of Oregon trust law, Richard was able to leave his entire estate to Cynthia and she, and her family, will be able to avoid all tax on their inheritance. Furthermore, she does not have to pay any attorney’s probate fees. By setting up a trust, Richard has kept his financial matters private (by not going through probate court) and he has saved Cynthia the grief of probate and taxes. The only cost to Richard is the cost of setting up the trust, which will be far less than the probate attorney’s fees.
As you can see, trusts are a very effective tool for many reasons. Many of these benefits also apply to estates that are valued at a lower amount than Richard and Cynthia’s. Additionally, it is important to mention that by using a trust, the value of an estate and a family’s personal financial matters remain private and confidential. In court, all information becomes public and that is why we try to avoid probate for our clients.
If you have any other questions or are looking for an experienced Portland estate planning lawyer to assist you with your matter, please do not hesitate to contact us.
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