Category Archives: Estate Planning

Alternatives to Probate

The word “probate” often comes to mind when we think about the disposition of our property at death.  So, what exactly is probate?  Probate is the formal court process for clearing title to property and transferring a decedent’s assets to the decedent’s devisees or heirs at death.  During the probate proceeding, assets are collected, debts are paid, disputes over the decedent’s estate are settled, and title to property is transferred.  While probate is an effective method to achieve these objectives, probate can be a long, expensive, and cumbersome process.  Below is several estate planning techniques to avoid probate of certain assets.

Jointly Held Property

If a decedent holds property jointly with another person, either as tenants by the entirety (available for married couples) or with rights of survivorship, title to the property immediately vests in the survivor at the time of the decedent’s death.  Real property, vehicles, and bank accounts are examples of property that can pass outside of probate if owned jointly.

Property with Beneficiary Designations

Many types of property can pass by beneficiary designation, including but not limited to real property, securities, life insurance proceeds, annuity payments, retirement accounts, pay on death (POD) accounts, and transfer on death (TOD) accounts.  Upon the death of the decedent the named beneficiary becomes the owner of the property.  If no beneficiary designation is made, the property will likely become a part of the decedent’s estate and will be subject to probate.

Bank Accounts with Value of Less Than $25,000

Under Oregon law, if the decedent is the sole owner of a bank account with a value of less than $25,000, and the total deposits in all bank accounts in Oregon amount to less than $25,000, a simple affidavit may be submitted to the bank to claim the funds.  Most banks require that their own affidavit be used, which can be obtained at a branch office.  Oregon law establishes priority as to who may claim the funds (spouse, children, etc.). One caution to relying on an affidavit to avoid probate: the bank is not required to pay the funds as requested and may require a probate or small estate affidavit.

Trust Property

A trust is a separate legal entity that survives the decedent.  Property that a decedent transfers to a trust prior to his or her death is therefore not subject to probate.  As a result, a trust is the most common means to avoid probate.  There are situations, however, where a trust may not be the best probate avoidance tool given an individual’s particular set of circumstances and the nature of the individual’s assets.  In these situations, the other alternatives to probate discussed above may be advisable.

Small Estate Proceedings

In Oregon, a small estate affidavit is an expedited probate proceeding for estates with a gross value of under $275,000, and with with no more than $75,000 of that amount attributable to personal property and no more than $200,000 attributable to real property.  The affiant (similar to a personal representative) is responsible for taking control of the property of the estate, providing notice to heirs, devisees, and creditors, paying expenses of the estate, and distributing the property of the estate.  While this proceeding sounds very similar to a “full” probate, the administrative requirements are far less, thus making the process much quicker and less expensive.

With proper estate planning, property that would normally be subject to probate can be transferred outside of probate, saving you and your family time, money, and more.  Of course, there are exceptions to each of the methods described above and circumstances under which these methods would not be advisable.  Be sure to speak with your estate planning attorney to determine the best way in which to protect and transfer your assets at your death – a little bit of planning can go a long way!

RBDs, MRDs and QRPs, Oh My! Calculating Required Beginning Dates for Distributions from Multiple Retirement Plans

When must a participant in a qualified retirement plan (QRP) begin taking mandatory required distributions (MRDs)?  The rules governing retirement plans and mandatory distributions can be tricky.  Assuming the plan participant is not an owner of 5% or more of the company maintaining the plan, the required beginning date (RBD) is April 1 of the calendar year following the later of (1) the calendar year the participant attains age 70.5, or (2) the calendar year in which the participant retires from employment with the employer maintaining the plan.  The rules of the individual plan should be consulted because not all employer-sponsored plans are required to recognize the latter of the two rules, and may choose to require all employees to begin distributions by April 1 of the calendar year the participant attains age 70.5.  If the participant is an owner of 5% or more of the company maintaining the plan, then the RDB is April 1 of the calendar year in which the participant attains age 70.5.

Are the rules for the RBD the same for IRAs?  No.  The RBD for a distribution from a traditional IRA is April 1 of the calendar year following the calendar year in which the participant attains age 70.5.  For a Roth IRA, there are no RBDs because there are no MRDs for the participant.

What if the plan participant has two different employer sponsored plans, one from an existing employer and one from a former employer?  If the participant is still working at the time he or she attains the age of 70.5, he or she could potentially have two different start dates.  If the plan permits, the RBD for the current employer’s plan could be delayed until April 1 of the year following the year of retirement.  The RBD for the former employer’s plan would be April 1 of the calendar year following the calendar year the participant attains the age of 70.5.

If a participant has two different employer sponsored plans as described above, can the participant roll the proceeds from the former employer’s plan into the current employer’s plan to delay required distributions until retirement?  Maybe.  First, the current employer’s plan would have to permit such a rollover.  Second, it could depend on the age of the participant at the time of the rollover.  If the participant attains the age of 70.5 in the year the rollover is contemplated, the participant would still be required to take the first distribution from the former employer’s plan for that year (even though technically the first distribution could be delayed until April 1 of the following year).  Any distribution received from the plan in the year the participant attains age 70.5 would be considered a minimum distribution for that year and cannot be rolled over.  The balance of the account in excess of the minimum distribution may then be rolled over.  Again, the plan participant should consult with the individual plan to confirm that the plan would permit such a rollover.

Trial Court Modification of Trust? Oregon Court of Appeals Says “Not So Fast.”

The Oregon Court of Appeals ruled on a trust administration case yesterday. In Head v. Head, No. A149899 (Or. Ct. App. Mar. 5, 2014), the plaintiff/beneficiary brought an action against the successor trustee claiming that the previous trustee (his father) had failed to carry out the terms of the trust after the Trustor’s (plaintiff’s mother’s) death.

While living, Mr. Head and Mrs. Head had created “his and hers” revocable living trusts. Under both trusts, on the death of the first spouse, a credit shelter trust was to be created with the assets from the deceased spouse’s trust estate up to an amount equal to the credit shelter exemption available at the time of the first spouse’s death. To the extent the first spouse’s estate exceeded the credit shelter exemption, the excess amount would ultimately be distributed outright to the surviving spouse. The credit shelter trust was to be irrevocable on the death of the first spouse. During its administration, the assets in the credit shelter trust were to be used for the lifetime benefit of the surviving spouse subject to certain restrictions, and then on the death of the surviving spouse, the remaining principal was to be distributed to the Heads’ three children: the plaintiff, George, and Roderick.

When the first spouse (Mrs. Head) died, her estate was less than the $1.5 million federal credit shelter exemption in place at the time. Per the terms of the trust, her entire estate was to be allocated to the credit shelter trust and administered as provided in her trust. Mr. Head, acting as Trustee, however, treated the assets as his own, even going so far as to transfer assets from Mrs. Head’s Trust into his own revocable living trust. Mr. Head then modified the terms of his trust (which was revocable), disinheriting one of his sons, the plaintiff.

The plaintiff argued that if the credit shelter trust established under his mother’s trust had been properly funded and administered, he would have been entitled to a distribution of an equal share of the credit shelter trust when his father died. The trial court found that the trustee had not followed the terms of the trust, but went on to find that the trust agreement did not reflect Mrs. Head’s intent. Therefore, the court, sua sponte, modified the terms of the trust under ORS 130.205(1) (modification because of unanticipated circumstances) and ORS 130.225 (modification to achieve settlor’s tax objectives) to meet what the court found to be Mrs. Head’s probable intent. The Court of Appeals reversed the modification because the court was without authority to do so where neither party reasonably contemplated such relief and the relief represented a substantial departure from the pleadings and legal theories upon which the parties had relied.

The case has been reversed and remanded to the trial court. While the Court of Appeals has made clear that a trial court cannot rely on ORS 130.205(1) or ORS 130.225 to modify an otherwise irrevocable trust where the parties have not requested such relief, this case is an equally important reminder to estate planning practitioners that clients need to understand the implications of the term “irrevocable” in a mandatory tax plan and the importance of trust funding on the death of the first spouse.


Beneficiary Designation Trumps Dissolution of Relationship

In a recent Court of Appeals case, Martin v. Gomes and Am. Century Inv. Servs., Inc., No. A146643 (Or. Ct. App. Feb. 26, 2014), the plaintiff-decedent’s estate brought an action to recover the proceeds of the decedent’s IRA where the decedent’s former domestic partner remained designated as the beneficiary of the IRA at the time of the decedent’s death. Afterall, the decedent and his domestic partner had ended their domestic partnership many years back and even had a judgment dividing their assets and stating that “[the decedent] shall maintain the retirement benefits in the retirement accounts that he has accrued. [The former domestic partner] has no right or interest in [the decedent’s] retirement funds.” The decedent, however, never submitted a change of beneficiary form removing his domestic partner as the beneficiary of the IRA account.

The court held that the terms of the IRA beneficiary designation controlled, and that this was not altered by the provisions of the earlier judgment on the basis that the judgment addressed the parties’ property interests at the time of the judgment and did not address any expectancy interest that the parties’ may have by virtue of a beneficiary designation.

It is important to note that the Court’s ruling was specific to the set of facts presented and that the result may have differed had the judgment been a dissolution judgment, made a specific reference to the beneficiary designation, or evidenced an intention by the parties to dispose of any expectancy interests.

The take-home point – upon dissolution of a marriage or domestic partnership, be sure to change the beneficiary designations on your retirement accounts (and to be safe, your life insurance policies as well)!


Estate Planning is for Everyone

Most Americans are generally aware that they need to have an estate plan, but – according to a recent nationwide survey – most still do not even have a Will. One common misconception is that there is no need for an estate plan unless the estate is large or complex. In reality, most of the reasons to plan apply to all estates, large or small. Some issues you should consider:

1. Incompetency. What if you become incompetent prior to your death? With a comprehensive estate plan, you can pick the successor manager of your affairs using a trust, power of attorney, or other tools. Without an estate plan, expensive court intervention may be required in order to appoint a fiduciary who will then be required to annually report to the court.

2. Blended Families. In any second or later marriage an estate plan is particularly important. Without a plan, children from different marriages may be treated very differently or even left out of inheritance entirely, depending on how assets are titled. With a plan, you can insure that your priorities will prevail. For example, by using a marital trust you can provide support for a surviving spouse and then, upon his or her death, direct the disposition of the assets to the children of a prior marriage.

3. Minor Children. If you have minor children, a properly drafted estate plan will allow you to nominate the guardian or guardians of your choice – the single most important estate planning step parents can take. Without an estate plan the courts will be forced to designate a guardian without the benefit of your insight or the knowledge of your preferences. In addition, your assets will be distributed to minor children at their 18th birthday unless your estate plan provides otherwise. With a plan, you can designate a trustee to manage the estate’s assets until your children reach an appropriate age that you determine.

4. Special Needs Children. If you have a child who qualifies for government benefits, those benefits may be lost if the child receives an inheritance outright. The inheritance itself may also be spent improvidently if the child does not have the capacity to manage the assets. However, a trust for such a child can hold assets so that the child will remain qualified for government benefits and have the benefit of appropriate management and distribution. Similarly, if you have a child who struggles with drug addiction, poor money management, or other negative behaviors, you can tailor a trust that meets the needs of that child – if you plan in advance.

5. Beneficiary Designations. If you have life insurance, IRAs, annuities or other assets which designate a beneficiary, your current beneficiary designation may not effectively reflect your current wishes – particularly if the beneficiary designation was made some time ago. The rules and options relating to beneficiary designations have undergone significant change in recent years and will continue to do so. Your estate plan should integrate your beneficiary designations with the overall plan for all of your assets and ensure that you and your beneficiaries can take maximum tax advantage under complex distribution rules.

6. Business Transition. If you own a business, your death may also spell the death of that business if you neglect a business transition plan. With a transition plan, you can help to ensure that the business will either be transitioned to the appropriate family members or be continued pending a sale so that its value can be preserved for your family.

7.Probate and Probate Avoidance. Without a plan, your estate will pass via intestacy, meaning, in effect, that the State of Oregon will have written your Will for you. If you plan your estate, you can decide who will manage the estate, who will inherit it, and whether various methods to avoid probate entirely are appropriate. For example, a common method of avoiding probate is the creation of a revocable trust that takes title to your assets prior to your death. During your life you serve as your own trustee. Upon your death, your successor trustee is able to manage and distribute the assets per your wishes without probate.

8.Taxes. For most estates, taxes are not a concern. However, there is an Oregon Estate Tax on estates above $1,000, 000 and a Federal Estate Tax on estates above $5,340,000 (2014 exemption, indexed annually for inflation). For both Oregon and Federal tax, a married couple can fairly easily double the amount they can leave to their heirs tax free – but only with the appropriate estate planning.

Most estates, large or small, would greatly benefit from intentional planning. At a minimum, every adult should have a Will, Power of Attorney and Advance Directive to Physicians (for medical decisions) – all of which you can obtain at a cost far lower than the cost you or your family will incur from failing to plan.

The Top 12 Reasons It May Be Time To Review Your Estate Plan

I am frequently asked, “when should I review my estate plan”? My answer (in true lawyer fashion) is “it depends.” Circumstances change. A birth. A death. A divorce. Your intentions for how you want your assets distributed will evolve over time. The following is a list of the Top 12 Reasons it may be time to review and update your existing documents with your estate planning attorney:

Size and Composition of Estate Assets
1. The value of your estate has changed since the time your estate plan was prepared. This may include receiving an inheritance, obtaining a significant amount of life insurance, etc.

Health & Family
2. There may be a significant change in your health or the health of your spouse.
3. A child or other beneficiary has suffered from a life altering illness or injury.
4. A new child or grandchild has been born.
5. There has been a divorce or separation in the family.

6. You have bought a new business.
7. You have entered into a buy-sell agreement.
8. You would like to sell your existing business or transition your closely held business to the next generation.

Bequests & Fiduciaries
9. You would like to change who is serving as a fiduciary (personal representative, executor, trustee, agent, guardian) in your plan.
10. You would like to remove or add an individual or charitable beneficiary.
11. You would like to change the percentages or dollar amounts that a beneficiary receives.
12. You would like to change the beneficiaries on your retirement plans or life insurance policies.

The first step in the process of reviewing your plan it to meet with your attorney. If you do not have a current attorney, and would like to speak with someone about updating your estate plan in Oregon, please feel free to contact me at [email protected] or 541.382.3011.

Who We Are: Estate Planning and Probate

With abundant natural beauty and vibrant culture, Central Oregon continues to be an alluring destination for retirees. When you factor in the region’s active entrepreneur community, it’s clear Central Oregon has a growing demand for estate and business succession planning. As one of the largest and most well-respected estate planning and probate practice groups in the state, we will continue to offer extensive estate planning and administration services, including estate plan drafting, revocable living trust formation, estate and gift tax planning, charitable giving, estate administration and probate, trust administration, guardianships and conservatorships, closely-held business advice and succession planning, and contested estate and fiduciary litigation services.

Although we believe these changes will help Karnopp Petersen better serve Central Oregon, we are continuing to provide other traditional legal services to businesses and individuals throughout the region.