Category Archives: Trusts

Five Reasons to Update Your Estate Plan

Learn when life changes may necessitate an update to your Will or Revocable Trust, such as after a move, divorce, birth or death of a beneficiary or fiduciary, or if the size and composition of your estate has changed. Watch here to learn more.

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.


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.