| Your Estate is basically the property you own and the obligations you have at death.
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| Estate Planning is the act of determining, while you are alive, what will happen to your Estate after you're gone.
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| Everyone needs estate planning even if it is just a simple will! There is an unfortunate, widespread misconception that only the wealthy need an Estate Plan. In fact, an Estate Plan is for anyone who wishes to provide for their survivors. If you pass away without a Will or other Estate Plan, the state will be happy to dispose of your estate according to state law and it may not reflect your wishes or provide for the ones you love.
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| A Will is a formal and legal statement of your last wishes regarding your property and children. There is an old saying that "if you do not write a will, the government will be happy to write one for you." That means that a person without a Will will have their property distributed in a manner devised by statute without regard to your wishes. A Will allows you to designate who will receive the property you own upon death and how that property will be received. Property can be received directly or can be kept in trust for the benefit of your heirs. A Will can also designate the person who will be in charge of your probate estate, who will be the guardian of your minor children and who will manage any trust established by your Will.
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| Without a Will, the laws of "intestacy" dictate the distribution of your assets. That means that the state determines who receives what.
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A Trust is an arrangement under which you transfer legal ownership of assets to another person or corporation (the trustee) to be used for the benefit of one or more other people (the beneficiaries).
A Trust can either be created in the donor's lifetime (an inter vivos trust) or by the donor's will (a testamentary trust). Those established during a donor's lifetime can be either revocable or irrevocable. In the case of a revocable trust, the donor retains control by reserving the right to revoke the trust.
An irrevocable trust constitutes a complete surrender of property and the donor no longer retains any control over the assets.
A revocable trust (often marketed as a “Living Trust”) does not provide any tax benefit because you still control it. This law firm will only recommend a revocable trust in limited circumstances. If you want such a trust against our recommendation, we will be happy to refer you to a firm with less reservations.
While your Will directs how your assets will be distributed, an irrevocable trust can be established to protect assets from substantial taxes and achieve other financial goals.
Trusts can be used to transfer valuable assets outside your estate, while maintaining control over how the property is managed and distributed long after you're gone. Certain trusts can also provide life insurance for your children without adding to the taxable estate at the time of death.
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| After a divorce, marriage, birth of children, a move to another state, acquisition of out-of-state property, birth of grandchildren and of course, after a change in financial circumstances.
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| Probate is the legal process by which a court approves the distribution of your estate after death and most importantly, the only way a creditor’s rights against your estate and your heirs can be cut off. The court does charge a fee based on the size of your estate but it is not very large compared to other states. Often trust marketers will point out that a revocable trust will reduce the size of your estate and therefore reduce probate costs. Unfortunately, that is only part of the story. What they usually do not tell you is that the cost saving is often illusory. That is because instead of paying a probate fee, after your death, you are paying a legal fee (often higher than the probate cost) to prepare the trust while you are alive. Some cynical lawyers say “they can pay me now” (with a revocable trust) or “pay me later” (with a probatable estate). So why do some lawyers recommend a revocable trust? Because they get paid now and they have no risk that the deceased’s heirs will not hire them to handle the estate. Don’t be convinced to buy a revocable “living” trust without fully understanding the cost differential, the obligations of maintaining the trust and the actual benefits of getting a trust. Also get a second opinion from a disinterested party as to the value of such a decision.
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| The most important benefit of probate is that probate can terminate the claims of all creditors. Once the probate "creditor's claim period" expires (about four months after notice is given to the creditors) it is very difficult for creditors or others to claim any interest in your estate. This is particularly important to professionals who may be subject to malpractice suits such as doctors, dentists, accountants, or attorneys. Probate will usually bar later lawsuits against your heirs years after your death. Probate also provides court supervision to make sure your property is accounted for and distributed as you intended.
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| Probate may take at least six months to a year or longer to complete. Probate can be expensive, although in Oregon all lawyer fees must be approved by a judge. The larger the estate, the larger the expense of probate. However, if you try to avoid probate by using a revocable trust, you will be paying lawyer and accountant fees during your lifetime instead of at death.
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| If you have made a will, you have probably named a person, called the Personal Representative, in that document. If you have no will, the court will appoint someone, usually the next-of-kin, to be the Administrator of your estate for this purpose.
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The duties of the Personal Representative are the same as those of the Administrator:
- Safeguard the estate's property;
- Inventory the property;
- Submit accounts and inventories to the court as required;
- Pay the debts and expenses of the deceased (including funeral and burial expenses, costs of last illness, and outstanding medical bills);
- Pay any federal or state death taxes; and
- Distribute the estate to those named in the will or, if no will exists, to the next- of-kin.
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| Your estate does. In general, your estate is responsible for all your debts, bills and expenses. These must be paid before any remaining assets in your estate can be given to your next-of-kin or your heirs under the will. Your Personal Representative has no duty to pay these costs out of his or her own pocket and is not normally personally liable for your debts. Your Personal Representative has the duty to release enough of your assets to allow the payment of expenses such as taxes, credit card balances and hospital bills.
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A Personal Representative (or an Administrator) can request the court to provide two types of compensation:
- Direct reimbursement for out-of-pocket expenses, such as postage stamps, bank charges and mileage; and
- Payment for services rendered as a Personal Representative or Administrator (unless the will directs otherwise).
The amount of this latter payment will vary, of course, depending on the amount of work done, the time spent on the estate, the complexity of the work and the size of the estate.
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| There are various expenses necessary to settle an estate. Fees must be paid to the court upon filing and closing the estate. A bond is sometimes required however most people specifically waive the bond requirement in their will.
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Your Personal Representative/Administrator must place a legal notice in the newspaper for your creditors after the court has appointed him or her to handle your estate. The notice must:
- Give the name of the deceased and the name and address of the Personal Representative or Administrator;
- Be published a required number of times in the locality where the deceased had his or her home; and
- State that all claims of creditors must be made within four months of publication of the notice.
Once this is done, the publisher prepares an Affidavit of Publication and this is put in the Court file. Any claims not presented to the Personal Representative or Administrator within these four months need not be paid.
Those claims which are valid and which are presented within the four-month period, including debts and expenses known to the Personal Representative or Administrator, must be paid out of the available funds in the estate.
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Using Oregon as an example, when you initially apply to the Clerk's Office for appointment as Personal Representative you will need to fill out an initial inventory. This is so you can give a preliminary account or a rough estimate of the assets in the estate. When you have completely settled the estate, you will then file the Final Inventory, listing the following:
- Amount of total assets as shown on the initial Inventory you have already filed;
- Additional assets received by the estate since the filing of the initial Inventory (with description and fair market value);
- Expenses, debts, taxes and bills paid by the estate; and
- Distribution of the estate to the heirs (how and to whom).
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| The law provides that you can have access to the safety deposit box of the person whose estate you are settling.
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| You should immediately set up an "estate account" at a local bank as soon as you have been appointed Personal Representative or Administrator. You can arrange this at any local bank, and there is a small charge for printing the checks showing your name, your title (Personal Representative/Administrator), the name of the deceased and other information. Having a separate account is a good step toward preventing the mixing or "commingling" of your own personal funds and those that belong to the estate. With the estate account set up, you can deposit or transfer the funds of the deceased into this separate account. Some items, such as paychecks, insurance premium refunds or employee death benefits, may be deposited directly into the estate account.
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| Not all of a deceased person's property is subject to probate. Life insurance, retirement accounts, and "joint tenancy" property all pass directly to the appropriate beneficiary automatically, without any court confirmation. If the person created a revocable trust (also known as a "living trust"), any property held in the trust is not subject to probate.
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