Oregon Estate Planning and Probate FAQ

What is estate planning? 

Estate planning means different things at different stages of life. For older adults, the focus may be on preparing for the possibility of incapacity, or leaving a legacy to a younger generation or charity. For families with minor children, estate planning is often viewed as “worst case scenario” planning: ensuring that the surviving spouse or partner and children will be cared for in the event of a parent’s untimely death or incapacity.  Key features of any estate plan include a will or revocable living trust, a nomination of guardian(s) for any minor children, a durable power of attorney, and an advance health care directive.  Equally important is ensuring appropriate beneficiary designations on life insurance, annuities, bank accounts, IRAs and other retirement assets.

What happens if I die without any estate plan in place?

When a person dies without a valid will or trust, the estate passes to the heirs specified under the laws of intestacy. A probate proceeding is typically necessary to pay the debts of the estate, locate heirs, and distribute any estate assets. The court will select a guardian for minor children if there is no surviving parent, as well as a conservator to manage the inheritance of any minor heir.

What is a will?

A will is a legal document that contains your instructions for distributing your assets after your death, and may express your wishes regarding the care of your dependent children.  It must comply with certain basic statutory requirements to be valid.  Contrary to popular belief, having a valid will does not allow your estate to avoid probate, though it can, as part of a well-crafted estate plan, simplify the probate process.

What’s involved in a probate proceeding?

Probate is the statutory process by which a court oversees the administration of an estate.  Once the will is “proved” by the testimony or written affidavits of witnesses, a personal representative (usually specified in the will) is appointed and charged with several tasks, including notifying all known and potential creditors of the death, notifying heirs and beneficiaries of the probate, filing an inventory of estate assets, paying any debts, filing any required tax returns, and finally, distributing the decedent’s assets. The entire process takes a minimum of 6 months, and typically closer to a year (or longer, in more complex estates). It is usually necessary for the personal representative to hire a probate attorney to ensure compliance with the various applicable statutory requirements and deadlines, and to avoid common pitfalls.

Do all of a decedent’s assets have to pass through probate?

Not necessarily.  With proper beneficiary designations, many assets (such as life insurance, IRAs, retirement accounts, and various other financial accounts) may be distributed directly to the chosen beneficiaries outside the probate process.   Certain jointly held property (for instance, a house owned by a husband and wife as tenants by the entireties) may also avoid probate on the death of the first of the co-owners.

For estates that include less than $200,000 in real estate and $75,000 in personal property subject to probate, Oregon provides for an abbreviated “small estate” proceeding that is less expensive and time-consuming than the full probate procedure.  

What is a revocable living trust?

A revocable living trust is often used as an alternative to the traditional will. It is created when a person or couple (the “settlor” or “settlors”) transfer ownership of some or all of their assets to a trust, which they typically manage for their own benefit while they are alive and of sound mind. When the settlors die or become incapacitated, the successor trustee named in the trust instrument takes over and manages or distributes the assets according to the terms of the trust. The trustee may be a trusted friend or family member, or a paid professional.

Revocable living trusts are a popular estate planning tool, primarily because if drafted and funded properly, they allow the settlors to avoid the time and expense of probate.  A living trust may also prevent the need for a costly, court-ordered conservatorship in the event of a settlor’s temporary or permanent incapacity.  In larger estates, trusts (either revocable living trusts or testamentary trusts set up through a will) may also be structured to minimize estate, inheritance, and other transfer taxes.

Why does an estate plan include a durable power of attorney and an advance health care directive?

A comprehensive estate plan not only provides for what happens at death, but also includes a plan for temporary or permanent incapacity.  A durable power of attorney allows you to nominate an agent to manage some or all of your financial affairs when you are unable to do so yourself – potentially averting a costly court-ordered conservatorship.  The statutory advance health care directive allows you to appoint a health care representative to make health care decisions for you when you are unable to do so for yourself, and/or give certain instructions about care you do or do not wish to receive.

What about the estate tax?

This year, there is no federal estate tax.  The estate tax is slated to return in 2011 with a $1 million exemption – but Congress has been working on revisions that may take effect before the end of this year.  If, as many commentators expect, the estate tax laws are amended to exempt estates valued at less than $3.5 million, most estates will not be taxable at the federal level.

However, Oregon has its own inheritance tax that applies to estates valued at $1 million and above.  The gross estate value for estate and inheritance tax purposes may include the proceeds of insurance policies on the life of the decedent, in addition to real and personal property, retirement plans, and other assets.  Since the combined value of these assets very often exceeds $1 million, the inheritance tax is a common planning concern.

Both the estate and inheritance tax allow an unlimited deduction for assets left to a surviving U.S. citizen spouse, to be taxed on the death of the surviving spouse.  Depending on the size of a married couple’s joint estate, tax planning may be necessary to “shelter” the first spouse’s full tax exemption and thereby limit taxes owing on the death of the surviving spouse.