1. Why Do I Need to Create an Estate Plan? Most of us spend a considerable amount of time and energy during our lives working and attempting to accumulate wealth to protect ourselves during our retirement years and to provide an inheritance for our children, to enhance their respective opportunities in life. An important step in this process which should not be overlooked is the need topreserve your accumulated wealth. A solid, effective estate plan will serve to ensure that your hard-earned wealth will remain intact as it serves your needs during your lifetime and as it passes to your beneficiaries. The goals which can be attained through the use of an effective estate plan can be quite impressive.

  2. If I Neglect to Do So, Won’t My Property Just Transfer to My Spouse and Children Anyway? Yes. However, your property may not be directed to the individual(s) and in the manner in which you would prefer. When an individual becomes deceased without any estate planning documents, the transfer of that person’s property is determined by state laws on “intestate succession.”

    In this case, distributions of estate assets are made only after the Court appoints a personal representative and only in connection with a formal probate Court proceeding. The Court will appoint a guardian for your children and custodians for their assets if they are still minors. If they are not minors, then your children will receive an outright distribution of their share of your estate, regardless of whether they have the financial acumen to effectively manage the property they receive. If you are married at the time of your death and have children of a former relationship, one-half of your estate will be distributed to your spouse and one-half will be immediately distributed among your children.

    The personal representative who is appointed to distribute your assets must employ the services of an attorney to prepare documents and file them with the Court. It is the Court which must approve the payment of your final debts, expenses, and taxes, the payment of an allowance to your spouse during the Court proceeding, and the ultimate disposition of your assets, all in a public forum. If you neglect to plan your estate, you lose the opportunity to avoid the Court supervised probate procedures, to select your own personal representative, to protect your family and plan for distributions among them which will best serve each individual’s well being, and to plan for the avoidance of estate and inheritance taxes. While some estate planners favor the creation of revocable living trusts and others favor the creation of Wills as the estate plan of choice, all estate planners agree that dying without an estate plan should be avoided at all costs.

  3. What’s the Difference Between Having a Will and a Revocable Living Trust? A Will is a legal document which describes how your assets should be distributed following the event of your death. However, the actual distribution of your assets is controlled by a legal process called “probate,” derived from Latin and meaning “prove the Will.”

    Following the event of your death, your Will becomes a public document, which is administered by your selected personal representative in connection with Court supervision. Probate can be cumbersome, time-consuming, expensive, and emotionally traumatic during a family’s time of grief and vulnerability. Notwithstanding, the use of a will and formal probate proceeding is a very good planning tool under certain circumstances.

    A revocable living trust avoids the Court supervised probate procedures because your property is owned by a trust. Your estate planning attorney will draft all of your testamentary desires into your trust agreement. The person you select to be your “successor trustee” gains control of your assets immediately following your death and distributes them in accordance with your stated instructions. There is one additional, critical difference between a Will and a revocable living trust: A Will does not have any legal effect until following the time of your death, and is therefore no help to you to facilitate your lifetime planning. Conversely, because a revocable living trust comes into existence the moment it is created, it will serve to assist you in the preservation and protection of your assets during your lifetime and it will also serve to protect you personally in the event you become physically or mentally disabled or incapacitated during your own lifetime.

  4. Is It Time to Create a Revocable Living Trust to Replace Your Existing Will? Increasingly, people are learning that the creation of a “revocable living trust” is an estate planning alternative which is far more suitable to meet their personal desires than a traditional “Last Will and Testament.” While more detailed explanations defining what a revocable living trust is and how it compares to a traditional will appear on this website, suffice it to say that a revocable living trust may be a more efficient means of transferring your assets following the event of your death, in terms of cost, time, privacy, and comfort for your selected executor, family members, and other beneficiaries.

  5. If I Create a Revocable Living Trust, Can I Be My Own Trustee? What Happens if I Become Incapacitated? Yes, you may act as the trustee of your own trust. In fact, people who create most revocable living trusts act as their own trustees. If you are married, you and your spouse may act as co-trustees. You will have complete and absolute control over all of your assets, to the same extent you have always asserted control over them. In the unfortunate event that you experience a mentally disabling condition, your hand-picked successor trustee can assume control over your affairs without the need for an expensive, Court supervised conservatorship proceeding.

    Absent an effective estate plan which takes into consideration the possibility that you may at some point become incapacitated, you and your assets will become subjected to a formal, Court supervised guardianship and conservatorship proceeding. The Court will appoint someone to take control of such things as your physical well being, your place of residence and level of care provided, your assets, and your other personal and financial affairs. As with a formal probate proceeding, the process is often expensive, time-consuming, and all a matter of public record. Conversely, a well-crafted estate plan will take the potential for a future incapacity into account, will enable you to select who will make decisions for you at every level, and importantly, will enable your family members to be near you when you need it most, rather than needing to meet with attorneys and appear in Court.

  6. Does a Revocable Living Trust Avoid Income Taxes or Provide Me with Any Level of Creditor Protection? No, and unfortunately, no! Two primary purposes for creating a revocable living trust are to avoid an expensive and time consuming probate procedure following the event of your death and to reduce or even eliminate federal estate taxes and state inheritance taxes. A revocable living trust is not a vehicle for reducing income taxes. In fact, because you will be the trustee of your trust, you will file your income tax returns exactly as you filed them before the trust was created. There are no new tax returns to file and no new liabilities are created. While a revocable living trust does not give rise to creditor protection over your assets during your lifetime, there are a multitude of protections which can be drafted into your trust which will serve to protect your spouse, children, and grandchildren, in the event they experience creditor issues, divorce, or even in the event they should become disabled.

  7. Can I Transfer Real Estate into a Living Trust? Yes. In fact, all of your real property holdings should be transferred to your revocable living trust. Otherwise (depending on the manner in which you hold the title to your real property holdings), your family members must initiate a formal probate proceeding in each and every state in which you owned real property during your lifetime. When your real property is owned by you, as the trustee of your revocable living trust, the need for a formal probate proceeding is completely eliminated following the event of your death. One frustration I have with some other estate planning professionals is that many do not provide their clients with the proper guidance to fully fund their revocable living trusts. It is our intention to prepare you for this task and to assist you fully through the process as a portion of our standard and customary services to you.

  8. At What Level of Wealth Does the Creation of a Revocable Living Trust Make Sense for Me? For this estate planner, the decision of whether to create a will or a revocable living trust does not turn on your level of financial success. In fact, in many instances, I feel that many individuals with relatively little wealth at all may benefit more by creating a revocable living trust. This is because a trust is a much more inexpensive and efficient means to administer an estate than a formal probate process. In essence, what this means to you is that more of your wealth is distributed directly to your family members and not to attorneys or to the Court system.

  9. At What Level of Wealth Will My Estate Become Subject to Federal Estate and State Inheritance Taxes? Under current tax law, each spouse can transfer $1,000,000 (for Oregon inheritance taxation purposes) and $5,000,000 (for federal estate taxation purposes; called an “exemption amount”) tax-free to their children and grandchildren if their estate planning documents are set up correctly and their assets are owned properly. If your estate planning document fail to adequately provide for effective estate and inheritance tax avoidance, then these exemption amounts can be completely lost for the first spouse to become deceased.

  10. At What Age must I Begin Taking Required Minimum Distributions (“Rmds”) from My Retirement Plan Assets? Tax laws require that you begin taking minimum distributions from your IRA no later than April 1 following the calendar year in which your turn 70½. For example, if Alice turned 70 on March 12, 2010, and 70½ six months later on September 12, she must take her first RMD no later than April 1 of the following year – 2011. The April 1 rule is applicable only in the first year in which an RMD must be taken. In subsequent years, the deadline is December 31st. Most people opt to take their first RMD by December 31st of the year they turn 70½ to avoid making two taxable distributions in the same year. Returning to the above example, if Alice waits until April 1, 2011, to take her first RMD, she will have to take another minimum distribution by December 31, and both will be reported on her 2011 tax return.