What is an estate?

An estate is made up all the assets you possess, for example your bank account, your home, stocks you may own, your furniture, and even your clothing. Your estate is valued at the combined fair market value of all the assets minus the debts you have at the time of your death.

What is a will?

A will or last will and testament is a legal document that tells the state how you want your property distributed after you die. It also stipulates other details for settling your estate such as who will be the guardian of your underage children. A will can only take effect when you die.

What is a trust?

A trust is a flexible planning tool that preserves wealth and helps you accomplish a wide range of goals. If set up properly, a trust can help you manage your assets during your lifetime and for your heirs after your death. A trust can also provide continuing support to a charity.

There are different types of trusts.

• A living trust allows you to continue to control your assets for as long as you are able. It provides a mechanism for transferring control of your assets to someone else if it becomes necessary.
• A testamentary trust is part of your will and goes into effect upon your death. It guarantees the long-term fulfillment of your desires.
• Special needs trusts provide for supplemental care over and above what the government provides to individuals with disabilities.
• Charitable trusts may be set up while you are alive or as part of your will. Their purpose is to provide an income stream to your favorite charity.
• Generation skipping transfer trusts are trusts that are established to provide for the needs children while they are alive, and then for grandchildren during their lifetimes. In some cases the trust is only for the grandchildren.

If I have a will, what is the purpose of estate planning?

Your will defines in legal terms how your property is distributed after you die. Estate planning includes wills, trusts and other strategic planning so that as many of your assets as possible are passed on to your family, not on to the government through inheritance taxes or estate taxes. Estate planning also allows you to provide for situations that leave you disabled and unable to make decisions for yourself, such as during a severe illness or after an accident. As you can see, estate planning is far more comprehensive than either a trust or a will.

What is probate?

Probate is the term applied to the legal division of your property by the court. In some states, probate is not required if a person dies with a will and has very little property. In other states, probate is required in all cases. Your will is used in probate to determine who gets what and who makes sure your wishes are carried out.

Is there property that doesn’t go through probate?

Yes, there is. When property is owned jointly with right of survivorship, the property passes directly to the remaining joint owner. The property will still be part of the taxable estate even if it doesn’t have to be distributed by the probate court. In some cases, trusts also avoid probate. Annuities and retirement benefits don’t have to go through probate. Life insurance settlements don’t go through probate if you have designated the beneficiary in the policy.

What happens if I die without a last will and testament?

If you die without a will, the state takes over the responsibility of distributing your property. Not only do you have no control over who gets what, your heirs may be charged hefty fees for the administrator that the court appoints. In other words, your heirs can end up with nothing. Most probate horror stories revolve around heirs arguing over property when there was no will.

If I don’t name a legal guardian, could my children end up with child protective services?

Yes, they could, especially if you don’t have an obvious family member to step up and take care of your children immediately. Preparing for the care of your children is a vital part of wise estate planning.

What is a bypass trust?

A bypass trust is a trust set up to take care of the needs of a spouse, during his/her lifetime, which then goes to the children when he/she dies. It is a strategy that can reduce estate taxes by guaranteeing that the assets placed in the bypass trust are only taxed once. The IRS places certain conditions on the trust and requires precise wording of the trust before it will exempt from taxation upon the second spouse’s death.

What is a life insurance trust?

A life insurance trust provides a way to protect your loved ones from paying estate taxes on a life insurance settlement.

What are lifetime gifts and do they reduce my estate tax exemption from the IRS?

You are allowed to give $13,000 each year to each of your children. If you exceed this amount, all of the money is subtracted from your estate tax exemption. If you stay under this amount, the gifts are not counted against the estate tax exemption.

What is an inheritance tax?

Inheritance taxes are taxes that you pay on the value of property you inherit.

What is an estate tax?

This is a tax that the federal government levies on anyone residing in the United States who inherits property. One spouse can inherit property from another tax free. Otherwise, the estate is taxed on the value that exceeds the personal exemption amount which Congress is anticipated  to establish at either $1 million or $3.5 million dollars.

What are the most common reasons a will is contested?

Wills are commonly contested for the following reasons: 1) the will wasn’t executed properly, i.e. it wasn’t signed and witnessed as required by law; 2) the person making the will (the testator) didn’t have the capacity to alter the will intelligently, i.e. he/she has Alzheimer’s; 3) the will was drafted under pressure or under undue influence, i.e. a healthcarer give succeeds in getting a large settlement in a new will.

DISCLAIMER: The information contained in this article is based on Oregon law and is subject to change. It should be used for general purposes only and should not be construed as specific legal advice by Warren Allen LLP, or its attorneys. Neither this website nor use of its information creates an attorney-client relationship. If you have specific legal questions, consult with your own attorney or call us for an appointment.

Pursuant to IRS regulations, any tax advice contained in this communication (including any attachments) is not intended or written by the practitioner to be used, and cannot be used, for the purpose of avoiding tax-related penalties under the Internal Revenue Code.  The tax advice expressed above is being delivered to support the promotion or marketing of the matter or transaction discussed or referenced.  Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.