When people finally get serious about estate planning, they tend to have a lot of questions. One common question is whether a will or trust is better in Oregon. In many cases, the answer is that both are needed – it’s not a matter of one or the other. However, to determine which meets your needs, you need to understand how both estate planning tools work and how the interact with Oregon estate planning laws.
Wills Are a Fundamental Estate Planning Tool
Wills are such a fundamental part of estate planning that some people may use the phrases “writing a will” and “creating an estate plan” interchangeably. This is a bit of an oversimplification. There’s a lot more to estate planning, such as creating an advance directive and buying life insurance.
Nevertheless, wills (also called the last will and testament) are critical to estate planning. This is because wills carry out a fundamental aspect of estate planning, i.e., directing how assets should be distributed. The will may also name a legal guardian for children and an executor for the estate.
Trusts Can Be a Smart Estate Planning Strategy
Although it’s possible to create an estate plan without a trust, using trusts can be a smart strategy.
A trust is a legal arrangement in which a trustee manages assets on behalf of another person. The trustee can be a person, such as an adult who is providing care for a minor, or an entity, such as a financial institution.
The grantor is the person who establishes the trust and whose assets fund the trust. Grantors have several different types of trusts to choose from:
- Revocable or Irrevocable. With a revocable trust, the grantor can change the terms. With an irrevocable trust, the grantor cannot change the terms.
- Testamentary or Living. A living trust is created while the grantor is alive. A testamentary trust is created when the grantor dies in accordance with the terms of the grantor’s will.
Trusts can be used for different purposes. Some trusts are created to provide greater control over assets. For example, if you want to name a minor as an heir, you can set up a trust to control the funds until the heir reaches adulthood. Trusts can also be used when bequeathing assets to an adult who may not handle a windfall responsibly, or if the grantor wants the money to be used in a certain way, such as to pay for education. In addition to these benefits, trusts can also provide tax advantages and avoid probate.
How Trusts and Wills Work with Oregon State Law
State laws play a key role in estate planning. For example, state law will determine what happens to a person’s estate if the person dies without a will. In Oregon, intestate succession follows strict rules that account for different situations. For example, if a person leaves a surviving spouse and children who are also the children of the surviving spouse, the surviving spouse receives the entire estate after debts are paid. If the children are not the children of the surviving spouse, the surviving spouse receives half of the estate.
Although state succession laws are designed to be fair, they may not reflect your wishes. For example, you may want to leave some of your estate to charity, or you may want to ensure that a treasured family heirloom goes to a specific person. A will allows you to decide what happens to your estate.
When it comes to tax strategies, both state and federal tax laws should be considered. The federal government has an estate tax that applies to estates of a certain size. Oregon also levies an estate tax. In addition to estate taxes, some states have inheritance taxes, and there are also gift taxes. Certain strategies involving trusts can minimize the taxes owed.
Do You Need Help Deciding Between a Will or Trust?
Your estate plan may just require a will, or you may need a will and a trust. It’s also possible that you need more than one trust to carry out your wishes. Here are some questions to consider:
- Do you want to decide how funds are used, not just who receives them? Then you might need a trust.
- Do you want to will some of your assets to someone who cannot control funds responsibly for themselves? This could be a minor, a person with a history of gambling or substance abuse, a special needs individual, or even a pet. A trust may be the best solution in this type of situation.
- Do you want to avoid probate? You may be able to (or at least keep some assets out of probate) with a trust.
- Do you want to minimize your tax burden? You may be able to with a trust.
An estate planning attorney can assess your needs and help you decide which types of estate planning tools make the most sense in your situation. Contact Skinner Law.