June 18, 2014

Why You Need a Written Estate Plan


By Douglas Cushing

October 2013

In every state there is a statutory plan for distribution of an estate after a death, even if there is no written estate plan. But that typically leaves everything to a spouse, or divides it between a spouse and children, and establishes the priority for appointment of an administrator and payment of debts before the estate assets can be distributed to family. A well-thought out estate plan can ensure that assets are allocated as the decedent intended they be and also provides a legally binding guide as to the distribution of assets. Below are seven reasons why a written estate plan may be important, no matter what the size of your estate:

1. Taxes

Although efforts in Congress to permanently eliminate the estate tax have failed, the existing estate tax — at which the first $5.25 million is exempt — will only impact the truly rich. Oregon, Washington, and several other states do retain state estate taxes, but even if they apply at lower threshold levels, the rates are under 20 percent, less than half the federal rate. Although tax planning should allow most estates to avoid any tax, the need for estate planning remains significant.

2. Minor Children

(a) Financial Care

The statutory framework in Oregon may be very different from most parents' original intent. If there is no binding estate plan, the statutory plan is more complicated and assets can be distributed much sooner than was the original intent. Under a will or trust, a trustee can exercise full discretion outside court supervision, and distributions may be deferred over time, as specified by the decedent. In the absence of properly drawn plans, the statutory rules require a court-supervised conservatorship to administer funds, meaning a judge, not a trustee whom the decedent has chosen, will review expenses. In Oregon, when the beneficiary reaches 18 years of age, the conservatorship will terminate, and all remaining funds will be distributed to the beneficiaries. Remaining funds may be relatively small and the children relatively responsible and sophisticated at 18, but few parents wish to leave a substantial estate outright to an 18-year-old.

(b) Physical Care

Again, even without an existing will designating a guardian or conservator for minor children, the state provides a presumed priority of appointment — assuming both parents are deceased — to the parent of the deceased, a sibling, or another relative. Considering the high rate of domestic litigation and the disputes among families, it is rare that the state correctly identifies how every individual wants to provide for care of their minor children. The reasons are far too many to identify, but it is obvious that a will providing for a guardian can be absolutely essential, if only to avoid costly litigation between competing relatives.

3. Business Succession

Business succession is not only the ultimate transfer of authority but in some cases the immediate ability to make decisions, particularly in the instance of a sole proprietorship. Many business enterprises also require a plan to ensure transition upon the death of an owner. A contractual arrangement among co-owners is often binding on the personal representative, but if there is no agreement, the deceased business owner's spouse or children can take control of the company. Preparing a plan should ensure that the designated person to operate the company is specified, whether or not they also administers the estate.

4. The Modern Family

The makeup of the modern family demonstrates another reason why estate planning will continue to be critically important in the years to come. Today's family can take many forms — married, no children; married with children; a blended family with children from two or more marriages; long-term unmarried partners of either same sex or opposite sex orientation — but all require careful attention when it comes to arranging the transfer of an estate. Fully providing for all interested parties to receive the assets and provisions the decedent wants to pass on demands a written estate plan. For example, in Oregon, legislative choices (though potentially somewhat in flux) will not provide for distribution to step-children or an unmarried partner. In Oregon, a domestic partnership can ensure that assets are transferred as though a couple were married. Otherwise, there must be a will or trust in place.

5. Family Members with Unique Circumstances

Children or family members with unique needs present another compelling reason to plan ahead. If a child has a disability that qualifies for Social Security disability benefits, an estate plan may be essential to ensure that the child does not lose those benefits, even if only briefly. The administrative process of obtaining the benefits and reinstating them if lost may be significantly complicated if the parents of such a child are no longer living and have not provided for a special-needs trust to benefit the child. Similarly, for many people in the "sandwich" generation with elderly parents who may not have the benefits of significant pension plans, a will or trust is often the only way to provide for those parents, as opposed to assuming that the legislature will somehow extend them benefits. Some beneficiaries may require a supervised or extended trust, as is often the case when beneficiaries have problems with drugs or alcohol, to ensure that funds are not provided for an ill-advised use. Such limitations will not be found in a legislative scheme drawn for the least common denominator.

6. Designating a Beneficiary

Perhaps a childless couple wishes their assets to be given to nieces and nephews, or to a neighbor or a charity; all these options require careful planning. Individuals might wish to provide for long-term care for pets as well. Oregon has a framework that allows for such a benefit in the short run, but it requires a will or trust for long-term care. One must also consider life insurance, health care, and other beneficiary plans. Again, without a designee, the default provision may not be your choice.

7. Same-Sex Couples

The recent U.S. Supreme Court decisions holding unconstitutional the Federal Defense of Marriage Act and upholding the California decision allowing for same-sex marriages in that state do not yet ensure that all same sex couples will be married. That remains a state-by-state determination. The Social Security Administration has indicated that it will allow parties to apply for benefits. Benefits may require an individual to have been married in a state that allows such marriages; complications may arise if the couple resided in another state. Such things as powers of attorney, advanced directives, or health care directives may again be recognized on a unique state-by-state analysis, so that those who either move to or from a state allowing such marriages must be very careful to review their new state resident laws.

At the end of the day the clear premise is that one should not rely on the legislature to provide for the disbursement of his or her estate. Wisdom dictates that one consult with professionals and put a plan in writing.

Summer 2013

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