Living Trusts

A will is a document regarding your property, how you want it distributed and the people you want to leave it to. Your will can only benefit you after you die. It is a different thing from what you call a living trust, which can already benefit you while you are still alive.

A living trust is not only used to manage your property while you are still alive, but also to determine how this property, your estate and your assets, will be distributed after your death, so in a way, it is still quite similar to a will. Basically a trust will help you manage all your financial affairs. You can transfer all your property into a living trust, and again like a will, you can still make any changes to any arrangements and propositions. After your death, any remaining assets and property can be transferred into the living trust through a Pour-Over Will, and the name is pretty much self-explanatory. If you decide to make a living trust, it is important to make a Pour-Over Will to go with it. The property included in the trust are managed by one person (but it can be more than one, or even organizations as a whole) to benefit another. However the property is owned by the trust. The creator of the trust is called a settlor, and the people he/she has chosen to be beneficiaries of his/her property are called the trustees. The trustees become the legal owners of the property included in the trust, who hold the property for the benefit of individuals or organizations, called the beneficiary, that have been chosen by the settlor.

You can also make joint living trusts. Basically you can combine the property and assets of a married couple together into a single trust and it will be governed by a single trust document and validated by the law. There are certain complications when you wish to make a joint living trust, however, like tax minimization and such, so it is best to consult a lawyer to help you so there wouldn't be any more problems later on.

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I Have a Revocable Living Trust - Do I Need a Will, Too?

If you have a Revocable Living Trust, one of your main reasons for choosing this method of estate planning was likely to avoid probate.

Trusts Need to be Funded

So, you know that you need to fund your trust in order for it to be effective. In other words, you know you need to transfer property into your trust so that the property won't have to go through probate when you pass away.

Would it surprise you to know that, even if you have a Revocable Living Trust that you intend to fully fund, you still need a will?

At first blush, this may not make much sense, because a Revocable Living Trust is designed to help you avoid probate, while a will is designed to go through probate. But here's why you need both:

Why Wouldn't My Trust Be Funded?

People don't always fund all their property into their Revocable Living Trust before they pass away. There can be a few different reasons for this, for example:

• Sometimes, they buy property and just don't have time to transfer it into their trust before they pass away;

• Sometimes, for practical reasons, they intentionally leave property (like motor vehicles) out of their trust;

• Sometimes, they just plain forget.

What Happens When Property is Left Out?

Whatever the reason, if property is left out of your trust when you pass away, and it doesn't automatically pass to someone else through joint ownership or a beneficiary designation, then it's subject to probate. Without a will, property that goes through probate is distributed based on a formula provided by state law. This means that your property might not go to the beneficiaries of your choice.

The Solution

If you have a trust, you also need what's called a Pour Over Will. This is a will that directs all of your probate property to be distributed to your trustee. Once your property clears probate, your trustee will distribute it according to the terms of your trust. So, even though your left-out property has to go through probate, it eventually ends up where you intended it to go.

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How to Change or Update Your Will

Despite its purpose, a will is a living document, meaning it should be updated or changed as situations warrant and life changes occur. In fact, even if circumstances do not change, a will should be reviewed every three to five years. Life changes that may warrant an update to a will include:

• Marriage/divorce; • Birth of a child; • A minor child turning 18; • Moving to another state; • Change in wealth; • Purchasing or selling a valuable asset; • The death of a beneficiary; and • Legislative changes.

Simple updates to a will can be done using a Codicil. A Codicil is a document that amends an existing Will, and it must be properly prepared, signed and witnessed just like a Will. It's important that a Codicil be stored with the Will.

For more extensive changes, you may need to draft a new will. If you draft a new will, your existing will should be revoked. This can be done by not only destroying copies of the existing will, but including a statement in your new will indicating your intent to revoke the old will.

One issue that has come to light with 'do it yourself' will kits, is a testator, the person drafting the will, attempting to update a will by simply crossing out a portion of the will. This is called a "partial revocation by physical act," and although it may be allowed in some states, it is not allowed in Oregon, and can cause problems and inconsistencies within the document.

Working with an estate planning attorney to draft and update your will ensures that your true intentions are properly drafted in the document and lessens the chance of the will being contested.

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Choosing Your Power of Attorney Agent - Important Things to Consider

The Power of Attorney agent you choose will have complete legal authority to make decisions about your affairs. For this reason, it is crucial that you choose someone who is trustworthy and keeps your best interests in mind. Here are some common sense guidelines to follow when choosing your Power of Attorney agent:

• Pick someone who you really trust. They can be either a close relative or someone you have known for a long time. Don't trust your affairs to anyone who you think might not follow your wishes.

• Consider the cost. If you choose an attorney or accountant as your agent, there is usually a fee. Family members will usually perform agent duties for free.

•Choose someone with financial smarts. Your financial affairs will probably be better managed by someone who manages their own financial affairs carefully and effectively.

• Choose someone who agrees to do the job. Acting as your Power of Attorney agent is a big responsibility, and if the agent does not agree and understand the importance of the task, it might not be done well or the agent may back out later. Discuss the issue with your potential agent first and express your values and wishes with regard to how your affairs should be handled. This also gives the agent an opportunity to consider and communicate to you whether he or she is willing and able to handle the responsibilities.

Note: a Power of Attorney agent, sometimes referred to as an Attorney-in-Fact, does not have to be an attorney. The agent can be any adult that you trust and who is competent to handle your affairs. An agent can also be someone other than an individual, including a bank.

If you ever doubt your agent´s trustworthiness or if a conflict of interest arises, you should terminate the agent´s authority to act for you by using a Revocation of Power of Attorney document. As a follow up, you should also contact other parties who may have been relying on the authority of your agent such as banks. You may also appoint an alternate agent would become your primary agent if your first choice can not perform the duties when the time arrives. It should also be noted that a separate Power of Attorney must be created for each person. A "joint" Power of Attorney is not valid.

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Wills - What Happens If a Beneficiary Dies Before You?

It is always important to think about the impact of your estate if any of your beneficiaries that you already named, died before you or are unable or unwilling to receive the vested interest. It is even wise to think of these things, even if the beneficiaries are quite a lot younger than you. In usual practice, if a beneficiary dies before you and is actually not a descendant of yours, the gift you have given to them will lapse. If you want the gift to go to his or her spouse or child in the event of his or her death before yours, you should state this in your Will clearly and precisely. However if a son or daughter of yours is going to inherit something of yours under your Will but dies before you have died and has left children, the gift which was meant to go to your children will then go automatically to their children, therefore your grandchildren, unless you have made a special provision in your Will stating otherwise.

If there is a cash legacy (a gift of money) made to a beneficiary in your Will, such as £100 to my daughter Alice Hall, or even a specific bequest (item of property or personal possession), such as my grand piano to my uncle Thomas Cook, there will be no problem. However, if these named beneficiaries die without having obtained their cash legacy or specific bequest, then the gift will revert back to the estate and become part of the residue of the estate, which will go towards the amount of the estate that the beneficiary who is receiving the residue of the estate will receive in the event of your death.

If the main beneficiary who is meant to be receiving the residue of the estate of the testator dies before the testator and is not the testators direct descendant, then that part of the residue of the testators estate will be left indisposed of. This is called partial intestacy. This is where the lapsed share is then dealt with under the intestacy rules. It is therefore advisable to name any alternative beneficiaries in your Will in case the main beneficiary cannot receive the vested interest and is the only residuary beneficiary named in the Will.

However, in the event that the beneficiary to the residue of your estate dies after you, but before the bequest is actually paid to him or her, the beneficiary's estate will still receive that bequest and therefore it will not revert back to the testator's estate and then distributed to other beneficiaries.

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Estate Planning and Incentive Trusts

When you take stock of your assets and recognize the fact that your estate is going to have a considerable impact on the lives of your heirs, it is important to consider the personalities and proclivities of the each individual involved. There will probably be some family members who are ready to receive their inheritances directly with no strings attached at all, but you may have some nagging doubts about others. Younger people who are not established in their own right may lose their way if they find that they don't really have to gain an education and embark on a career path for financial reasons. And others may have personal problems or difficulty handling money, and these types of things can give you reason to take pause.

Incentive trusts are estate planning tools that you might want to consider to address these concerns. With these vehicles you set up the trust to make distributions based on certain stipulations that are intended to guide the beneficiary in the right direction. For example, many people create trusts that provide academic incentives. You may allow for regular distributions as long as the beneficiary remains in school, and provide for a lump sum distribution upon graduation. You can take that a step further and foster an ongoing work ethic by having the trust match each dollar that is earned by the beneficiary in his or her own right.

In addition to encouraging positive choices, incentive trusts can be used to discourage destructive behavior. For example, you could tie distributions from the trust to completion of a substance abuse treatment program, and add provisions for ongoing distributions contingent upon staying free of the addiction or addictions.

These are just a few common examples of how incentive trusts are used, but you can actually create such a trust with any stipulations you choose to as long as they are not illegal. There are obvious reasons to tread lightly and proceed with caution because you don't want your gifts to be met with resentment, but if you use them wisely incentive trusts can be a very useful inheritance planning solution.

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