The first thing to consider when preparing to have your will drafted is the size of your net estate should you die tomorrow. “Net estate” includes all your assets (real and personal property, investments, retirement accounts and life insurance) less debts. If this amount is greater than $1,000,000, your estate is subject to Oregon estate taxes on the amount that exceeds $1,000,000. If your estate is greater than $5,430,000, it is subject to paying federal estate taxes on the amount that exceeds $5,430,000. (These figures are current as of 2015.)
An estate-planning attorney can advise you on how to reduce your estate taxes. You should keep in mind that your estate is exempt from paying estate taxes on the amount that is bequeathed to your spouse, as long as your spouse survives you and is a US citizen. This is true for Oregon and federal estate taxes. For example, if your net estate is $5,000,000 and you bequeath it all to your spouse and your spouse survives you, your estate will pay no state or federal estate taxes.
You may have heard about revocable living trusts as will substitutes and their purported tax advantages. This is a popular misconception. Revocable living trusts provide no tax savings advantages. Anything that can be done to avoid paying estate taxes can be done through a will just the same as through a revocable living trust.
The second thing to consider is whom to appoint or nominate as your legal representatives: to be your personal representative and – especially for those who have minor children – to serve as your children’s guardian and to be trustee of a “testamentary trust” created for your children. “Personal representative” is the Oregon term for executor or executrix. After death, your personal representative is responsible for gathering assets, paying bills, filing tax returns and distributing the estate according to the instructions in your will.
Normally, each spouse appoints the other as his or her personal representative. You should also appoint one or two other persons as alternate personal representatives in case your spouse dies before you do or at the same time.
The next legal representative to name is the guardian of your children who are under age 18, necessary if your spouse dies before you do or at the same time. Your guardian is the person who will take your children into his or her home after your death. Your will does not establish the guardianship, that has to be done by a court after your death, but your will tells the court who you want to be the guardian and the court will give your preference great weight.
If you have minor children you will also want to name a trustee. An attorney drafting a will for a person with custody of minor children will include a testamentary trust. (A testamentary trust is a trust created within the will itself.) Your trustee will have control of the trust assets and will be responsible for distributing those assets to the child or children according to the terms of the trust. Your trustee can be the same person as the guardian or your trustee can be a different person, perhaps one who is more comfortable with finances. You should select an alternate trustee as well.
The third thing to consider, especially for those persons with custody of minor children, is the type of testamentary trust to create for your children and when distributions are to be made. You can put all the money in one “pot” to be used as children need. For example, in a two-child family if one child is healthy and the other has serious medical needs not covered by medical insurance, the child with serious medical needs can access more than one-half of the trust assets. Or you can divide the trust into separate shares for your children and each child can access only his or her share. A third possibility is to create a pot trust that converts to a separate shares trust at some later date. In that case your trust starts as a pot trust but at a certain point in time, the youngest child’s 18th birthday for example, it converts to a separate shares trust and from that point forward a child can only access his or her share.
During the life of a testamentary trust the trustee normally is empowered to distribute trust assets only for the “health, education and welfare” of a child. If the trust assets are not depleted, there comes a time to distribute the remaining trust assets to the child. You get to pick when that occurs. Although the possibilities are endless, some common distributions are when a child reaches a certain age, such as 18 or 21 or 30. Another possibility is a series of distributions, such as one-third at age 21, one-third at age 25 and the remaining one-third at age 30. Or you may wish to make a distribution after an event other than a birthday, such as distributing all or a portion of the amount in a trust after graduation from college.
A fourth consideration is whether to hire an attorney to do your will or do it yourself using a tool such as a software program. I cannot say with authority that using self-help in drafting your will is necessarily a bad idea. I would have to review several examples of self-drafted wills and see if people are drafting them correctly or not. There are some obvious drawbacks to doing it yourself, however. First, you may not have the peace of mind that comes from turning the job over to a professional. Second, if the will you draft is not correctly done and is invalid or does not accomplish your wishes, there is no one for your beneficiaries to sue. Oregon attorneys are required to carry malpractice insurance up to a minimum of $300,000, so if an Oregon attorney makes a mistake drafting the will, there is likely recourse available to your intended beneficiaries.
Finally, if you use an attorney to draft your will, you will not have to remember anything in this article. These are all things that the attorney will talk with you about during your first meeting. But now you will be more prepared to discuss them.
Based on an article reprinted courtesy of Portland Family Magazine. (www.PortlandFamily.com)