How Do You Avoid Probate in Oregon?
Many people wish to avoid probate because it is a tedious and lengthy process. Benefits of avoiding probate include loved ones receiving inheritances sooner and no court oversight. Different methods for avoiding probate are illustrated below.
Revocable Trusts (Living Trusts)
Many people set up an inter vivos trust, also known as a Living Revocable Trust. To set up a trust, the grantor, the creator of the trust, must first name a trustee. The trustee is the person who will carry out the specific terms of the trust. Generally, the grantor appoints themselves as the trustee during their lifetime and will appoint a successor trustee to take over once they pass away or become incapacitated. Next, the grantor names the beneficiaries. These are the people, or entities, that will inherit the trust property after the grantor dies. Lastly, and importantly, the grantor must transfer ownership of their property to the trust, through the trustee. For example, if you wish to place your home into the trust, you must convey title to the trust through the trustee via a deed.
It is important to keep your trust documents in a safe location so that your loved ones can find the trust document after you pass away. Without the trust document, it can be difficult to determine the beneficiaries of the trust property and will likely cause complications.
Even with a trust, it is still recommended to draft a "pour-over" will. A pour-over will is a simple will that transfers any overlooked property into your trust.
Joint Ownership
Joint tenancy creates a "right of survivorship" with the surviving owner and is a popular method individuals use to avoid probate. Each owner must hold an equal share of the property to create a joint tenancy. When one owner dies, their share is transferred to the surviving owner(s) immediately at their death. Individuals can hold most assets in joint tenancy, such as bank accounts, real estate property, vehicles, etc. Often, specific language is needed to create a joint tenancy, such as joint ownership in real estate between non-married individuals.
Joint ownership of real estate property between married individuals is termed a tenancy by the entirety and also hold right of survivorship as described above.
Joint ownership between parents and adult children, may not be advantageous in many situations. In the instance of bank accounts, the adult child will have full access to all the assets in the account, as may their potential creditors and soon-to-be ex-spouses. Additionally, it is not advisable to add your children to your deed. This can prevent your children from receiving a favorable step-up in basis tax treatment when they inherit the real estate property.
Payable on Death or Transfer of Death Designations
Payable on Death (POD) and Transfer on Death (TOD) accounts are designed to avoid probate. These accounts transfer ownership directly to the named beneficiaries upon the account holder's death. POD accounts are associated with bank accounts, such as checking accounts and savings accounts, as well as certificates of deposits (CDs), and life insurance policies. TOD accounts are generally brokerage accounts, stocks, bonds, and other investments. Lastly, individuals can create a Transfer on Death Deed, to transfer real estate property upon their death.
To create a TOD or POD, the account holder must designate beneficiaries to the account, which will transfer ownership of the account immediately upon the account holder's death. Beneficiaries can be an individual, an organization, or a trust. The account holder retains sole control and ownership of the account throughout their lifetime. The beneficiary has no right or access to the account until the account holder dies.
Some pitfalls can occur, when people designate one of their children as the designated beneficiary of the account, but later drafts a will or trust that states that their children shall receive equal shares. The TOD/POD beneficiary designation will generally override the will or trust's provisions, which can lead to unintentionally creating unequal shares between their children.
Additionally, people must consider payment of any estate taxes. If a person's estate consists entirely of TOD or POD accounts, there will be little to no money reserved to pay the estate's taxes. In this scenario, it can cause confusion regarding who should pay the estate’s taxes, and how much.
Summary
Avoiding probate allows assets to be transferred to beneficiaries in a more private and efficient manner. People who wish to avoid probate have many options. Speaking with an attorney can help you determine your best choices.
