Self-Made Rich are more Generous

Fortunately most of us don't have the problem of having to decide what to do with a billion dollars but those that do have to make a choice between giving away large amounts or leaving it to their children. Intuitively it makes sense that those who make their own money are more generous than those that inherited it.  I'd always assumed that it reflected the priorities and values of the family --why the family inherited money in the first place instead of donating it.   Now there is a study, The Charity of the Extremely Wealthy, that states:

We find evidence that self-made billionaires are three to four times more likely to sign the Giving Pledge and to enter the Philanthropy Top 50 list of biggest pledges, compared with those who inherited their wealth. At the same time, we find that the gap in probabilities between self-made and inherited wealth is much smaller, at about 28%, when looking at the presence in the Million Dollar List. We also find that self-made billionaires give more on average than inherited billionaires do, when measuring total gifts using the Million Dollar List or the Philanthropy Top 50.

What Happens to assets if an Estate isn't Probated in Oregon?

Probate is just the court administered transfer of property after their death.  Not all property is subject to the court process and sometimes it doesn't make sense to initiate a probate proceeding.

Non-Probate Property

Beneficiary Designations

Some property doesn't have to be admitted to probate in order to transfer.  Think about your bank, brokerage or life insurance accounts.  Often times these accounts are transferable by the beneficiary designations.  When you initially opened these accounts you were probably asked to select a beneficiary.  Because these accounts are contracts between you and the bank, brokerage or insurance company, the beneficiary designation will direct whoever holds your account to transfer it to your beneficiary after your death.

Below is a snip from the Servicemember Group Life Insurance application.

SGLI Beneficiary

If you read the language carefully it says "If you do not specifically name beneficiaries, your insurance will be paid by law."  What this often means is that if you don't designate a beneficiary the accounts will be paid to the estate and administered by the court.

While this is a quick and inexpensive way to transfer property after death it is very limited.  Like the picture above, most companies will allow you only a few options on how you want to distribute the account.  If you want to split the proceeds in a more complicated way you will need a more involved estate planning.

Keeping Beneficiary Designations up to Date

Using a beneficiary designation is only helpful if it is accurate.  I suggest that you review your accounts annually to make sure the designations are accurate and up to date.  It's not uncommon to find former husbands and wives as beneficiaries on accounts years after a divorce.   That is not a situation anyone wants to deal with your passing.

Transferable on Death Deeds

A few years Oregon adopted a Transfer on Death Deeds.  I believe most states have adopted them at this point.  Much like their name implies, these deeds transfer title in real estate on your death.   TODD are one of the most loved estate planning tools if you have an uncomplicated family.   The primary reason an estate has to be admitted to probate is real estate.  Removing real estate from the equation may let you avoid probate or allow you to settle the estate via the Small Estate process.

I've inserted a snip from ORS 93.975 that provides the form for TODD deeds.

TODD Language

If you only have one heir then a Transfer on Death Deed may make sense for you but anything more complicated and I would be leery of using it.

Abandoning Property

Often times someone will die owing more money than their estate is worth.  When this happens, heirs sometimes decide to just walk away and let the banks foreclose on the property.

If you have any questions about how probate works or what property is included, please feel free to contact me.

Oregon Probate Jurisdiction

One of the areas that initially confuses many practitioners is the limits of jurisdiction for Oregon Probate Courts. By and large, the jurisdiction of the probate court is the same as that of the Circuit Courts. ORS 111.075 Probate Jurisdiction Vested states:

Jurisdiction of all probate matters, causes and proceedings is vested in the county courts of Gilliam, Grant, Harney, Malheur, Sherman and Wheeler Counties and in the circuit court for each other county and as provided in ORS 111.115 (Transfer of estate proceeding from county court to circuit court).

The individual county courts that are vested with probate jurisdiction are the large sparsely populated counties of Eastern Oregon including the recently famous Harney County.  Although the code says these six counties are vested with the county court, all of Oregon's 36 counties' has a circuit court.  I don't know why this is.

 ORS 111.085 Probate jurisdiction described:

The jurisdiction of the probate court includes, but is not limited to:

(1)Appointment and qualification of personal representatives.

(2)Probate and contest of wills.

(3)Determination of heirship.

(4)Determination of title to and rights in property claimed by or against personal representatives, guardians and conservators.

(5)Administration, settlement and distribution of estates of decedents.

(6)Construction of wills, whether incident to the administration or distribution of an estate or as a separate proceeding.

(7)Guardianships and conservatorships, including the appointment and qualification of guardians and conservators and the administration, settlement and closing of guardianships and conservatorships.

(8)Supervision and disciplining of personal representatives, guardians and conservators.

(9)Appointment of a successor testamentary trustee where the vacancy occurs prior to, or during the pendency of, the probate proceeding. [1969 c.591 §5; 1973 c.177 §1]

Now that we have a general description of the kinds of matters that the probate court is interested in, what are the limits of the court's powers.  A phrase you might hear is that the circuit court is "sitting in probate."  ORS 11.095(1) describes those powers:

The general legal and equitable powers of a circuit court are applicable to effectuate the jurisdiction of a probate court, punish contempts and carry out its determinations, orders and judgments as a court of record with general jurisdiction, and the same validity, finality and presumption of regularity shall be accorded to its determinations, orders and judgments, including determinations of its own jurisdiction, as to those of a court of record with general jurisdiction.

What does this all mean?  In essence, the probate court is the circuit court.  There exist some different procedural rules that expedite the administration of the estate in uncontested proceedings but for the most part the powers of the two are the same.

Do You Really Want to Die Rich?

Estate Planning Attorney Kyle Krull recently posted the article What is "Don't Die Rich" Estate Planning?  on his blog.  I found it interesting the change in how people approach inheritance.

Due to lengthening life spans, in many cases, parental assets will not pass along as an inheritance to their "children" until they themselves are near retirement age.

I am seeing a change where people want to enjoy their estates and see the benefits of their gifts during their lifetimes.  My concern is that people will give away assets that they need to survive on during their retirement though.

2016 Oregon Legislation to watch

I'm aware of three pieces of legislation that have been introduced during the Oregon Legislatures 2016 short session that relate directly to estate planning and end of life issues. The first is Revised Uniform Fiduciary Access to Digital Assets Act.   This act authorizes certain fiduciaries to access electronic communications and digital assets of certain persons or decedents.  

Proposed language includes:

SECTION 7.

If a deceased user consented to, or a court directs, disclosure of the con-

tents of electronic communications of the user, the custodian shall disclose to the personal representative of the estate of the user the content of an electronic communication sent or received by the user if the personal representative gives the custodian:

(1) A written request for disclosure in physical or electronic form;

(2) A certified copy of the death certificate of the user;

(3) A certified copy of the letter of appointment of the personal representative or a

small estate affidavit or court order;

(4) Unless the user provided direction using an online tool, a copy of the user’s will, trust, power of attorney or other record evidencing the user’s consent to disclosure of the content of electronic communications

Hopefully this will make it easier for Personal Representatives to manage the estate and digital assets of someone who has passed.

The second bill is SB 1552 relating to Advance Directives in Oregon.  This bill introduces a new advance directive form that will be valid in Oregon.  There are some changes in the language of the form that I think are important but I'm not sure what the practical change will be for Physicians and Patient's family during end-of-life discussions.

4. DIRECTIONS TO MY HEALTH CARE REPRESENTATIVE.

If you wish to give directions to your health care representative about your health care decisions, initial one of the following two statements:

___ My health care representative must follow my instructions unless my medical pro-vider says my instructions are not consistent with medical standards.

___ My instructions are guidelines for my health care representative to consider

when making decisions about my care, but my health care representative should use discretion as the health situation requires.

It is not clear to me what the practical effect of the phrase "unless my medical provider says my instructions are not consistent with medical standards" will be but at first blush it does seem to take some control away from the patient.

The last bill is HB 4102 updating and modernizing certain laws pertaining to intestacy, wills and estate administration.  The bill removes "issue" from the probate code and replaces it with "descendant." I can only assume this change was made because only probate attorneys use "issue" to mean descendants.

There is also some interesting language about lifetime gifts being treated as an advancement on an inheritance or devise.  Specifically the transfer of non-probate property and the effects it has on distributing the estate.

(3)(a) Property not subject to probate administration, the transfer of which is intended by the decedent to take effect on death, is treated as an advancement against the heir’s share of the estate or the devisee’s devise under the will if declared

in writing by the decedent, or acknowledged in writing by the heir or devisee, to be an advancement. Examples of transfers under this subsection include but are not limited to beneficiary designation, right of survivorship and transfer on death deed or transfer on death designation.

My thought is that as transfer on death deeds, beneficiary designations and other similar estate planning tools become more popular, the fights between family members will only increase if there is not a clear understanding of what was intended.  These transfers are only considered an advancement against an heir's share of the estate "if declared in writing by the decedent."  I doubt the fill in the blank wills are going to be able to take advantage of these non-probate transfers and still protect the decedent's intent.

As of right now none of these bills have been passed and undoubtedly there will be amendments if they are passed.  I will post updates if they do become law in Oregon.

Probate Pitfalls (Investing Estate Assets)

The Wall Street Journal has a great article describing some of the mistakes that can be made when settling an estate.  The portion that caught my eye and inspired this post was the section on investing estate assets. While you can and sometimes should invest estate assets you can run into trouble if things don't work out.

One father named his three adult sons as executors under his estate plan, which included a pecuniary formula for funding the trust for the surviving spouse, with the balance of the estate passing to the sons. The estate consisted largely of high-quality bonds, which the sons sold shortly after their father’s death to invest in a much riskier portfolio of small-cap stocks, which they hoped would grow, Mr. Magill says. But the value of those stocks declined more than 50% before the spouse’s trust was funded at the full amount required. The sons’ resulting share bore the entire decline in the stocks’ value, resulting in a loss to them of more than $5 million.

In Oregon the General Duties of the Personal Representative is to "preserve, settle and distribute the estate in accordance with the terms of the will and ORS chapters 111, 112, 113, 114, 115, 116 and 117 as expeditiously and with as little sacrifice of value as is reasonable under the circumstances."

When the Estate has surplus assets that are not needed for the administration, the surplus assets should be invested to generate interest and income.  Oregon's Probate Code section ORS 114.305 (6), focuses on short-term investments of estate assets:

Deposit funds not needed to meet currently payable debts and expenses, and not immediately distributable, in bank or savings and loan association accounts, or invest the funds in bank or savings and loan association certificates of deposit, or federally regulated money-market funds and short-term investment funds suitable for investment by trustees under ORS 130.750(Trustees duty to comply with prudent investor rule) to 130.775 (Trust language authorizing investments permitted under prudent investor rule), or short-term United States Government obligations.

Of course, this is just scratching the surface of the issues that can arise from investing estate assets.  What is important to remember is that personal representatives in Oregon are only held to the standard of a prudent investor.  (Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustees decision or action and not by hindsight. ORS 130.770)

Intestate Succession in Oregon

What happens when you die without a will

When a person dies without a Will in place, the Oregon Probate Law (Intestate Succession and Wills) determines how that person’s estate will be distributed.  The diagrams below will help you understand how the estate will be divided. This is not a complete list of scenarios but should give you a good idea of what can happen.  In real life, families can be incredibly complicated and who inherits what can be equally as complicated.

Surviving Spouse and Children

No Surviving Spouse and Surving Children

When there is no surviving spouse, the Estate is distributed evenly between the children.

Children from a Previous relationship and a surviving spouse

In this situation, the surviving spouse receives half of the estate while the Decedent’s children receive the other half distributed evenly.   Former spouse receives nothing.

Parents Share when Decedent has no children or spouse

When a Decedent passes with no Spouse or Children, the surviving Parent will inherit the estate.

No Heirs, unable to locate heirs or heirs refuse

Caveats

There are many other situations that can arise with families.  For example, parents can sometimes forfeit their share of estate because of neglect or abuse.  If the heir murdered or abused the person who died, Oregon law can prevent them from inheriting property.  There are also rules for grandparents inheriting property and for individuals inheriting property to two lines of relationships.

What appears first as simple can quickly become complicated when blended families, remarriages, not remarrying and other decisions we make throughout life get added to the mix.You can learn more about Oregon Probate on my practice area page. 

If you have any questions on how your property will be inherited after you pass, feel free to contact me.