Estate planning is a topic that often comes up in investment discussions. The complexity of this area and the potential ramifications of doing something wrong makes getting advice from a qualified expert (not me) crucial. Recently I had the opportunity to pass along some of your questions to a highly qualified specialist and expert in the field, Nadine Davison. Nadine is an estate planning attorney and shareholder with the Corvallis law firm of Smith, Davison & Brasier, PC.
Originally from Bethesda, Maryland, Nadine moved here twenty years ago when her husband accepted a position as an English professor at OSU. She has two teenagers, a seventeen year old son and a fourteen year old daughter.
Before moving to Oregon, Nadine practiced for eight years in Washington, DC, representing corporations and individuals in all aspects of complex commercial litigation. After moving west, she continued her litigation practice in Eugene for three more years, and then took a few years off to be home full-time with her children before joining Jeanne Smith and her practice in 2003.
Below Nadine answers many of the questions that have been posed to me over the years. Hopefully, this discussion sparks some thought in your household on whether or not your current plan is up to date and adequate to the task.
1. What’s the danger of not having a plan – let’s say I have fairly typical assets and I die? What’s the danger in terms of my heirs?
Actually, everyone already has a plan – it just may not be the one you want. That’s because there are any number of factors that determine what happens if you die without a Will or a living trust – how your assets are titled, who you’ve named on beneficiary designations, and identity of your heirs as determined by Oregon law. You also lose the ability to plan for estate taxes. Complications routinely arise in second marriage situations and with minor or incapacitated beneficiaries.
2. What is the most underappreciated aspect of estate planning?
When most people think of estate planning, they think of dying. But, estate planning also involves making sure that you have a plan for incapacity and documents in place to achieve that plan. We’ve been seeing a lot of grown children come into our office lately, and they’re at a loss because a parent has had a stroke or is suffering from dementia and the child can’t access bank accounts or investment accounts to pay bills, or sell the residence. In those cases, the child must go to court to obtain a guardianship or conservatorship for the parent. Guardianships and conservatorships are public and expensive, and require the guardian or conservator to file detailed annual reports with the court about the parent’s assets, income, and expenses.
3. At what point do needs move beyond what a simple will can handle?
It really depends on the client and his or her circumstances. Someone with a small amount of assets, but who doesn’t want his or her heirs notified in probate, may decide on a living trust instead of a will for the privacy it affords. Other circumstances include clients who have a taxable estate (currently more than $1,000,000 in assets, including life insurance and retirement accounts), own real property located in other states, have minor or incapacitated beneficiaries, or are in a second marriage.
4. Let’s say I have a standard A/B Bypass trust plan that was created fifteen years ago when the estate tax applied to a much lower level of assets than it does today. Is there any reason to undo the plan? Should it be kept as-is or would it be a good idea to revisit it?
It would be a good idea to revisit the A/B Bypass trust plan created 15 years ago. This technique involves the division of assets on the death of the first spouse into a family trust and a marital trust. This arrangement insures that both spouses’ exemptions are fully used and estate taxes are minimized to the greatest extent possible. A formula is used to determine the amount that will be allocated to each trust; fifteen years ago that formula most likely referred to the “federal” exemption amount because at that time the federal and state estate tax schemes paralleled each other, and the formula resulted in no taxes on the death of the first spouse.
Since the year 2000, the Federal exemption amount has increased dramatically, to $5,430,000 in 2015. Oregon’s exemption amount also increased, but only to the current amount of $1,000,000. Now that Oregon has “decoupled” from the federal government, if the formula in your estate document is not changed, state estate taxes may be owed unnecessarily on the death of the first spouse.
On the other hand, if the value of a couple’s assets is below the Oregon exemption amount, or slightly above, they can simplify administration on death by deleting the A/B Bypass Trust plan now, before one of them dies.
5. Is there much innovation that goes on in the world of estate planning – is there anything new that people should be aware of if they haven’t reviewed their plan in the last five or ten years?
Clients now have much more money in retirement accounts. If clients leave those assets to a trust for children or an incapacitated beneficiary, then at the client’s death, this could result in a significant loss in the account to income taxes. To avoid this loss when passing on retirement accounts to minor or incapacitated beneficiaries, we create Retirement Plan Trusts, which are trusts that are specially designed to avoid such a loss.
In addition, income tax issues such as capital gains tax and the medicare surtax that is now applicable to trusts, have made estate planning much more complex.
6. Do I really need a lawyer to write a simple will? Could a regular person just write something and have a court honor it?
Good question. When I began the practice of estate planning, I gave a seminar for parents of small children, and that was the first question asked. I didn’t know the answer, so I went back to the office and used two separate “do it yourself” Will programs to draft my Will. Both programs resulted in the creation of Wills containing significant errors. In the years since, I’ve seen Wills written by non-lawyers, and a couple of them have worked well and others have caused years of litigation. The problem is we won’t know which plans will work until your death. Not only may a Will have errors, but the client’s titling of assets and beneficiary designations may be at odds with the Will.
7. Is there much room for different techniques or interpretations in this area? What is it that your firm does that might be different from what another attorney might do?
We are a boutique firm, emphasizing estate planning. One of our partners, Marilyn Brasier, has an LLM in taxation. We keep up to date on the constantly changing laws and planning techniques. When planning is involved, one size does not fit all; we listen closely to our clients, to design plans that meet each client’s specific objectives. We also employ a team approach in working with our clients and their other professional advisors to achieve each client’s unique goals. Finally, we provide straightforward, understandable legal advice, even on complex legal challenges.
8. How often should an estate plan be reviewed? Should it be on a calendar basis or just when life events change?
We ask our clients to review their estate planning documents every year or two to make sure they have no changes. The client should contact his or her attorney when circumstances change, such as the death of a beneficiary; the birth, adoption, or the establishment of a guardianship for any child; a substantial change in economic status; and marriage.
Is your current estate plan adequate? Don’t leave it to chance – click here to download our free Seven-Point Checklist for Your Estate Plan.
9. What’s the most unusual estate planning story you’ve ever encountered?
A father drafted his own Will, and left everything to his four children, except for some money to a person who was unknown to the children. After father’s death, during probate, the children disagreed about the terms of the Will, hired their own attorneys, and a meeting was held to try and resolve the issues. The unknown person was found by one of the attorneys, and walked into the meeting unannounced to introduce himself to the family – he turned out to be another of father’s children.
10. What do you see on the horizon that presents the biggest challenges to people with significant estates?
These challenges include transfers of privately held family businesses; designing trusts with tax and non-tax objectives to transfer wealth to descendants; and educating younger generations of family members about the family’s values and assist them to develop the skills to manage the family trust and other entities. For those clients without children, the biggest challenge often involves deciding how the assets can provide the most assistance to extended family and charities.
11. Is there anything that can be done for the person, let’s say an elderly parent or relative, that has estate planning needs but has become mentally incapacitated?
Unfortunately, it’s too late for the person to develop his or her own plan. He or she cannot sign a Will or choose those persons who will manage their finances, but loved ones can step in to obtain a guardianship or conservatorship through the court.
12. What’s so bad about probate and why are people willing to jump through hoops to avoid it?
Any assets moving through probate are frozen until the court approves distribution to the beneficiaries (Assets may be sold during probate, but the net proceeds are distributed to an estate account, awaiting court approval to distribute). In Benton County, Oregon, in a standard probate without complicated issues, such court approval may take 8-10 months after the probate is filed. In addition, probate is public and expensive. Probate is not necessarily “bad” for everyone’s situation – it depends on a client’s assets, family issues, and concern with privacy.
13. What are some of the things that you’ve learned about this process that have only been taught through experience? In other words, important things that you didn’t learn in law school, but you learned as a result of actually practicing law.
Most of the practice of law is not taught in law school. The most important aspect of estate planning is to really listen to the clients and their needs, and set out their options clearly so they can make informed decisions. I’ve also learned that a client’s plan must be clear enough to administer after the person has died – ambiguous plans are fraught with problems, namely because the client is no longer here to advise us on what he or she wanted.
14. How has your estate planning practice changed as the estate tax threshold has been increased so dramatically?
We do fewer charitable remainder trusts and irrevocable life insurance trusts, but generally, our practice has stayed the same. The important concerns for estate planning have not changed, that is to provide for incapacity, and to make sure that your assets are distributed to your beneficiaries as you want.
15. Besides planning in financial terms, what are some of the other estate planning needs that people should be paying attention to?
Planning for incapacity is a large part of estate planning. In addition, planning in detail for minor children and incapacitated beneficiaries is important.
16. Are there any important estate planning laws that are unique to residents of Oregon?
The federal exemption amount is currently at $5,430,000. However, Oregon has “decoupled” from the federal exemption amount, and currently has a $1,000,000 state exemption amount. This means that A/B bypass trust planning must be carefully crafted, and planning now includes not only estate tax planning, but also income tax planning.
Gifting is an important estate planning tool in Oregon. Under federal law, a person may gift only $14,000 per year per person without filing a federal gift tax return, and such gifts reduce the federal exemption amount if your estate exceeds that amount. Oregon does not have this $14,000 limitation. Therefore, if an Oregon resident with an estate below the federal exemption amount makes gifts during lifetime, he or she may be able to reduce his or her estate at death, thereby saving Oregon estate taxes. However, it’s very important to review this gifting with an attorney and CPA before the gift is made because but if you gift certain assets you may cause more income taxes to be due than are saved on estate taxes.
17. What kind of questions should someone ask an attorney to ensure that they know what they’re doing and that they would be a good fit?
Ask the attorney about the percentage of time they spend on estate planning, trust administration, and probates. You’ll know whether an attorney will be a good fit if you feel they’re listening to you, and you’re comfortable enough to speak freely about potentially difficult family dynamics and your assets. We provide initial “meet and greet” meetings for potential clients wanting just this type of information. An attorney may be knowledgeable, but not a good fit for you, or vice versa.
If you would like to talk with Nadine about your estate plan, she can be reached at 541.752.6416.
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