How much money creates an “estate” so that I need an estate plan?
Your estate is the sum total of everything you own. There’s no minimum amount to have an estate so EVERYONE has one. And everyone should have a plan to specify who gets what they’ve worked so hard for. The State already has a plan for you: default rules that might say (for example) that if you’re married it goes to your spouse, but if you have children from a prior marriage, they get half. A lot of second spouses are surprised by this! You have the ability to control who gets access to your wealth to help you pay bills if there’s a time when you need help, and you can decide who gets what you have, and how they get it, when you’re gone.
That’s your estate plan.
A Will or Trust, Powers of Attorney and Health Care Directives are all parts of the set of documents used to carry out your estate plan.
What’s the difference between a Will and a Trust?
Most people understand that a Will is a document you write that gives instructions for who handles your estate when you die, and who gets what’s left after your bills are paid. What most people don’t know, is that a Will is not “self-executing.” That means the person that you named can’t just take it to the bank to get access to accounts. They have to hire a lawyer to draft a petition that they file in court. A judge decides whether the person you named really should serve in that role, and all your closest relatives get a copy of the Will and an opportunity to object! That process is called probate. It’s different in every state, but here in Oregon, it’s a complicated, time-consuming, detailed, expensive legal process that costs your estate money that would otherwise go to your heirs.
By contrast, a trust is like a private contract. You write instructions to give the people you name authority to help pay your bills if you’re incapacitated, and access to your stuff if needed. It gives clear instructions about who you want to have inherit when you die, and how you want them to get that inheritance. A trust is a comprehensive asset management tool that avoids probate and saves your estate money.
Is probate always bad?
Sometimes court supervision is really helpful when someone dies. If you have a litigious family member who is going to contest your Will, then having a judge enforce your wishes might be useful. If you have very limited resources and might die with a lot of debt, then having the court clear title to what’s left might be useful. If you die as a result of medical malpractice or a car accident, a probate might be necessary to pursue that litigation. A really important function of probate is to resolve the claims of creditors so that your heirs can take possession of inherited assets without worrying about a creditor’s lien attaching to it at a later date.
How much money do I have to have before I need a Trust?
How much money you have is only one indicator of whether or not a Trust is right for you. If you own real estate (including a home), if you have complex family dynamics, or complex assets, or a taxable estate, or assets in more than one state, or you care about privacy, those are the kinds of things that make us recommend a Trust. You can have a lot of money, or a modest amount of money and still benefit from a Trust. We have a great checklist that can help you self-evaluate whether you want to learn more about Trusts.
How do I pick a financial decision-maker and what if I don’t know anyone I would ask to fill
that role?
In today’s world, many of our financial decisions are made online. We can bank online and manage our investment accounts and retirement accounts online. We can pay bills and make deposits using our mobile phone! So, naming a financial decision-maker that lives near you isn’t as important as it used to be. Think about people you trust who share your financial values – if you’re thrifty, they’re also thrifty. And be sure it’s a person who has made good financial decisions themselves, so they don’t have temptation to misuse your funds to satisfy their debts.
If you don’t have someone you could name, or if you don’t want to burden a family member or friend, a professional fiduciary is a GREAT option. There are people who get paid to handle finances and there are oversight groups that ensure they’re licensed, bonded and insured. I highly recommend considering a professional fiduciary as part of your plan!
What is “estate tax” and will I have to pay it?
The federal government sets a limit on how much they think you should be able to pass tax-free to your heirs. Then they levy a tax on everything over that. Right now the federal limit is over $12 million dollars but in 2026 it will drop to something between $6 million and $7 million (the previous limit adjusted by inflation).
Each state also gets to decide what amount they think is fair for an individual to pass on to their heirs tax-free. In Oregon, it’s $1 million and in Washington, it’s over $2 million. So you might not have to pay federal tax, and be surprised by State estate tax!
Trust-based planning can help most people, even those with modest estates, avoid
some or all of the state estate tax.
How can I reduce the taxes my estate has to pay when I die?
Yes! The wealthy have used different types of trusts as tax shelters for years. One simple thing is that a married couple can each shelter their $1 million Oregon estate tax exemption if they set up an irrevocable trust when the first spouse dies. You create the mechanism and give instructions for setting up that trust during your lifetime. You can do it in a revocable living trust.
Another kind of tax saving trust is an irrevocable life insurance trust. People are often surprised to learn that although beneficiaries of life insurance proceeds inherit the money income tax-free, the estate pays estate tax on the proceeds. This can be avoided by transferring the policies in to a life insurance trust.
Here’s an example, using round numbers: if your estate was worth $1 million already, and you had a $1 million life insurance policy, in Oregon you would pay more than $100,000 in estate tax on that second million dollars in your estate. You could save ALL of that $100,000 by putting the life insurance in a life insurance trust!
Are there other things trusts can do for me?
Privacy: Your Will is filed in court and it becomes a public document. Anyone can look up your Will and see what your net worth was and who got your stuff and your money. If you want to keep those things private, a trust is a private document.
Remarriage protection: many people have stories about their Dad remarrying after Mom dies and all of his wealth going to wife #2 and then to her kids instead of his. A trust-based plan can include provisions to prevent that. If a substantial part of your wealth is in tax- deferred retirement accounts (401(k) or IRAs) then it takes a special kind of stand-alone retirement trust to apply this protection to tax-deferred accounts.
Protection from divorce: many parents report that even when they really like their son-in-law, they wouldn’t want him to get one-half of the wealth they leave to their daughter if the two of them divorce. We recommend leaving money, even to competent adult children, in continuing trust, to protect against having it considered a marital asset and being granted to a former son or daughter-in-law in a divorce.
White Oak Wills & Trusts, LLC
