Cheri Elson Sperber and Allen G. Drescher, Retired
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Heirs, Beneficiaries, Personal Representatives, Trustees – It All Makes Sense Now!

In my last article, I defined “Heir”, “Beneficiary”, “Personal Representative”, and “Trustee.”  These terms can be confusing in the abstract – my hope is using them in examples will help clarify what each means and how it fits into the context of an estate plan.

When George Jetson died, he left behind a wife, Jane, a daughter, Judy, and a son, Elroy.  George also had a maid, Rosie, and a dog, Astro.  The value of his estate on the date of his death was $400,000, and would trigger a probate under both California and Oregon laws.  The person appointed by the court to oversee and manage the probate is the Personal Representative.

In our first example, George dies without leaving a Will or a Trust – he died intestate.  Under the laws of intestacy in both Oregon and California, George’s Heirs are his wife and children (Jane, Judy, and Elroy), and they would receive his estate after the probate process was complete (the percentages in which the estate would be distributed vary in each state and are too complex to address here).  Again, under the laws of both states, Jane would be first in line to be appointed Personal Representative, with Judy following if Jane could not, or did not want to act.  Because Elroy is under age 18, he may not be appointed as Personal Representative.

Let’s say, however, that before his death, George writes a Will, naming his dear friend, Mr. Spacely, as his Personal Representative. Under both California and Oregon laws, a person or entity named in a Will takes preference for appointment over any other person or entity, and Mr. Spacely would be named Personal Representative.  George’s Will leaves his entire estate to Rosie and Astro, making them his Beneficiaries.  Barring a successful contest to the Will, they would take the estate over George’s Heirs (Jane, Judy, and Elroy – although Jane may be able to still receive some as the surviving spouse, again, a subject for another time!).

In our first two examples, a probate is required, adding unnecessary time and expense to the administration of George’s estate.  In this last example, George centers his estate plan around a living Trust. George names Jane as his Trustee and leaves the Trust Estate to Jane and the kids, making them Beneficiaries who also happen to be his Heirs (George is a good guy!).  As Trustee, Jane is charged with the same basic duties as a Personal Representative in a probate; however, she does not require court authority to take the actions she knows are needed. The Trust also provides for Jane (as Trustee) to manage Elroy’s share until he is 25 and (hopefully) ready to manage the money wisely on his own (something not easily accomplished in a Will).

Hopefully, putting these terms in contexts of examples help keep them straight.  They have very specific meanings, rights, and duties – knowing the difference can go far in ensuring your plan is accurate and in sync with your needs and desires.

Heirs, Beneficiaries, Personal Representatives, Trustees, Oh My!

Heir.  Beneficiary.  Personal Representative.  Trustee.  Often used interchangeably, they can cause confusion at best, real issues, at worst.  Understanding the difference is important, both in the creation of the estate plan and in its administration.  In this two-part series, I will define them and then apply them in specific examples.  At the end, I hope my readers have a better understanding of these terms and how they fit into the grand scheme of an estate plan.

Heirs are those who receive the estate of someone dies intestate (with no testamentary document, like a Will or a Trust). Oregon statutes define an heir as “any person who is or would be entitled under intestate succession to property of a person upon that person’s death.” Our actual heirs are determined by those alive at our death and the statutes tell us how to figure it out.  First in line are our spouse, children, grandchildren, etc.  If there are none, the statute looks to parents, siblings, nieces and nephews.  After that, grandparents, aunts and uncles, and then cousins.

When a person creates a Will or a Trust, the document names Beneficiaries, those who are to receive the person’s property at their death.  Often, heirs and beneficiaries are the same people.  However, it is important to understand the distinction between the two terms, because we choose our beneficiaries, not our heirs.  In a Will, the beneficiaries are those who receive the estate at the end of the administration (often a probate).  In a Trust, the primary beneficiary is typically the Settlor of the Trust (the person who created the Trust); those named to receive the estate at the Settlor’s death are the remainder beneficiaries.

When a person dies (the “decedent”), if their estate is over a certain value, that estate goes through probate, the court-overseen process for administering a decedent’s estate.  Personal Representatives are appointed by the courts to manage that process. We can name our personal representatives in our Wills; if we don’t, the Oregon statutes, once again, give us a priority list of who is appointed.

When we create a living Trust (and properly fund it), we bypass the need for probate.  The person in charge of the Trust is the Trustee. Unlike a Personal Representative, a Trustee comes into play before death and, initially, the Settlor is the Trustee.  The Settlor names a Successor Trustee to manage the Trust when the Settlor no longer does. The circumstances under which the Successor Trustee takes over determines the Successor Trustee’s job.  If the Successor Trustee takes over because of the Settlor’s inability to manage their own finances, their main job is to manage the Trust for the benefit of the Settlor.  If the Successor Trustee steps in at the Settlor’s death, their main job is to distribute the Trust to the remainder the beneficiaries.

Clear as mud?  Let it sit and percolate.  In part two, I’ll give some examples and it should all come together!

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