Always a fan of Teepa Snow and her approach to working with those living with dementia, I seldom miss an opportunity to pass along her words of wisdom.
In my last article, I defined “Heir”, “Beneficiary”, “Personal Representative”, and “Trustee.” These terms can be confusing in the abstract – often, using them in examples helps clarify what each means and how it fits into the context of an estate plan.
First, the facts for our examples: 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, triggering 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 intestate, that is, without leaving a document distributing his estate at his death. Under the laws of intestacy in both Oregon and California, 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 does not qualify. George’s Heirs are his wife and children and they would receive his estate after the probate was complete.
Let’s say, however, that before his death, George writes a Will, naming his dear friend, Mr. Spacely, as his Personal Representative. In both California and Oregon, 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, unless there was some reason that would disqualify him. 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, a subject for another time!).
In our first two examples, a probate is required, and Jane must seek court authority before taking many of the actions needed in administering an estate. This adds both unnecessary time and expense to the administration of George’s estate.
In the 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, as well as some provisions for Rosie (to thank her for her years of service), making them all Beneficiaries. As Trustee, Jane has the same basic duties as a Personal Representative; however, she does not require court authority in order to act. 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 without writing a Trust into the 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.
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 (and worthy of reviewing from time to time). In this two-part series, I will define them and then apply them in specific examples. My hope is to provide my readers 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 who dies intestate (with no document spelling out how one’s estate is distributed after death). 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 are our spouse, children, grandchildren, etc. If there are none at this level, the statute looks to parents, siblings, nieces and nephews. After that, grandparents, aunts and uncles, and then cousins.
A Will or Trust 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 chooseour beneficiaries, but we do not choose 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.
If a person dies (the “decedent”) with an estate is over a certain value, a probate is triggered. This is the court-overseen process for administering a decedent’s estate. Personal Representativesare 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 a living Trust exists and is properly funded, the need for probate is bypassed. The person in charge of the Trust is the Trustee (initially the Settlor), and unlike a Personal Representative, the Trustee comes into play before death. The Settlor names a Successor Trustee to manage the Trust when the Settlor is no longer able. 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!