Wills, Trusts, and Estate Planning
A will is a legal document that appoints a Personal Representative and directs the distribution of certain property you own when you die. There are three general types of wills: simple wills, complex wills, and pour-over wills. They do not vary in terms of the types or amount of property you own or the manner in which the will is executed. Instead, simple and complex wills are different in that simple wills generally give property outright but complex wills typically have some trust terms in them. A pour-over will is used in conjunction with a revocable trust. Regardless of what type of will is ultimately the best fit a will is an essential component of a comprehensive estate plan.
When you die, your estate is subject to probate. Your will is filed in the district court. The court then grants the person named as your Personal Representative authority to administer your probate estate.
Generally, a simple will distributes your probate estate property outright to beneficiaries. No testamentary trusts are created. These wills are appropriate for people who dont want to use a revocable trust, wont have minors or surviving spouses as beneficiaries, and need no estate tax or GST tax planning.
Generally a complex will creates testamentary trusts instead of or in addition to outright gifts. These trusts can be used for asset protection planning for the beneficiaries, estate tax and GST tax planning, if the beneficiaries of the trust are a surviving spouse or minors, among other purposes.
With the use of a revocable trust and a pour-over will, the need and desirability of a complex trust has waned. A complex will remains a convenient solution for someone who is strongly opposed to having to fund a trust and any additional record keeping it requires.
A pour-over will is essentially a simple will, except it directs the Personal Representative to distribute any probate property to your revocable trust instead of directly to beneficiaries. The pour-over will operates to channel any probate property into your revocable trust. As a result, your revocable trust contains the provisions regarding the actual distributions and gifts of property to beneficiaries. A pour-over will is an essential backstop to an estate plan based around a revocable trust.
How Does a Revocable Trust Work and What Can It Accomplish for Me?
When you place property in a trust (revocable or irrevocable), the trust becomes the legal owner of the property. The people who get to enjoy the benefits of the trust property and/or its income are called beneficiaries. This legal structure of a revocable trust, if it’s properly funded, allows most or all of your property to avoid probate, because the legal owner of the property (the trust) does not die.
If you have a revocable trust when you die, the trust becomes irrevocable upon your death and the successor trustee takes control of the trust. Your successor trustee will usually not need to visit court and can begin administering the trust property with little or no delay. Your trust may also be named the beneficiary of life insurance, retirement or investment accounts, or other payable on death property. When you die, that property is added to your trust and the successor trustee manages it under the terms of your trust instrument.
What is the Difference between a Revocable Trust and an Irrevocable Trust?
With a revocable trust you can add or remove property as you please and change the ultimate disposition of the property at any point during your life. During your life you are a beneficiary of the trust. You can be the trustee of the trust. You can also name another person or a trust company to serve as trustee or as co-trustee. We work with you to help you make a good choice regarding who serves as your current trustee as well as any successor trustee.
An irrevocable trust generally cannot be changed after it is created. These types of trusts can be used to create completed gifts for gift tax purposes or to protect life insurance proceeds from the estate tax or GST tax. An irrevocable trust can contain provisions that allow the trust to terminate if it becomes uneconomical or otherwise appropriate for the trust to terminate.
What are the Duties of a Trustee?
A trustee is responsible for managing all of the property owned by a trust for the benefit of the trust beneficiaries. This includes:
- Ensuring appropriate investment of the trust’s assets,
- Ensuring appropriate tax returns are filed,
- Ensuring that distributions under the trust are correctly made, and
- Ensuring that the best interests of the beneficiaries (as described in the trust instrument) are furthered.
The exact nature of the property management duties varies based on what assets are owned by the trust. For exaple, a trust that owns financial assets, such as stocks, bonds, bank accounts, mortgages, etc., will require that the trustee monitor the performance of these investments to ensure appropriate return and to manage risk. By contrast, if the trust owns rental real estate or a small business, then the Trustee will be responsible for managing the rental property or small business. Depending on the terms of the trust instrument, the trustee can delegate certain duties to others. For example, the trustee can hire a financial adviser to oversee investments, a property manager to oversee rental real estate, or a general business manager to operate a small, closely held business. For many small businesses, the trustee may want to retain a business lawyer to assist them with making sure the legal structure of the business coordinates with the remainder of the trust. The Trustee must always use good judgment and due diligence when delegating duties to others.
The trustee has a fiduciary duty towards the beneficiaries. This legal term means that the trustee, as part of managing the trust, must set aside personal feelings and personal goals in favor of advancing the well being of the beneficiaries. Your revocable trust (or irrevocable trust) should have enough information and direction in it to describe the method that the trustee should use in making decisions about distributions and investments.
Who Can Serve as Trustee?
There are two general categories of people or entities that can be trustees in Oklahoma. Individual trustees are flesh and blood people. Corporate trustees are usually subsidiaries of banks that have been authorized by the State of Oklahoma (or some other state) to offer trust services. You can have more than one trustee, in which case the trust has co-trustees.
- Individual Trustees: Generally any individual capable of owing property in Oklahoma can serve as a trustee for a private trust. The person must be legally competent in order to serve. You can select a family member or close friend. However, you should always consult with that person first to ensure that they are willing to serve and fully understand the duties they are taking on.
- Corporate Trustees: A corporate or bank trustee is an entity that has been authorized to offer trust services by the State of Oklahoma. A bank trustee will charge for their services in managing the property, making distributions, and generating the necessary paperwork.
You will generally be the trustee of a your own revocable trust. For certain types of trusts, such as asset protection trusts, irrevocable life insurance trusts (ILIT), and certain other types of trusts, you can’t be the trustee by law. As part of the estate planning process, an estate planning attorney will provide guidance on selecting your trustee.
Revocable Trusts Only Work When They’ve Been Properly Funded
We work with you to ensure that your overall estate plan provides for as complete of funding as possible to minimize or eliminate the need for probate. If your revocable trust hasn’t been properly funded, a probate proceeding may be necessary. An unfunded trust generally is of little benefit to you, the person who has made the estate plan, and to your heirs and beneficiaries, the people you want to receive your property after your death.
If you already have a revocable trust and are unsure about whether youe completely funded the trust, you can schedule a review of your trust today. We can review your property and assist you with getting your existing trust funded.
How Else Can a Revocable Trust Help Me?
In addition to the benefit of avoiding partially or completely probate, a revocable trust can include an incapacity clause. This clause allows your successor trustee to manage your affairs in the event of your incapacity.
Power of Attorney
Have Someone You Trust Be Empowered to Make Decisions When You Can’t
A power of attorney is a legal document that grants another person, called an attorney in fact, the ability to control or manage your property, money, and finances. These powers can be limited or broad. They can begin immediately or be delayed until some point in the future. Your attorney in fact can be authorized to add or remove property from your revocable trust, which can assist them with last minute probate avoidance in the event that you are incapacitated or disabled. Because there are so many possibilities, we carefully listen to and ascertain your needs, so that your power of attorney complements your estate planning goals and needs.
Some power of attorney documents also grant your attorney-in-act (person entitled to act under y our power of attorney) the ability to make medical decisions on your behalf. These are sometimes called a medical power of attorney. As a general rule, we prefer to use an advance directive for health care and reserve the use of a power of attorney in your estate plan for financial decision making. This allows your health care providers to have access to the more easily recognizable advance directive for health care. It also allows you to specify the type of care you want to receive, if that is your wish.
It is extremely important that you select someone you trust to serve as your attorney-in-fact. Depending on the powers granted, your attorney in fact will have access to a substantial amount of your personal information. As part of the estate planning process, we work with you to ensure that someone you trust is named in your power of attorney.
An advance directive for health care is a legal document that tells your physicians or medical care providers what types of life saving or sustaining care you wish to receive.
It can also name a person as your health care proxy. This health care proxy is allowed to assist in making medical decisions on your behalf when you are unable to do so.
An advance directive for health care is an important foundational document in an estate plan At Copeland law, we attempt to take a holistic approach to estate planning. The estate planning process is about more than arranging your property it should reflect all your wishes and values including your health care decisions.