Both wills and trusts are essential tools in estate planning, but they serve different purposes and offer unique benefits. Understanding the distinctions between the two is critical to choosing the right option for your circumstances. Here’s what you need to know about the differences between wills and trusts in Oregon.
1. Probate: The Role of the Court
The most significant distinction between a will and a trust is how they handle probate, the legal process that oversees the distribution of assets after death.
Wills:
- A will must go through probate in Oregon to distribute your assets.
- Probate can be time-consuming (usually 8 to 12 months) and expensive, often costing upwards of $5,000 in legal and court fees.
- Probate is also the stage where conflict among heirs is most likely to arise.
- If you pass away without a will, Oregon law determines how your assets are distributed to beneficiaries under intestate succession laws.
Trusts:
- A trust allows your estate to bypass probate
- Assets transferred into a trust are owned by the trust, not by you personally, so they do not require court oversight to be distributed after your death.
- By avoiding probate, trusts can save your beneficiaries time, money, and stress.
Example:
- John passes away leaving a will that names his daughter, Emily, as the sole heir to his $500,000 estate. Since John’s estate goes through probate, Emily waits nine months and incurs $10,000 in court and legal fees before she receives her inheritance and the title to John’s house is transferred to her. If John had used a trust, Emily could have entirely avoided these delays and costs.
2. Bank Accounts: Managing Assets During Life and Beyond
Wills and trusts handle bank accounts differently, both during your lifetime and after your death.
Wills:
- A will governs how a solely owned bank account is distributed to beneficiaries after probate.
- However, joint accounts automatically pass to the surviving owner, regardless of what your will says.
Trusts:
- A trust can own bank accounts during your lifetime or can be added as the beneficiary of the account, offering more control over how the account is managed and distributed.
- This is particularly useful for:
- Minors or young beneficiaries: Trusts can delay distributions until young heirs reach a specific age (commonly 25 or 30).
- Avoiding probate: Trust-owned accounts do not need to go through probate.
3. Oregon-Specific Legal Requirements
Oregon has specific laws governing the validity and operation of wills and trusts.
Wills:
- Must be signed by the testator (the person making the will) and witnessed by at least two people to be valid.
- If these requirements are not met, the will may be challenged in court or deemed invalid.
Trusts:
- Oregon law requires a trust to be funded during the grantor’s lifetime to be effective. This means transferring ownership of assets (e.g., real estate, bank accounts) into the trust.
- An unfunded trust is essentially a shell and may fail to accomplish its intended purpose.
Example:
Karen creates an estate plan on a budget using a popular legal website, but she doesn’t execute the documents properly, as required by Oregon law. She also didn’t record the deed to her home into her trust. After her death, the court finds several of her estate planning documents to be invalid. Her estate and her home must go through probate and are eventually distributed according to Oregon’s default intestate laws rather than according to her wishes. Consulting an attorney would have ensured Karen’s estate plan met the legal requirements. And yes, we see this sort of thing happen all the time.
Which Option Is Best for You?
Choosing between a will and a trust depends on your goals, the complexity of your estate, and your beneficiaries’ needs:
- A will is often sufficient for smaller estates or when simplicity is a priority.
- A trust is ideal for most families that own any real estate for avoiding probate, managing complex assets, and providing detailed instructions for asset distribution over time.
Both tools can work together as part of a comprehensive estate plan. For example, a pour-over will ensures that any assets not transferred to your trust during your lifetime are placed in the trust after your death.
Plan with Confidence
Estate planning can feel overwhelming, but it doesn’t have to be. Every single day at BLG we help Oregon families create complete estate plans tailored to their unique needs. Contact us today to schedule a free consultation and take the first step toward protecting your legacy.
Let us guide you through the process with expertise and care.