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.