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 choose our 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 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 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!