THE TROUBLE WITH LOANS TO CHILDREN

Loans to children are a frequent source of family conflict — and often instigate lucrative estate litigation projects for lawyers. Here’s why.

Loan vs. Gift

There is a huge legal difference between a loan and a gift, namely that a gift does not have to be repaid. But loans may gradually mutate into gifts. For example, under Oregon law, a suit must be filed within six years to collect a debt. If no suit is filed, collection of the debt is barred by the statute of limitations. Thus, if a parent makes a loan to a child and takes no collection action for six years, the child has no legal obligation to repay and the loan has effectively become a gift. This has several consequences. First, and most important, the executor is probably barred from offsetting the child’s inheritance by the amount of the loan. In other words, the loan is irrelevant when determining the child’s share of the decedent’s estate.
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ADMINISTERING “JOINT REVOCABLE TRUSTS” AFTER DEATH

Most married couples using a revocable trust select what is commonly referred to as a “joint trust.” Instead of having to split or horse trade assets between each spouse’s separate trust, they are all pooled into a single trust. This makes the “funding” process light years easier. In many instances, clients would refuse to use a revocable trust if they had to split assets between two separate trusts. Closing existing cash and brokerage accounts, setting up new accounts and balancing future withdrawals between the accounts is just too much.
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PROBATE PROCESS IN OREGON AND WASHINGTON

Here is a general overview of the probate process for Oregon.  Washington has some similarities but is substantially abbreviated, as noted below.

Probate requires the appointment of a personal representative (referred to as the executor in certain states).  If the decedent dies testate, the personal representative ultimately appointed is usually the first nominee named in the decedent’s will. If the decedent dies intestate, the personal representative is usually the relative or friend who wins the race to the courthouse and files first.
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PROBATE PROPERTY vs. NONPROBATE PROPERTY

What is probate property?  A nutshell description follows.

Broadly speaking, probate property is any asset for which title or ownership does not automatically transfer by survivorship, beneficiary designation, contract, or by operation of law at a decedent’s death.  The type of property – tangible or intangible, personalty or realty – is not relevant. Instead, focus is on the form of ownership.
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