For many of my clients, a chief goal of estate planning is to provide for the education of a child or grandchild. One can accomplish this goal through the use of an education trust, a special type of trust established to fund the educational expenses of one or more beneficiaries. There are three main types of education trusts.

The first kind of education trust is what’s referred to as a 2503(c) Minor’s Trust. Believe it or not, the federal government taxes gifts. That’s right: you must pay the federal government for giving away your own money! Luckily, each individual has a lifetime exemption from federal estate and gift taxes. For people who die in 2016, the exemption is $5.45 million. What’s more, one can make gifts of up to $11,000 per year which do not count against their lifetime exemption. Estate planners and tax professionals call this the annual exclusion amount. Normally, the annual exclusion amount applies only to gifts of a present interest; in short, that means it does not apply to gifts made under an estate plan. However, pursuant to Section 2503(c) of the Internal Revenue Code, there is an exception to the aforementioned rule concerning trusts payable for the benefit of somebody under 21 years of age. The trustee can make distributions from a 2503(c) Minor’s Trust to cover the costs of the minor’s education. Whenever the minor turns 21, the trust terminates and unspent funds pass to the beneficiary’s estate.

Another type of trust employed for educational purposes is the Health and Education Exclusion Trust (HEET). The HEET benefits both charitable and non-charitable beneficiaries. The charity receives income from the trust at least annually. As to the non-charitable beneficiaries, the trustee of the HEET has discretion to make distributions for health and education expenses. The primary advantage of a HEET is that it avoids application of the generation-skipping transfer tax, a federal tax typically charged on transfers from a grandparent to a grandchild. For this reason, the HEET is a great tool enabling a grandparent to provide for a grandchild’s education without triggering negative tax consequences.

Finally, one can set up a good old fashioned revocable living trust to meet the educational goals they have for their loved ones. Instead of trust funds going outright to the beneficiaries upon your death, the trust document directs the trustee to continue holding the funds for the benefit of your beneficiaries and to make distributions for educational purposes.

As you can see, there are several options to make sure the next generation can get a good education if something happens to you. While it requires a bit more work than basic estate planning, the extra effort can put the next generation on a path to success for decades to come.

For many Americans, debt is a necessary part of life. Aside from the most fortunate among us, without borrowing money, we would not be able to afford our houses,  our cars or our children’s college education. So what happens if you pass away leaving unpaid bills? Oklahoma’s probate laws provide a process to deal with creditors. Here’s how it works.

The probate court appoints an individual to manage the deceased’s estate, called a personal representative or executor. The personal representative is responsible for notifying all known creditors of the deceased by mailing them a copy of the notice to creditors. The notice to creditors is also published in the newspaper. Creditors then have two months to come forward and present their claims to the personal representative, who can allow or deny the claims. With respect to claims the personal representative approves, they are paid in order of priority from the estate’s assets as directed by the probate judge. All claims of a class are paid before moving on to claims of a lower class. If there are insufficient funds to pay all claims of a particular class in full, the creditors in that class receive partial payment on a pro rata basis. Claims of a lower priority go unpaid. In this sense, probate can function much like bankruptcy. Any creditors who do not present their claims within the two month time limit are legally barred from pursuing such claims in the future; the claims which were not presented are extinguished.

We tend to think of probate as a mechanism for transferring property to the deceased’s heirs. However, probate also enables family of the deceased to deal with unpaid debts and relieve that burden.

In my opinion, a revocable living trust is the best estate planning tool available to avoid probate, maintain the privacy of your affairs and provide for incapacity or disability. However, for some people, a revocable living trust may not be the right fit. In these instances, it makes sense to consider a transfer-on-death deed, which is authorized by Title 58, Section 1251, et seq., of the Oklahoma Statutes. A transfer-on-death deed is signed by the record owner of an interest in real property, designating a grantee beneficiary or beneficiaries of the real property. Like other types of deeds, it is filed in the county land records. Yet, a transfer-on-death deed does not take effect until the owner’s death. At that time, the grantee beneficiary or beneficiaries accept the real property by executing a short affidavit, attaching the affidavit to a copy of the owner’s death certificate and recording the affidavit and death certificate together in the county land records. This must be done within 9 months of the date of death.

Assuming all of the legal requirements are complied with, transfer-on-death deeds avoid probate. Transfer-on-death deeds also allow one to retain control of their property while they are living. Finally, transfer-on-death deeds minimize or eliminate some of the negative tax consequences involved with joint tenancy and other forms of co-ownership.

For tangible personal property such as bank accounts and IRAs, one should be sure to designate beneficiaries. That way, the assets pass automatically at death without the need for probate.

Selecting a trustee for your revocable living trust is a very important decision. But who should you choose? In most cases, the initial trustee is the person or persons who created the trust. So, what we are really talking about is the successor trustee. The successor trustee is responsible for the trust after the initial trustee dies, resigns or can no longer serve because of incapacity or another issue. Typically, successor trustees see to it that beneficiaries receive their inheritance, that all necessary tax returns are filed and that the trust is settled and closed properly.

Two main options exist for the successor trustee. First, there is an institutional trustee. This is a bank or trust company. The main advantage of an institutional trustee is professionalism. Banks and trust companies have extensive experience in managing trusts. Further, institutional trustees have knowledge of state laws governing trusts. On the other hand, institutional trustees are expensive. In fact, some banks and trust companies will not agree to serve as a trustee unless the trust is sizable, usually valued in the millions of dollars. What’s more, institutional trustees often lack an awareness of the family dynamics. The second option for a successor trustee is a family member. Family member trustees, while they do sometimes claim a fee, almost always cost less than institutional trustees. In addition, family member trustees tend to have a good understanding about the personalities of, and potential conflicts between, the beneficiaries — which can facilitate a smoother trust administration and distribution. Unfortunately, unlike institutional trustees who are unaffiliated, family member trustees are prone to accusations of bias, favoritism and self-dealing, something that could possibly result in litigation.

Picking the wrong trustee can have serious consequences. Therefore, trustee selection is something that should be discussed thoroughly during the estate planning process.

Last week, I was at the probate docket at the Oklahoma County Courthouse in Oklahoma City. There, I watched as the judge took to task a personal representative for attempting to sell property without supervision of the court. It got me thinking about a common misconception I frequently hear, which goes something like this: “Mom wanted me to have the house. She gave it to me in her will.” Thanks to movies and television shows, many people believe that, whenever a loved one dies, the attorney simply takes the will out of the safe, reads it aloud to the family and then distributes the deceased person’s estate. The truth is that, under Oklahoma law, a will is not effective to pass title to property until it has been admitted to probate in the appropriate probate court. What about the sale of property by the personal representative?

In discussing the sale of property, we must first distinguish between personal property and real property. Personal property is any property that is movable, such as jewelry or clothes. Personal property also includes stocks and bonds. With regard to personal property, probate judges usually defer to the personal representative’s discretion. If there is sufficient agreement, personal property can be often be divided up among the family members or donated to charity. Furthermore, the Oklahoma probate code gives the personal representative the authority to sell personal property of the deceased that is perishable or likely to depreciate in value. Real property, i.e. houses and land, are a bit trickier. The personal representative must first obtain an order of sale from the probate court after the required notice and hearing. Then the personal representative has to follow the procedures set out by the probate court for sale of the property (it can be a public auction or private sale). Many wills contain what’s known as a power of sale. In this case, the personal representative can sell the property without prior court approval. However, the personal representative is still obligated to make a return of sale to the probate court and account to the probate court for the proceeds generated from the sale.

It is important to remember that a personal representative has a fiduciary duty. This means the personal representative must do what’s best for the estate and not place his or her interests above the interests of the beneficiaries. Breach of fiduciary duty can lead to the personal representative being removed or, worse, lawsuits against the personal representative by the beneficiaries.

“Why won’t the oil and gas company pay me?” This is a question which clients frequently ask me. I find that the answer usually involves a missing probate in the chain of title or incomplete funding of the client’s revocable living trust.

“Probate” refers to the court-supervised process of distributing the property and assets of a deceased person to his or her rightful heirs. If someone dies owning mineral interests, their heirs do not have legal title to those mineral interests until the probate judge issues a final decree of distribution. Sometimes, oil and gas companies will allow the heirs to sign a lease based on an affidavit of heirship. However, unless the affidavit of heirship has been recorded in the county land records for at least ten years, then oil and gas companies almost always withhold royalties from a producing well until the probate is finished.

Another situation leading to non-payment of royalties is incomplete funding of a client’s revocable living trust. The mere execution of a revocable living trust is not sufficient to transfer the client’s property and assets to the revocable living trust. The client must fully fund the revocable living trust, i.e. re-title all of the property and assets in the name of the revocable living trust. For mineral interests, this means the client has to sign and record new mineral deeds. Unfortunately, this is step is often overlooked during the estate planning process.

Although oil prices are currently lower, substantial money can be lost if there are problems in receiving royalty payments. If you believe that you are not receiving oil and gas royalty payments to which you are entitled, consider whether there is an issue regarding probate or funding of your revocable living trust.

If you have estate planning documents in place such a last will and testament, durable power of attorney, trust and Advance Directive for Health Care, congrats! You’ve taken a big step toward achieving peace of mind and easing the burden on loved ones after you are gone. Unfortunately, however, your work doesn’t end whenever you sign your name on the dotted line. In order to ensure that your wishes are carried out and your family is taken care of, it is important to review your documents every couple years with a knowledgable attorney. Here are three things to look for so that your estate plan stays on track:

1. Is your trust fully funded? Contrary to popular belief, just forming a trust does not avoid probate. Rather, you must re-title all of your property and assets in the name of the trust. Most people put their house in the trust. But what about other assets? Make sure any sizable bank accounts have been transferred to the trust. Also check to see if the beneficiary designations on your life insurance policies and retirement accounts have been updated to reflect that you have a trust. Finally, given the abundance of energy here in Oklahoma, it is vital to confirm that you executed mineral deeds conveying any oil gas interests you own to your trust.
2. Do you have successors named for your attorney in fact and health care proxy? If the person you have named as your attorney in fact or health care proxy dies or is otherwise unable to serve and you have not designated a successor, a court could end up making the decision for you. This could lead to a delay in critical decisions regarding your medical treatment and finances in the event you become incapacitated.
3. Have you explained your estate plan to your family? While you don’t have to give every detail, you need to make your family aware about the general contours of your estate plan, where to locate your documents and how to get in touch with your attorney if something happens to you.

The term “ancillary probate” refers to a probate case which occurs in a state other than the state where the deceased resided at the time of death. Ancillary probate is necessary because probate courts have jurisdiction only over property located within their borders. Therefore, if the deceased was a resident of Nebraska at the time of death and also owned property in Oklahoma, then the estate would have to be probated in Oklahoma in order to transfer title to the Oklahoma property.

Luckily, most states have an expedited process for probating the estates of non-residents. In Oklahoma, this process is called summary administration. Unlike a normal probate, the notice to creditors and notice to heirs and beneficiaries under the will is combined into one notice. Moreover, summary administration requires only a single hearing. Taken together, this means significantly less time and expense; whereas a normal probate in Oklahoma takes 4 or more months, a summary probate can be completed in 6-8 weeks.

The days of “Leave it to Beaver” are far behind us. According to the Pew Research Center, just 46% of children live in a household with two married heterosexual parents in their first marriage. In 1960, 73% of children fit this description. In 1980, the number was 61%. The rise of so-called blended families — that is, families including children from a previous marriage of one or both parents, has shifted the estate planning paradigm for large segments of the population. Couples on their second marriages must exercise caution in how they dispose of their property, some of which might be subject to a divorce judgment. Moreover, prenuptial agreements often contain provisions relating to estate planning. Failure to take such provisions into account can destroy the prenuptial agreement. Lastly, blended families will want to ensure that the surviving spouse does not disinherit stepchildren.

A revocable living trust is the best tool to address the aforementioned concerns. Unlike a simple will, a revocable living trust can be drafted to restrict what the surviving spouse and other beneficiaries do with their inheritance. In addition, revocable living trusts are generally more difficult to challenge and overturn. This is because the administration and distribution of a revocable living trust is usually done privately rather than in the court system.

Estate planning is something everyone should do. However, for blended families, the need is only heightened. By consulting with a Norman, Oklahoma estate planning attorney, you can attain peace of mind.

Wills vs. Trusts: which estate planning tool should you choose? That is the subject of a column I wrote for the Norman Transcript, which appeared in the paper’s business section on Sunday.

Check it out by clicking here.