Oregon Beneficiary Laws Explained
Beneficiary laws in Oregon, as elsewhere, determine who will be entitled to receive the benefit of a trust, estate, or insurance policy upon the death of the owner. While the concept of a beneficiary is fairly straightforward, Oregon’s probate laws interfere with the designation of a beneficiary in several ways. For instance, a spouse may elect to inherit what he or she is entitled to under Oregon law rather than the amount designated in a will. In addition, creditors have the first right to collect a debt from the property of a decedent and may collect debts before the property goes to the beneficiaries and heirs .
Oregon defines the term "beneficiary" under ORS section 731.160 as a person or entity to receive a share of income or property pursuant to a will or trust. According to the law, the term can be used interchangeably with "devisee," "heir," "legatee" and "legatee." The term beneficiary can apply to both people and organizations. It can apply to someone who holds nontraditional assets such as digital property, bank accounts, a pension, IRA, many retirement plans, or life insurance.
Beneficiaries in Oregon: What You Need to Know
Beneficiaries are the people and entities that inherit your estate. A beneficiary can be a spouse, child, other relative or friend, a charity, or even a business. There are different types of beneficiaries recognized in Oregon, including the following:
Primary Beneficiaries
These are the first to whom assets, property, money and securities are distributed upon an individual’s passing. Their relationship with the deceased individual might be as spouse, child or other family member, but may also include alternates, charities and businesses. Depending on the existence or terms of legally binding documents, these beneficiaries may be the only ones who inherit from the decedent. Their inheritance could be partial or total, contingent or unconditional.
Contingent Beneficiaries
These individuals or organizations would be entitled to inheritance if the primary beneficiaries predecease the decedent or pass away at the same time. They act as alternative beneficiaries effectively "waiting in the wings" and step down only if the primary beneficiaries have passed. For example, if a person leaves his or her estate equally to two adult children, and if that decedent dies before his or her older brother does, the sister would inherit the entire estate, subject to the terms of the Will and applicable Oregon probate law. If the older sibling passed before the decedent, the younger sister would have inherited the estate provided she survived her brother. If the older brother had predeceased the decedent, however, and the decedent did not have any other children or any surviving parents, the estate would go to her grandparents or other living siblings, in accordance with Oregon probate code.
Residuary Beneficiaries
These benefactors will receive what is left of the estate after all other distributions are made, or after the primary and/or contingent beneficiaries pass. The estate distribution goes to the first beneficiary with surviving descendants—the next of kin. If no next-of-kin survives the decedent, the residue is distributed among the beneficiaries until it is fully dispersed.
It is also important to understand what happens when the terms of a Will poorly or even conflict with each other. It is important to clearly articulate your wishes in any estate plan to avoid unintended results.
Oregon Beneficiary Designation Guidelines
Oregon’s rules regarding beneficiary designation differ according to the nature of the property involved. Your Oregon Will can name beneficiaries for your assets, assuming you have a valid Will at the time of your death. Or, by law, you may be able to name beneficiaries on accounts to receive funds or benefits through the following means.
These accounts will vary according to the property involved, such as an IRA or life insurance policy.
A beneficiary account is a contract that allows a person, called a beneficiary, to collect funds or benefits after the death of the account holder. This may be a bank account or investment account, through which money can be paid to a named beneficiary on the death of the account holder. A beneficiary may be an individual or a trust.
A beneficiary account allows the beneficiary to collect funds from the account holder. This does not necessarily constitute ownership of the account but is a right of collection. The account is therefore not subject to probate when the account holder dies. An account with a named beneficiary is different from a joint account in which all parties have access to and may own the jointly-owned account. With a beneficiary account, only the beneficiary has access to the account.
Wills and beneficiary accounts or beneficiary designations are two different means of passing property at the time of death. These two are different from whether or not there is a Will. A Will distributes property as the decedent intended at the time he created his Will. If there is no Will, then by law, the estate may pass to heirs, such as descendants, according to the intestate succession rules. Beneficiary designations allow property to be passed at the time of death without the direction of the decedent. Therefore, the assets passed by beneficiary designation may not be the same as the assets passed through a Will.
Separate documentation is required for each beneficiary designation. If minor children are involved, a court appearance may be required to designate such minor children as beneficiaries. Other options include naming a trust as beneficiary of life insurance or another life benefit.
Most financial institutions or entities will require a beneficiary designation document to be executed by the owner of the account. This document must contain the signature of the account owner or depositor. Failure to execute a document according to the requirements of the financial institution may render the document invalid.
Surviving Spouses through Marriage and Divorce
Beneficiary designations can be significantly affected by life events such as marriage and divorce. Whether an individual is contemplating a marriage, in the midst of a pending divorce, or has recently divorced, it is important to consider the impact that these life events can have on beneficiary designations. Otherwise, assets can be distributed in ways that do not take into account the intent of the owner, and can result in chaotic and unnecessary litigation between a current spouse, an ex-spouse, and the various children, grandchildren and subsequent generations that could potentially inherit from the decedent.
In Oregon, assets such as life insurance policies, financial accounts, and transfer on death or payable on death designations pass outside of a Will to designated beneficiaries. Many individuals do not consider the impact of their Will on the designation of beneficiaries for these accounts. Most individuals that have a Will in which they have clearly defined their intended beneficiaries, an alternate beneficiary if the intended beneficiary predeceases them, and an alternate beneficiary if the alternate beneficiary predeceases them, frequently overlook their beneficiary designations on retirement accounts and financial accounts. This means that an ex-spouse can inherit the entirety of the retirement account and financial accounts when a current spouse is the individual’s representative under the Will, and her children are the alternative beneficiaries of the Will. To avoid this scenario, owners should review their beneficiary designations to ensure they match their Will. This avoids multitudinous litigation between heirs who either try to exclude or force inclusion of their siblings in the estate.
In Oregon, a divorce or legal separation revokes any revocable disposition made to one’s ex-spouse such as a designation as executor, trustee, or beneficiary. Although this includes life insurance policies issued prior to the date of the decree of dissolution, parties should review their policies because the decree itself is not sufficient to remove his or her spouse. For life insurance beneficiaries, prior designations will be reinstated if the insured distributes new designations to Oregon. A replacement form must be executed in order to eliminate the use of the prior designation. This means that simply using the same change of beneficiary form that was used for the original designation will not be sufficient to revoke the prior designation if it does not use language such as "replaces prior beneficiary designation" or "revokes prior beneficiary designations." Although the Oregon law provides that the revocation is automatic, the standard form used by insurance companies may not explicitly state that the new beneficiary is replacing a prior beneficiary, and the prior beneficiary designation remains in effect until there is a new designation. The law also does not provide that an individual who cohabits with a person as a domestic partner is a beneficiary unless there has been a formal declaration. Therefore, parties should specifically add domestic partners to beneficiary designations because domestic partners do not receive the same benefits as those who are married.
Oregon Probate Laws and the Rights of Beneficiaries
Probate Laws and the Rights of Beneficiaries in Oregon
To truly understand how a beneficiary can access the assets the decedent left behind, it is important to have a basic overview of how Oregon’s laws on probate and "intestate succession" are related.
In the most basic terms, probate laws in Oregon govern how a person’s estate is supposed to be distributed under the law. If a decedent leaves a valid Last Will and Testament, then Oregonians most likely will determine the distribution of that estate as specified in the Will, even though they are required to file the Will with the court (along with the Petition for Probate). A Petition for Probate begins the process of probate in the state of Oregon. This Petition for Probate must be filed within 30 days after the decedent dies.
However, if the decedent died without a valid Will, the process (called "intestate succession") for distributing the assets of the decedent’s estate will be determined by either a Will (if there is one) or ORS 112.045. In general, ORS 112.045 says that if someone dies without a Will, their estate is to be divided among their children , parents, siblings and spouse, among others. Without a Will, the beneficiary is to inherit all assets after the payment of debts.
Any and all assets must be placed in probate, unless they fall into one of the exceptions. Even though a beneficiary may have direct access to property, the beneficiary may still have to deal with the pain of probate. One way to circumvent the rules of probate is to not include any nonprobate property as part of a decedent’s estate. This is one of the reasons why you should consider having a Will.
When you, as a beneficiary, go to the courthouse to claim assets from a decedent’s estate, you may be required to provide a copy of the Will to the planning officer. If you need to, you may petition to have an executor appointed to manage the estate. If the estate is undergoing probate, the executor is responsible for managing and selling the estate as needed. Further, the executor is responsible for terminating and distributing the estate to the proper beneficiaries, in accordance with the Will (if any), or according to Oregon probate law (ORS 112.045) if there is no Will.
Using a Beneficiary to Challenge an Estate
Disputes over beneficiary designations often involve additional facts not present in typical estate contests. For example, a person may set up a bank account naming their child as beneficiary on death. If the person had capacity, and the child did not exert undue influence, then the child is the owner of the account at death and no parent-child relationship is disrupted. A discussion of these concepts is beyond the scope of this article, but hopefully it leads to a healthy discussion on the topic.
As with any other situation involving a will, a trust, or a probate, there are only a limited number of statutory grounds for which a beneficiary designation may be set aside. Such grounds are failing to properly name the beneficiary, undue influence exerted over the owner, fraud in the inducement, error, and lack of capacity. These are all concepts to which we become familiar with in the usual probate case.
In addition, beneficiary designations may not be discussed in a probate. The statutes that govern will contests (ORS 113.140) and contests of trust validity (ORS 130.370) exclude beneficiary designations. Therefore, a lawsuit must be brought to contest a beneficiary designation outside a probate. These actions are subject to a shorter statute of limitations as well. However, many practitioners do not realize that a lawsuit contesting a beneficiary designation must be filed before the designated beneficiary receives any proceeds of the beneficiary designation. An exception might be that an account naming a beneficiary after an Employee Retirement Income Security Act of 1974 plan may pass under the plan (ORS 114.510(4)). In general, however, beneficiaries must be filed before the beneficiary receives property under the beneficiary designation.
An action contesting a beneficiary designation is filed in the Circuit Court for the county where the beneficiary resides. The plaintiff must first send a notice to interested persons. ORS 30.079 applies, requiring a notice within 90 days. If the beneficiary resides in Oregon, the notice is served on the beneficiary personally or by certified mail. However, if the beneficiary does not reside in Oregon, the notice is given by certified mail, return receipt requested, to the beneficiary at the beneficiary’s last-known address. The plaintiff also serves the notice upon the Personal Representative/Trustees. On the day the notice is served, an Action is deemed commenced. The statute of limitations is 60 days. The plaintiff must file a Complaint before the expiration of 60 days from the date of the personal service or mailing of the notice in order to contest the beneficiary designation.
If the contest is successful, the next issue is how the distribution should occur. Unfortunately, there are not a lot of cases in Oregon explaining this. We have three cases that give some guidance on this. The first case happens to be my client’s case handled by Pittman & Pittman in Hood River. The case is reported at In re Charles G. Utt Revocable Trust, 142 Or App 579, 921 P2d 1327 (1996). In this case, the client’s deceased spouse set up a bank account with the name of the trust, her husband as trustee, and the wife as the beneficiary on death. The bank account exceeded the limits of the accounts protected within the Oregon Public Funds Investment Pool (OPFIP). The trustee wrote to the OPFIP insisting it accept a check for the proceeds. The OPFIP refused the request and the Trustee filed a declaratory judgment action on behalf of the Trust. The appellate court found that the beneficiary designation was invalid and unenforceable because it contravened the OPFIP rules. The Court stated that the Trustee had discretionary authority to distribute the property in a manner consistent with the purposes of the OPFIP during the life of the grantor. After the grantor’s death, the Trustee would have duty to distribute the funds to the grantees. It would have been up to the Trustee to determine whether to include all grantees at the same time or with some delay. If the Trustee distributed all the funds immediately, a distribution would have been possible.
The second case did not specifically address the issue of contested beneficiary designations, but the facts involved a wrongful beneficiary designation. The beneficiary designation was for a life insurance policy naming the President of the insurer as the beneficiary. The life insurance policy had a clear directive naming his wife, sons, and step-daughter as the intended beneficiaries. The appellate court stated, "Absent evidence of actual or constructive fraud, when the named beneficiary evidences the intention that he take in his individual capacity, such as when he designates himself by his own name as beneficiary, he may take the proceeds in that capacity, despite the real intentions of the decedent." In re Estate of Nelson, 161 Or App 378, 382, 985 P2d 206 (1999).
The final case involved a beneficiary designation and a prior trust. The decedent created a trust to benefit her four children. She acquired two life insurance policies directing the proceeds to be paid to Decedent’s Personal Representative and Trustee, as Trustee for the benefit of her children. She subsequently changed the beneficiary designations to direct the proceeds to a limited partnership. Upon Decedent’s death, the Trustee argued that Decedent intended the proceeds to be directed to her children, as the heirs of the trust. The appellate court stated that, where an insured beneficiary change has occurred, the personal representative may look to the entire surrounding circumstances to determine whether the change was the product of mistake or inadvertence. The appellate court upheld the circuit court ruling that the beneficiary changes were valid. In re Angeline Tr., 181 Or App 397, 408, 395 P3d 925 (2017).
The Role of a Beneficiary during the Administration Process
The Role of a Beneficiary: What to Expect During Estate Administration
As the personal representative settles the estate, he or she will involve beneficiaries to varying degrees. Generally, the administrator manages the estate and makes decisions without much beneficiary input. But there may be points near the close of administration (for example, when assets need to be reduced to cash to pay estate taxes) where the administration may involve decisions that call for some beneficiary direction.
As a point of reference only, here are a few examples of some of the decisions that an administrator will need to decide at or near the end of administration: how to qualify as a joint tenant on a piece of real estate so it can be sold, whether to do an inventory that includes values or use the date-of-death date of death values, and which bank to use to settle the estate bank account.
If the estate is large enough, and calls for a tax return to be filed, the administrator may want the beneficiaries to direct the administrator to make payments from the estate bank account for any taxes owed. Oregon favors financial transparency in estates. Beneficiaries have a right to see a complete copy of the estate bank account statement every month.
It is not uncommon for disputes to arise between an administrator and a beneficiary over the administration of an estate. A beneficiary may contact the personal representative or lawyer of the estate directly, requesting information about the status of the estate and the disposition of estate assets. Or a beneficiary may be dissatisfied with the administration of the estate and contact the Oregon Department of Revenue or possibly an attorney. If both parties involved can communicate politely, a resolution can usually be reached efficiently. Many disputes can be resolved informally by open and friendly communication, without involving a third party.
If beneficial communication breaks down and an estate is being administered in a fashion that neither the Personal Representative nor the beneficiary wishes, the Probate Court may be asked to step in and resolve the dispute. Sometimes this may involve a non-family member administrator, and sometimes it may involve family members themselves who cannot resolve a dispute amongst themselves.
As a beneficiary of an estate, one’s most important role is to stay quiet and enjoy the process. It is the administrator who has the role of actually administering the estate.
Conclusion on Beneficiary Planning in Oregon
When naming beneficiaries on financial accounts, there are a few best practices to keep in mind. The most important factor to consider is whether you have a will or a trust. If you have either, you should name the beneficiary according to your estate plan. If you do not have either, naming your estate as beneficiary will likely be appropriate. This way your assets will come under control of Oregon Probate Courts if necessary, and will avoid problems that might result from naming specific individuals as beneficiaries.
Next, you should decide whether to use a trust as beneficiary or custodian. Using a trust allows a more customized disposition of your account funds in the event of your death. It also allows more protection against creditors than a custodian, because your trustee is only obligated to make distributions as specified by you. In choosing between the two, the most important distinction is the age at which the beneficiary will receive funds from a trust, versus when he or she will receive them under Oregon’s Uniform Transfers to Minors Act.
For people who do not want to leave their children with complete control of funds they might inherit on their death, or at an early age, this distinction can be extremely important. Consider what you would want if your children were to die before you: some beneficiaries want all the funds once they reach age 25, or even 30; others are comfortable with leaving some or all of the funds at age 18, 21 or 24; and still others might not want their children to be able to start taking distributions from the account at age 18 , but are comfortable with distributions at 25 or 30 years old. In Oregon, a Trustee holding that account specifically for your child would only be required to distribute to your child when he or she reached 21 years of age, unless you specify an alternative age with your bank or financial institution. On the other hand, if the account is held under Oregon’s Uniform Transfers to Minors Act, your child will have total control of that account as soon as he or she turns 18, with only limited exceptions. Generally speaking, the custodianship ceases once the child reaches 18 years of age, except where the child is disabled or needs support or education beyond the age of majority at which time the account may continue under the Oregon Uniform Transfers to Minors Act.
Although naming a custodian may be appropriate, some people may believe that a trust better suits their needs. A trust may be a better option for you if you have name-specific gifts in your will of those same assets; in this situation using a trust may eliminate the need for a probate. There is also the issue of taxation and how the assets should pass to your loved one, which is generally done via a testamentary trust. Again, there are many factors that should be weighed in deciding whether to use a trust or custodial account.
Finally, always remember to have the trust or will referenced in your designation of beneficiaries. Otherwise, it will be treated as conflicting with your beneficiary designation, and your financial institution may not know which document governs your distributions – which means the funds may be held up in the accounts for a very long time.