Thirteen Estate Planning Terms You Need to Know
Estate planning—it is an incredibly important tool and process, not just for the super wealthy or those thinking about retirement. Estate planning is something every adult should do to take care of themselves and the people they love.
Estate planning can help you accomplish any number of goals, including appointing temporary and permanent guardians for minor children and providing guidance on how they should be cared for and raised in the event of your death, deciding how best to manage and protect your children’s inheritance, organizing your financial and personal affairs so that you have made things as easy as possible for someone else to take over when you can’t do these things yourself, and choosing healthcare agents to make decisions for you should you become ill.
It can be an overwhelming topic to dive into, but, done properly, the effort can make all the difference in making sure you and your loved ones are taken care of when you cannot do the caretaking yourself and all of your family wealth—financial, intellectual, and spiritual—is preserved and passed down. It is worth it.
To help you get situated, below are some important terms you should know as you think about your own estate plan.
Assets
Generally, anything a person owns, including a home and other real estate, bank accounts, life insurance, retirement accounts, investments, furniture, jewelry, art, clothing, and collectibles. Assets are not all financial, however, and include your intellectual, spiritual, and human capital.
Estate
All assets and debts left by an individual at death.
Personal Representative
A Personal Representative is the person nominated in a Will and appointed by a probate court to administer an estate of a person who has died. This role is commonly known as an executor.
Settle an estate
The process of winding down the final affairs (valuation of assets, payment of debts and taxes, distribution of assets to beneficiaries) after someone dies.
Will
A written document with instructions for disposing of assets after death. A will can only be enforced through a probate court and becomes a public document at that time. A will can also contain the nomination of guardian for minor children.
Guardian of a Minor Child
In the estate planning context, a guardian for a minor child is a court-appointed adult who has legal authority to make residential, education, and health decisions for a minor child when there is no parent who can. Parents can nominate their choice of adults to serve as temporary and permanent guardians for their minor children through their estate planning.
Trust
A fiduciary relationship in which one party, known as the grantor or settlor, gives another party, known as the trustee, the right to hold property or assets for the benefit of another party, the beneficiary or beneficiaries. The trust is memorialized by a written, private, trust agreement, outlining how the trust assets will be managed and distributed to the beneficiaries.
Fiduciary
A person with a legal obligation (duty) to act primarily for another person’s benefit, e.g., a trustee, agent under a power of attorney, or personal representative of an estate. “Fiduciary” implies great confidence and trust, and a high degree of good faith.
Beneficiary
A person or entity (such as a charity) that receives a beneficial interest in something, such as an estate, trust, account, or insurance policy.
Funding
The process of transferring (re-titling) assets to a trust. A trust will only help avoid probate court process at the trustmaker’s death if it is properly funded, meaning it contains all of the assets titled in the decedent’s name that do not transfer pursuant to beneficiary designations (like life insurance and retirement accounts).
General Durable Power of Attorney
A general durable power of attorney is a written document that authorizes another to act as an agent to manage an individual’s property (this person is called a “principal”). The power of attorney can be effective immediately upon the principal’s signing or only upon certain specified conditions, like a physician certifying that the principal is incapacitated. It can also be broad or limited, depending on the needs and circumstances.
Incapacitated
In the context of an individual’s financial life, incapacitated often means that the individual is unable to manage one’s property or financial affairs, either temporarily or permanently, as a result of age, illness, use of prescription medications, drugs, or other substances, or some other reason.
In the context of medical decision making, incapacity often means the inability to have a basic understanding of the individual’s diagnosed condition and to understand the significant benefits, risks, and alternatives to the proposed health care and the consequences of forgoing the proposed treatment, and the inability to make and communicate a health care decision.
Advance Health Care Directive
An advance health care directive is a written document that authorizes another to make medical decisions for the individual when the individual cannot make those decisions (i.e. is incapacitated) and can also provide instruction for how those decisions should be made.
If you have any additional questions about estate planning, or would like to discuss how I may be able to help, please contact me through the web site. We can make sure you have a comprehensive plan that is tailored to your unique needs and goals.