WHAT DO ALL THOSE ESTATE PLANNING TERMS MEAN?

Defining Basic Estate Planning Concepts

By: Matthew Snow

I.  WILLS

WILL: A document in which you specify what is to be done with your property when you die and name your executor. You can also use your will to name a guardian for your young children.

EXECUTOR: The person named in a will to handle the property of someone who has died. The executor must collect and manage the property, pay debts and taxes, and then distributes what's left as specified in the will. In addition, the executor handles any probate court proceedings (with the help of a lawyer, if necessary) and takes care of day-to-day tasks--for example, terminating leases and credit cards, and notifying people and organizations of the death. Executors are also called personal representatives.

BENEFICIARY: A person or organization legally entitled to receive benefits through a legal device, such as a will, trust or life insurance policy.

PROBATE: The court process following a person's death that includes

• proving the authenticity of the deceased person's will

• appointing someone to handle the deceased person's affairs

• identifying and inventorying the deceased person's property

• paying debts and taxes

• identifying heirs, and

• distributing the deceased person's property according to the will or, if there is no will, according to state law.

Formal court-supervised probate can potentially be a costly, time-consuming process.

PROBATE COURT: A specialized court or division of a state trial court that considers only cases concerning the distribution of deceased persons' estate. This court normally examines the authenticity of a will -- or if a person dies intestate, figures out who receives her property under state law. It then oversees a procedure to pay the deceased person's debts and to distribute her assets to the proper inheritors.

HEIR: One who receives property from someone who has died. While the traditional meaning includes only those who had a legal right to the deceased person's property, modern usage includes anyone who receives property from the estate of a deceased person.

INHERITOR: Persons or organizations who receive property from someone who dies.

ADMINISTRATOR: A person appointed by a probate court to handle the distribution of property of someone who has died without a will, or with a will that fails to name someone to carry out this task.

GUARDIAN: An adult who has been given the legal right by a court to control and care for a minor or her property. Someone who looks after a child's property is called a "guardian of the estate." An adult who has legal authority to make personal decisions for the child, including responsibility for his physical, medical and educational needs, is called a "guardian of the person." Sometimes just one person will be named to take care of all these tasks. An individual appointed by a court to look after an incapacitated adult may also be known as a guardian, but is more frequently called a conservator.

INTESTATE: The condition of dying without a valid will. The probate court appoints an administrator to distribute the deceased person's property according to state law.

INTESTATE SUCCESSION: The method by which property is distributed when a person dies without a valid will. Each state's law provides that the property be distributed to the closest surviving relatives. In most states, the surviving spouse, children, parents, siblings, nieces and nephews, and next of kin inherit, in that order.

ESTATE: Generally, all the property you own when you die.

ESTATE TAXES: Taxes imposed by the state or federal government on property as it passes from the dead to the living. All property you own, whatever the form of ownership, and whether or not it goes through probate after your death, is subject to federal estate tax. Currently, however, federal estate tax is due only if your property is worth at least $1 million when you die. This threshold gradually rises to $3.5 million in 2009. The estate tax is scheduled to be repealed for one year, in 2010. After that, the tax will return, with a threshold of $1 million, unless Congress extends the repeal. Any property left to a surviving spouse (if he or she is a U.S. citizen) or a tax-exempt charity is exempt from federal estate taxes. A handful of states also impose estate taxes; these are usually called inheritance taxes.

II. LIVING TRUSTS

LIVING TRUST: A trust you can set up during your life. Living trusts are a method of avoiding the cost and hassle of probate because the property you transfer into the trust during your life belongs to the trust, not you, and this passes directly to the trust beneficiaries after you die, without court involvement. The successor trustee--the person you appoint to handle the trust after your death--simply transfers ownership to the beneficiaries you named in the trust. Living trusts are also called "inter vivos trusts."

GRANTOR: Someone who creates a trust. Also called a trustor or settlor.

TRUSTEE: The person who manages assets owned by a trust under the terms of the trust document. A trustee's purpose is to safeguard the trust and distribute trust income or principal as directed in the trust document. With a simple probate-avoidance living trust, the person who creates the trust is often also the trustee.

SUCCESSOR TRUSTEE: The person you appoint to handle the trust after you die.
 

POWER OF ATTORNEY: A document that gives another person legal authority to act on your behalf.  If you create such a document, you are called the principal and the person to whom you give this authority is called your attorney-in-fact or agent. A power of attorney may be "general," which gives your attorney-in-fact extensive powers over your affairs. Or it may be "limited" or "special," giving your attorney-in-fact permission to handle a specifically defined task. If you make a durable power of attorney, the document will continue in effect even if you become incapacitated.
“GENERAL” POWER OF ATTORNEY: Authorizes your Agent to act on your behalf in a variety of different situations.
“SPECIAL” OR "LIMITED" POWER OF ATTORNEY: Authorizes your Agent to act on your behalf in specific situations only.
"DURABLE": This means that the document will remain in effect or take effect if you become mentally incompetent.
REVOCATION OF POWER OF ATTORNEY: Document that revokes a power of attorney document.
 

LIVING WILL: A legal document in which you state your wishes about certain kinds of medical treatments and life-prolonging procedures. The document takes effect if you can't communicate your own healthcare decisions. A living will may also be called a healthcare directive, advance directive or directive to physicians.
HEALTHCARE DIRECTIVES: Legal documents that allow you to set out written wishes for your medical care--and to name a person to make sure those wishes are carried out.
DURABLE HEALTHCARE POWER OF ATTORNEY: A legal document that you can use to give someone permission to make medical decisions for you if you are unable to make those decisions yourself. The person you name to represent you is called an attorney-in-fact.

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Disclaimer: This information is intended for general interest only. It is not intended to be nor should it be deemed as legal advice. Please consult with one of our experienced attorneys at Biberaj & Snow for the best advice specific to your needs.