Estate Plan Terms Reference Guide
It is not necessary for you to know or understand these terms when reaching out to me for a consultation, but if you’re researching estate planning or working with me and finding yourself a bit confused by all the related legal jargon, I hope this list of terms and definitions can be helpful:
Estate: A term referencing the things that do not already have a beneficiary or transfer on death designation that will transfer under the terms of your Will. For example, your life insurance policy has a listed beneficiary, so it is not included in your estate.
Documents within your estate plan:
Will: The legal document that specifies your wishes regarding the division of your estate among designated beneficiaries.
General Durable Power of Attorney: Who cares for your finances if you can't care for them yourself - can avoid the need for a costly adult guardianship. - spouse is often named first and then 1 or 2 backups.
Health Care Advance Directive: Who makes medical decisions for you if you're unable to make decisions for yourself due to incapacity. - spouse is often named first and then 1 or 2 backups.
Revocable Living Trust (optional or as necessary): Everything you own is transferred into your trust and held by you during your lifetime. This Trust can be used to avoid the probate process if everything you own (we would discuss this specifically) is transferred into the trust.
When you or a loved one passes, these are terms to understand:
Probate: The legal process of getting approval from the Court to sell and/or transfer property and pay your last debts. This occurs whether or not you have a Will in place. The Will names specifically where your property should go and to whom it should go to. Probate allows you to clear your debts and transfer property in an orderly fashion. Your Personal Representative is the person named in your Will who would get permission from the Court to administer your estate.
Administration: Payment of outstanding bills and debts that are legally due and orderly transfer of your property as you set out in your Will or Trust.
Roles to fill within your estate plan:
Personal Representative/Executor: Who do you want to follow the instructions laid out in your Will after you pass? - Often your spouse is named first.
Successor/Backup Personal Representative/Executor: Who would you name after your first named person/spouse to follow the instructions in your Will?
Guardian: Who would care for your children like you would in the unlikely event you and your spouse both pass away?
Successor/Backup Guardian: Who would you select as a backup to care for your children if the first person/couple named can't do it?
Trustee: If you have a Will with trust provisions (for minor children or minor grandchildren) or a Revocable Living Trust, the trustee is who will care for your finances and property until your children reach the age you select to receive your property?
Successor/Backup Trustee: If the first person/couple named can't care for your finances and property, who would you name as a backup?
Additional components:
Contingent Distribution: If something happens to your spouse and your kids, your Estate will automatically go to your living grandchildren. Contingent distribution desires will be followed in the extremely unlikely scenario where, God-forbid, you and your spouse, all of your children, and any grandchildren you have are gone. This is commonly where individuals name their parents, siblings, nieces/nephews, churches, charities, universities, and/or friends and select the percentage each person or category of people is to receive.
Trust Distribution Ages for Kids: The Trustee will care for your finances and property and pay for what your kids need until your kids reach the distribution ages and meet any other qualifications you set (within reason). It's common to do 2-3 distributions to your children at different ages (often around 25 or 30 years of age), but there can be one distribution or more than 3, depending on your preferences. Additionally, some parents like to add that a child must complete a financial education class before receiving the funds.