The worst part of estate planning might actually be learning all of the terms associated with wills, trusts, and estates. I know what you’re thinking: lawyers get paid to know this stuff, so why do I have to? The answer is simple: you need to understand the documents that you sign. Most people don’t need a lawyer to have a great estate plan, especially now that AI can tailor these legal documents to make them work for your specific situation. But even if you work with a lawyer, you should be informed. When you know the lingo, it makes the process that much easier.
So here are 10 estate planning terms that everyone should know.
Intestate
The term is used when a person dies without having a will, i.e. that person was “intestate.”
Estate Planning
The process of designing a strategy for the administration of a person’s assets upon his or her incapacity or death. Tax and liquidity planning are part of this process.
Will
A legal document that specifies how a person's property will be distributed after their death. Some states call this a “last will and testament.”
Trust
A legal arrangement where a person transfers their assets to a trustee who manages those assets for the benefit of the trust's beneficiaries.
Grantor
A person who creates or contributes property to a trust.
Revocable Trust
A legal document that allows individuals to continue to own and control their property while they are alive, then transfer it to whoever they want after they die. A revocable trust gives the grantor the right to terminate, revoke, modify, or amend the trust while they are still alive.
Irrevocable Trust
A type of trust where the grantor cannot change or end the trust after it is created.
Special Needs Trust
A trust established for the benefit of a disabled individual that is designed to allow him or her to be eligible for government financial aid by limiting the use of trust assets for purposes other than the beneficiary’s basic care.
Pour Over Will
A legal document designates a trust as the beneficiary of any assets that are not otherwise specified in the person’s estate plan. A pour over will works in tandem with a trust.
Power of Attorney
A legal document that gives a designated person (the agent) the authority to act on behalf of another person (the principal) in certain circumstances. The agent does not need to actually be an attorney. You can give any adult the authority to act on your behalf.
Probate
Probate is the legal process of validating a will and administering the distribution of a person's assets after their death. The concept of probate is often misunderstood because people think that if you have a will, you avoid probate. That’s not quite right, if you die without a will, your estate goes through probate and it will take extra time. If you have a will, your estate still goes through the probate process, but it will be faster and property will be distributed according to your wishes. Remember, dying without a will means your assets are distributed according to state law.
Inventory
A list of the assets of a decedent or trust that is filed with the court during the probate process.
Operation of Law
The way some assets will pass at a person’s death is based on state law or the ownership of the asset rather than under the terms of the person’s will. When a person dies without a will, assets pass through the operation of law. In some states, spouses can’t be legally disinherited and in those states, ownership passes through operation of law.
Heir
A person legally entitled to the property of another on that person's death. When a person dies without a will, their assets pass to whomever the law makes their heirs. Typically, the first heir is a living spouse, or if the spouse is not living, to the person’s children or grandchildren. If you have a will, you can name your own heirs and they do not need to be people who are directly related or married to you.
Beneficiary
A person or entity who receives assets from a person's estate. A beneficiary is named by the deceased person to receive assets. This may happen through a life insurance policy, trust, or bank account. Beneficiaries do not need to be heirs. People can name their friends, partners, corporations, charities, or even pets as beneficiaries.
Decedent
An individual who has died.
Executor
The person appointed in a will to carry out the terms of the will and distribute the assets of the estate. In some jurisdictions, an executor is called a “personal representative.” A few states still use the term “executrix” to refer to a female executor.
Trustee
The person or entity responsible for managing a trust's assets and distributing them to the trust's beneficiaries.
Living Will
A legal document that specifies a person's wishes for end-of-life medical treatment if they are unable to make decisions for themselves. In some jurisdictions, this is known as an advance directive.
Health Care Proxy
A document that appoints an individual to make health care decisions when the grantor of the power is incapacitated. Also referred to as a “health care power of attorney.”
Gift Tax
A tax on the transfer of assets from one person to another during their lifetime, beyond a certain value.
Estate Tax
A tax on the transfer of a person's assets after their death. The federal estate tax is a tax on property (cash, real estate, stock, or other assets) transferred from deceased persons to their heirs. Some states have estate taxes and some do not.
