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Guide to Understanding Common Legal Terms Associated With Estate Planning Including Wills and Trusts

On Behalf of | Oct 18, 2022 | Estate Planning |

Estate planning is a necessity when it comes to protecting your loved ones and assets after your death. There is a lot to understand when estate planning, so it’s best to gain a solid understanding of terminology and concepts before you start planning. Learn more about estate planning and its importance.

What Is an Estate Plan?

An estate plan involves preparing numerous documents and completing tasks related to the management of your assets in preparation for your death or incapacitation. With the help of an estate law attorney, you’ll determine how your assets will be cared for, managed and distributed after you pass away.

You’ll also determine how your financial obligations and properties will be managed if you become incapacitated and are unable to do so yourself. You’ll likely consider assets like cars, houses, pensions, debt, stocks, life insurance and more.

There are many reasons you may begin estate planning. For example, you may want to ensure your surviving children and spouse are provided for, preserve family wealth, leave a legacy for a charity or fund your kids’ or grandkids’ education. Regardless of the reasons, it’s best to be prepared, as life can be unpredictable. Having your estate planned can help alleviate some stress.

Here are some of the tasks you may complete when estate planning:

  • Writing a will
  • Establishing trust accounts for beneficiaries
  • Appointing guardians for surviving dependents
  • Making funeral arrangements
  • Creating and updating 401(k)s, life insurance, IRAs and other plans
  • Naming fiduciaries
important legal terms

Legal jargon can be overwhelming and confusing, especially if you’ve never heard it before. To help you navigate the language associated with estate planning, here are some commonly used legal terms you should be familiar with:

  • Will: Your will specifies how your property will be legally distributed after death. This means you’ll directly name people or organizations who will inherit your home and belongings after you pass away. If you have any children, you’ll also want to name guardians for them in your will. A will is where you can specify how you wish for things to be handled and arranged to help ensure everything is protected after death.
  • Testator: When you make and own a will, you’re referred to as the testator. This role is one of the most important in an estate plan.
  • Executor: As the testator, you’ll need to name an executor to administer your will. They’ll follow the instructions you laid out and manage any final wishes you had. If you don’t name an executor when making your will, the court will appoint one when handling your case.
  • Trust: A trust is a legal document in which you designate someone to manage and administer your assets for your beneficiaries. You’ll choose your trust based on your goals, the size of your estate and what you want to leave for your loved ones. Often referred to as a living trust, this document is created within your lifetime to ensure your assets and beneficiaries are cared for, but there are other types of trusts available.
  • Trustor: You’re referred to as the trustor — the person making the trust.
  • Trustee: The trustee is who you designate to be in charge of your trust. This person is responsible for carrying out the terms of your trust as you specified. When choosing a trustee, be sure to consider who would be well-suited to handle the duties of such a role.
  • Beneficiary: Beneficiaries are the people or organizations you name in accounts like a retirement plan, will, trust or life insurance policies that will benefit from a portion or all of your estate. You can ultimately name any person or organization as a beneficiary — whoever you want your assets to go to. Naming beneficiaries is vital so it’s clear who will be inheriting what portion of your estate. Without clearly named beneficiaries, your estate will have to go through a time- and cost-consuming court proceeding.
  • Fiduciary: A fiduciary makes their client’s interests a top priority so they can effectively act on behalf of the client. Fiduciaries act on trustworthiness to help manage your assets. Fiduciaries include many roles, like executors and trustees. Because these roles require an individual or organization to act on your behalf, it’s important to choose these people carefully to ensure your plan is carried out as you wanted.
  • Durable power of attorney (POA): A POA gives a specified person or organization the permission and authority to act on your behalf and make decisions for you if you become unable to do so on your own or become incapacitated. You can have POAs for both financial and medical situations — just keep in mind that the document only goes into effect once you’ve been incapacitated.
  • Decedent: The owner of the estate plan, trust, will or other account is referred to as the decedent after they pass away. The decedent is the most important person in an estate plan because they set everything in motion upon passing away.
  • Revocable and irrevocable: These two terms refer to whether or not you can modify your trust. Revocable trusts can easily be changed as often or infrequently as you need. Irrevocable trusts are much more difficult to get altered. To modify an irrevocable trust, your beneficiaries would need to be consulted and approve the changes. Because of this, irrevocable trusts can be used for asset protection.
importance of estate planning

The Importance of Estate Planning

Estate planning is important to help you feel more confident about your and your family’s future and that they’ll be taken care of after you’re gone. Consider these reasons why estate planning is important and can be beneficial.

Goes Beyond Writing a Will

While writing a will provides adequate direction for how your assets should be handled, estate planning involves several more components, allowing you to prepare for even more. Go beyond writing a will with the ability to select POAs to make decisions for you, outline medical directives, choose beneficiaries to receive money and create at least one trust to pass down properties. Estate planning gives you a more thorough plan for after life.

Is Time- and Cost-Effective

At the very least, it’s best to have a will. Without such legal documents, distributing your assets becomes time-consuming and costly.

When you pass away without estate plan documents like a will, you’ve died intestate, which means a probate court will use state laws to determine who will distribute your assets. In most cases, the person chosen is a surviving spouse or close family member. However, a public trustee will be appointed to handle your assets if you don’t have a surviving spouse or close family members, or if they’re unable or unwilling to take on the responsibilities.

While the court applies state laws, considers the details of your estate and ultimately decides what to do, your directives and assets are frozen — meaning no one else can touch them. This process can take months or years and the legal fees can add up quickly, meaning your family could be without your assets for a long time and will have to cover the additional legal costs on their own.

To help prevent the stress of dying intestate, be sure to handle estate planning tasks like choosing an executor and designating living beneficiaries so there’s no delay.

Helps Avoid Taxes

Depending on the value of your estate and the state you live in, you may be subject to federal or state inheritance and estate taxes. California does not have an estate tax, but larger estates can be subject to federal taxes.

To help prevent federal governments from taking a large amount of money from your estate, you can set up joint accounts, establish irrevocable trusts and give gifts while you are still living. Doing so through an estate plan helps ensure assets are effectively removed from your estate and passed onto your heirs.

Protects Dependents

A huge consideration to make if you have kids is who will get custody of them when you pass away. If you pass away with a surviving spouse, they’ll most likely be granted sole custody. You’ll need to decide on a guardian in your estate plan in the event there isn’t a surviving spouse or close family member. If you don’t designate a guardian for your dependents, have no other surviving family members or a third party like a family friend doesn’t fight for custody, your child may enter the foster system.

To ensure you have a say in who will care for your children after your death, identify a first- and second-choice guardian in your estate plan to ensure your kids will be protected and cared for.

Protects Yourself in Life

While estate plans are intended to protect your assets and provide for your loved ones after your death, they can also help protect you before your death.

A health care proxy and durable POA can ensure you have the right help if you become incapacitated. With a POA, you can have someone you trust help you manage your financial and legal needs if you’re unable to. A health care proxy gives a trusted loved one permission to make your health care decisions if you’re unable to communicate them independently.

Without these types of directives in a living will, your family and friends will struggle to determine who can legally make decisions for you. It’s also possible in these situations for the court to appoint someone to make these decisions, and they likely won’t know your wishes. Start estate planning to help prevent this, simplify decision-making and protect yourself and your wishes.

estate planning checklist

Estate Planning Checklist

If you’re considering beginning an estate plan, you may wonder where to start. With so many aspects to estate planning, it’s challenging to determine what should be a priority and what can be added later. To help, here’s a brief checklist of some of the most important things to include in your estate plan and what to think about when creating the documents or designations.

1. Trust and Will

As we mentioned earlier, trusts and wills help ensure your assets and property are properly distributed and limit legal challenges for your loved ones.

When writing these documents, you need to be sure they’re written consistently compared to other documents. For example, you may name beneficiaries on other accounts like a retirement account or insurance policy. If assets have been bequeathed outside of your trust or will, ensure you list the same beneficiary for that asset in your will.

If you name your brother as the beneficiary of an insurance policy outside of the will, be sure to do the same in your will. If you name different beneficiaries for the same asset, your will is likely to be contested in a legal battle to determine who should be awarded the asset. As we’ve mentioned before, legal issues with your will can be lengthy and expensive. Be clear and consistent with these documents to help prevent these types of issues.

2. Power of Attorney

A durable POA is crucial to ensuring you get to choose who acts on your behalf when you’re unable to. Whether it’s a spouse, family member or trusted advisor, this document enables a person of your choosing to make financial and real estate transactions as well as other legal decisions for you. This is also a good time to set up a health care POA or health care proxy to allow the right person to make medical decisions for you if the time comes.

These documents are important to set up with your estate plan because without them, there’s no telling who could make your decisions near the end of or after your life. POAs are a great way to help you stay in control of who represents you.

3. Beneficiaries

When naming beneficiaries for your assets and various property items, consider your beliefs, family and friend situations and intent. If you want specific items to go to specific people, be sure to write that out. Without designated beneficiaries, the court will be left to make these decisions for you. Most often, a judge is unlikely to make the same decisions you would have since they’re unaware of your intent and situation.

4. Letter of Intent

While a letter of intent isn’t a legal document, it can be extremely helpful for your executor and beneficiaries to understand what you want and your intentions. You may also include funeral details or other requests and instructions. A letter of intent can also help a probate judge distribute your assets if parts of your estate plan are deemed invalid.

5. Guardianship and Custody Plans

If it’s not included in your will or trust, be sure to name guardians for any minor children you already have or may have in the future. Pick a couple or individual who you’re confident is willing to raise your children, shares similar views as you and is financially stable.

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Get Assistance Planning Your Estate With Barulich Dugoni & Suttmann Law Group

At Barulich Dugoni & Suttmann Law Group, we understand that while estate planning is important, it can also be stressful and confusing. We specialize in assisting with future planning and estate-related needs to help you understand the process better. Contact us today for more information on estate planning and how we can help you.