It’s wise to plan an estate by speaking with an estate-planning specialist, but you can familiarize yourself with some of the lingo beforehand to hit the ground running. To get started on your research, here are 10 terms you might run across as you’re beginning your estate-planning journey.
1. Estate Plan – Let’s start with the basics. An estate plan is – you guessed it – a plan for your estate. Think of it as a roadmap your family can use after you pass away to ensure all of your assets get where they need to go. A well-crafted estate plan can comprise many documents, but, generally speaking, you'll likely need:
a. A will
b. An advanced directive or living will
c. A power of attorney,
d. Various beneficiary designation forms
e. Real estate documents
2. Will – This is the estate-planning term you’re probably most familiar with. A will is a document that outlines your wishes and instructions for your family and friends after you pass away. It can include everything from bequeathing assets to certain people to naming guardians for minor children. Got any charities you’d like to support with your estate? Those can be named in your will too. While you can find inexpensive online tools that can help you draft simple wills, you’ll likely be better served speaking with a professional, especially if you have a high net worth or a large number of assets.
3. Advance Directive – An advance directive, also known as a living will, helps your loved ones understand your healthcare wishes in the event you’re unable to decide for yourself. Spelling out your instructions in advance also helps hospital staff make care decisions you would be comfortable with. For example, if you ever need to be placed on life support, an advanced directive would help your family and doctors make decisions in line with your wishes.
4. Power of Attorney – In a nutshell, this document allows a designated individual to make legal decisions on your behalf. The scope of these decisions can be broad or narrow, depending on how the power of attorney is drafted. Having a designated power of attorney can be helpful in the event of an illness or injury that leaves you unable to handle things like selling your house, moving money or other assets, and signing legal documents.
5. Executor – The executor of your estate is the person you designate to carry out the actions outlined in your will. Why is this person an important part of your estate plan? If you pass away without naming an executor, the probate court could name someone to execute the will, and that person might not do things the way you envision. Here’s a bonus tip: Go over your wishes and instructions with your executor as soon as you can. Scheduling that awkward conversation while you’re hale and hearty helps give your executor a chance to ask questions or clarify things that are unclear while you’re still around to answer their questions.
6. Conservator – Whether you have young children yourself or you’re planning to leave some assets to your grandchildren, a conservator is a must for people preparing an estate plan that includes minors. A conservator is a person charged with managing money left to children until they are old enough to manage money themselves. A conservator could also be a person described in a living will who can pay bills and manage money and existing investments, if you can’t perform these duties yourself.
7. Probate – After you pass away, your kids won’t just be handed the deed to your house and your vintage Mustang. First, your estate must go through probate. Probate is the process of verifying the will, naming an executor and distributing the assets. It’s supervised by a probate court and, depending on the complexity of the estate, could be a relatively quick process or could take quite a long time. Having a clearly outlined will and a solid estate plan in place could help streamline the process.
8. Estate Taxes – It’s said the only things certain in life are death and taxes, and, well, estate taxes certainly cover both categories. Depending on where you reside when you pass away, you could be liable for both state and federal estate taxes on assets you leave behind, up to certain limits. Because this topic is so complicated and there are a lot of different approaches to conserving your assets, we recommend speaking with an experienced professional to discover the best strategy for your situation.
9. Trust – A trust is a legal structure that allows you to set aside assets in someone else’s name. There are quite a few reasons to put assets in a trust, including reducing estate taxes, protecting certain types of property, or holding money or assets for a minor, among other reasons. Trusts are formed under state law and rules vary from state to state, so if you think your estate could benefit from a trust, it’s smart to consult with a local professional to make sure you’re doing things correctly and legally.
10. Revocable/Irrevocable Trust – A revocable trust and living trust are different terms that basically describe the same thing: a trust where the terms can be changed at any time. An irrevocable trust describes a trust that can’t be modified after it is created without the beneficiaries signing off on the changes.
The above content is shared for educational and informational purposes only. The content is not intended to be a substitute for professional legal or financial advice and should not be relied upon for making legal, financial or other decisions. Please consult your attorney or financial advisor before acting on any content on this website.
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