If you’ve ever read articles online about estate planning, or met with an estate planning attorney, your head might be swirling trying to make sense of all of the various terms that are used in any estate planning discussion. I’ve defined some of the more common terms to help you make some sense of the common terminology we use in estate planning.
Your LAST WILL AND TESTAMENT (or Will) is the document in which you identify who should administer your estate at your death, and who should receive your assets. A Will requires a probate to be effective. If you have minor children, it is also where you nominate a guardian and conservator for your minor children in the event of your death.
The PERSONAL REPRESENTATIVE (or Executor) is the person you nominate in your Will to act upon your death to open a probate, collect your assets, pay your debts, and distribute your assets in accordance with your Will. The Personal Representative will have the legal authority to hire professionals to help complete the probate administration and settling of your estate. Your spouse is usually the first choice; and, possible other choices include parents, brothers, sisters, adult children, trusted friends, or a trust company.
A GUARDIAN is a person appointed by a court to have physical and legal control over minor children or incapacitated or disabled adults, and a CONSERVATOR is a person who is appointed by a court to have control over the assets and finances of minor children (until age 18) or incapacitated or disabled adults. The court will generally give priority to a parent, or a person you nominate in your Will.
A TRUST is an entity used to direct a TRUSTEE to manage assets for the benefit of a BENEFICIARY. Trusts can be revocable or irrevocable, and used for many purposes. Two common types of Trusts are:
A TESTAMENTARY TRUST is trust language included in your Will. The testamentary trust is established and funded after your death via a probate of your Will, at which point the nominated Trustee will be authorized to manage the assets for the named Beneficiaries, in the manner you describe, until the Trust terminates. Testamentary Trusts are commonly used when you have minor children, and are usually irrevocable.
A LIVING TRUST (or “Inter Vivos Trust”) is a stand-alone Trust created by you via a Trust Agreement and made operative at the time of creation (prior to your death). A Living Trust typically provides for you, as Trustee, to manage your assets for your benefit during your lifetime, and then directs a third party Trustee to manage and distribute assets after your death for the benefit of your named Beneficiaries. Living Trusts are useful when you have minor or disabled children, second marriages with blended families, own real property in another state, or have property you want managed longer-term for multiple beneficiaries. Living Trusts are often revocable during your lifetime, and irrevocable at your death. Living Trusts do not require a probate to become effective, and can be named as a transfer on death beneficiary.
A DURABLE POWER OF ATTORNEY allows you to appoint an AGENT to act on your behalf during your lifetime, without the need for a court to appoint a guardian or conservator for you. A Durable Power of Attorney can include (A) financial powers and (B) health care decisions. The Agent you name for financial and health care matters can be different. Your spouse is usually the first choice; and possible other choices include parents, brothers, sisters, adult children, trusted friends, or a trust company.
A LIVING WILL (also known as an ADVANCED DIRECTIVE) is used to state your intentions with regards to your care in the event you are in a vegetative incurable condition with no chance of recovery, as determined by a physician familiar with your condition, and will otherwise be provided life-sustaining treatment.
This article provides additional information about the above concepts.