Below is an explanation of the basics of estate planning and it covers general information, process, expectations and the legal participants involved in planning for the future of your family.

In general, your estate includes not only the real estate you own, but also stocks, bonds, business interests, personal effects and any other type of wealth you may have accumulated during your lifetime.  Most property is part of your “probate estate,” which your will disposes of while in probate.  There are a number of exceptions that do not pass through probate.  Those exceptions can include insurance policies or accounts with a designated beneficiary who outlives you or property that you hold jointly with someone who outlives you and has rights of survivorship in that property.  But even these kinds of property are considered part of your estate for federal estate tax purposes.

 

Will – a legal document in which a person (a testator) specifies the method to be applied in the management and distribution of his estate after his death. If a person does not leave a will, the will is declared invalid or the person does not distribute all of their property through the will, the person will have died intestate (see below), resulting in the distribution of the estate according to the laws of Descent and Distribution of the state in which the person resided. A will enables a person to select his heirs rather than allowing the state laws of descent and distribution to choose the heirs, who, although blood relatives, might be people the testator dislikes or with whom he is unacquainted. A will allows a person to decide which individual could best serve as the executor of his estate, distributing the property fairly to the beneficiaries while protecting their interests, rather than allowing a court to appoint a stranger to serve as administrator. A will safeguards a person's right to select an individual to serve as guardian to raise his young children in the event of his death.

 

Probate – is the legal process by which a will is deemed valid or invalid. If a decedent leaves a will distributing estate property and assets, the probate court will determine if the will should be admitted to probate and given legal effect. In general, the probate process involves collecting the decedent's assets, liquidating liabilities, paying necessary taxes, and distributing property to heirs and allowing creditors to make claims on the decedent’s estate.

 

Decedent - is the term for an individual who has died. The term literally means "one who is dying," but it is commonly used in the law to denote one who has died, particularly someone who has recently passed away.

 

Trust – is an arrangement that can be employed for making gifts and for the management of property, with the distinctive feature of a trust being the separation of legal title from beneficial enjoyment. The trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard and administer the trust assets and income for the benefit of designated beneficiary(ies), who hold equitable title. There are a variety of trusts and many work hand-in-hand with wills but a trust can be created and work when a settlor is alive.

 

Intestate - A person who dies without a will is said to have died intestate. Intestate can also occur if a will is denied probate for some reason or the will does not make a complete disposition of the estate (partial intestacy). In this case, the probate court in the person's home state -- sometimes known as surrogate's court or orphan's court -- determines who has the right to inherit the person's assets and who should be named guardian of any minor children. The process, known as administration, can be time consuming and expensive, and the outcome may or may not reflect what the intestate person would have wanted.

 

Power of Attorney - A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person's benefit. A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person's benefit. There are several type of powers of attorney including: a limited, or ordinary, power of attorney that is revoked if you are no longer able to make your own decisions, a durable power of attorney, grants a person power that will enable a person to continue to make decisions for you if you're unable to make them, and a springing power of attorney takes effect only at the point that you are unable to act for yourself. You always have the right to revoke the document as long as you are able to act on your own behalf.

 

Revocable Trust – In general terms, a revocable trust is an inter vivos – living - trust that can be modified or revoked by the grantor, or person who establishes the trust and transfers property to it. The trust can be a useful estate-planning tool because, when you die, the assets in the trust pass directly to the beneficiaries you've named in the trust rather than through your will in what is called a pour-over will. But because you haven't relinquished control over the assets, as you do when you transfer them to an irrevocable trust, they are still included in your estate. If it’s total value, including the trust assets, is greater than the exempt amount, federal or state estate taxes may be due. For the same reason, during your lifetime, you continue to collect the income that the assets in the revocable trust produce and you owe income or capital gains taxes on those earnings at your regular rates. That's not the case with an irrevocable trust, which has its own tax identity.

 

Irrevocable Trust - An irrevocable trust is a legal agreement whose terms cannot be changed by the settlor, or grantor, who establishes the trust, chooses a trustee, and names the beneficiary or beneficiaries. The trust document names a trustee who is responsible for managing the assets in the best interests of the beneficiary or beneficiaries and carrying out the wishes the creator has expressed. You typically use an irrevocable trust for the tax benefits it can provide by removing assets permanently from your estate. If you establish an irrevocable trust while you're still alive, it's called a living or inter vivos trust. If you establish the trust in your will, so that it takes effect at the time of your death, it's called a testamentary trust.

 

Personal Representative – is the name for the person who manages the financial affairs of another person who has died or is unable to manage their affairs. When a person dies, a personal representative generally is required to settle the decedent's financial affairs. In some instances, a living person may need a personal representative; for example, a minor might need a personal representative to make legal decisions for her. Personal representatives can be appointed by a court, nominated by will, or selected by the person involved. Their duties are performed under the supervision of probate courts, which are governed by state law.

 

When someone dies leaving property, a personal representative is required to administer the decedent's estate, which involves resolving any debts and handling the distribution of property. The jurisdiction, powers, and functions connected with administering the decedent's estate are usually entrusted to special tribunals, known as probate, surrogate, or orphans' courts. These courts supervise the actions of the personal representative.

 

Historically, a personal representative was called an executor (male or female) or executrix (female) or when the court appoints a personal representative for the decedent's estate - an administrator (male or female) or administratrix (female). But those formal titles have been removed for the general term of personal representative.

 

Trustee - An individual or corporation named by an individual (settlor), who sets aside property to be used for the benefit of another person, to manage the property as provided by the terms of the document that created the arrangement. A trustee manages property that is held in trust. A trustee has legal title to the trust assets. A trust is an arrangement in which one person holds the property of another for the benefit of a third party, called the beneficiary. The beneficiary is usually the owner of the property or a person designated as the beneficiary by the owner of the property. A trustee may be either an individual or a corporation. A trustee has a fiduciary duty to the trust to manage, invest, safeguard and administer the trust assets.

 

Settlor/Grantor – is the name for the person that creates the trust using specific property, either real or personal, that the settler owns. The settlor will convey the property to the trust that is created to receive and distribute it according to the trust documents with oversight by the trustee.

 

Beneficiary – is the name for the person or entity (like a charity) that is to receive assets or profits from an estate, a trust, an insurance policy or any instrument in which there is distribution.

 

Testator – is the name for the person that makes a will. A testator must be of sound mind when making a will. In part to ensure that a testator is of sound mind, states require that the signing of a will be witnessed by multiple persons. Each state has different requirements for determining what constitutes the execution of a valid will. A testator also should be making the will without duress and free of coercion from other persons. If the testator is not acting of her own free will in consenting to the terms of the will, a court may later void all or part of it.

 

Guardian – is the name for someone you designate to be legally responsible for your minor children or other dependents that are unable to take care of themselves if you are unavailable to provide for their care. You may name the guardian in your will or while you are still alive. In most cases, a guardian makes both personal and financial decisions for his or her ward. However, you can split the duties for personal and financial decisions in more than one person. Guardians can also be called Guardian at litems who are general appointed by the court.

 

Trust indenture or instrument – is the general terms used to describe the charter document that sets out the trust’s rules.

 

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