Estate planning includes the use of special terms that may be confusing the first time you come across them. To help demystify the estate planning process, the explanations that follow will help you understand common estate planning words and phrases. Rather than providing a list in alphabetical order, our explanations put most of the terms in context, to illustrate when and how they come into play.
A good starting point is explaining exactly what the term estate planning means. When you plan your estate, you create a set of legal documents that protect you, your family, and your assets for the future. An estate plan is a group of documents created with assistance of an experienced attorney. Your plan accomplishes a number of important goals, including:
Each document in your estate plan is specifically tailored to you and your specific needs and goals. Using do-it-yourself (DIY) services or forms is a serious mistake.
Each estate plan is uniquely tailored to the individual who creates it, but all estate plans include some basic documents.
Almost every estate plan includes a Last Will and Testament — commonly referred to as a will. It’s important to emphasize that a will is not an estate plan — those two terms are not synonymous. They have entirely different meanings.
A will is a legal document that takes effect on death and sets out the final wishes of the testator or testatrix (person making the will) in a number of areas, including how property will be distributed after death. People who inherit under a will are the beneficiaries of the estate. A will includes designation of an executor or executrix to handle administration (and probate, if necessary) of the estate after the testator passes away.
A will may give property directly to beneficiaries or provide that assets be distributed through a trust. A pour-over will is one that provides for transfer of assets into a trust on the testator’s death.
Many estate plans include a trust to govern and control distribution of property after death. A trust is established through a specific, separate document in the estate plan, called a trust instrument or trust document.
A trust is a legal arrangement under which the grantor or settlor (the person creating the trust) designates a trustee (an individual or financial entity) to manage and distribute assets according to the terms established in the trust instrument. There are many different types of trusts.
A trustee has fiduciary duties under state and federal law, which means the trustee is legally held to an extremely high standard of care in managing and distributing the assets placed in the trust by the grantor. Individuals who receive distributions from a trust are the beneficiaries of the trust.
The trust instrument establishes the nature of the trust. A trust can be revocable, in which case it can be changed at any time by the grantor/settlor, or it can be irrevocable, so that it cannot be changed (except in limited circumstances). A living trust or inter vivos trust is one that takes effect during the grantor’s lifetime. In a revocable living trust, the grantor typically is also the beneficiary and trustee during his or her lifetime. In contrast, a testamentary trust is one that takes effect on the grantor’s death.
Trusts may also be referred to based on their purpose. Examples are an Asset Protection Trust, Qualified Income Trust (or Miller Trust), Special Needs Trust, Educational Trust, Charitable Trust, and Spendthrift Trust.
Two documents belong in every Georgia estate plan. These documents protect you and your family during your lifetime. Both documents include designation of a person you choose to make decisions on your behalf if you become unable to do so.
A power of attorney or POA is a legal document that names and authorizes another person, called the agent or attorney-in-fact, to act on behalf of the principal (the person making the POA), with regard to matters described in the document. A power of attorney is durable when the authority given in the document stays in effect after the principal becomes incapacitated. If a power of attorney is not durable, the agent’s authority terminates with incapacity of the principal.
In the durable power of attorney for financial matters in your estate plan, you designate a family member or other qualified person to handle your financial affairs in the event of your incapacity. In the absence of this document, a family member will have to ask a court to appoint a conservator to handle your financial matters if you become incapacitated.
Every estate plan should also include an advance directive, also called a health care directive. In the directive, you make certain end-of-life decisions and nominate a fiduciary to carry out those decisions. If you do not have an advance directive, a family member will have to ask a court to appoint a guardian to make personal and medical decisions for you.
Your instruction about the medical care you desire, including end-of-life care, also sometimes is referred to a living will, although this document is not related at all to a Last Will and Testament.
Finally, your health care directive includes a HIPAA release form, which provides access to your medical records. HIPAA stands for Health Insurance Portability and Accountability Act, the federal law that protects the privacy of your medical information.
You may encounter other terms when you discuss your estate plan with your lawyer and family members, including:
Estate administration: The process of settling the estate of a decedent, by collecting property, paying debts, and distributing estate property. Although estate administration and probate are often used interchangeably, there actually is a difference between these two terms. Estate administration applies to all estates, since every estate must be settled. State law requires only some estates and some assets to go through the probate process.
Probate: The formal court-supervised process sometimes required to settle an estate. Probate includes validation of the decedent’s will, if there is one.
Personal representative: An individual appointed by the court to administer an estate. The personal representative may be an executor appointed in a will, or an administrator, if there is no will or a named executor cannot serve.
Intestate: A person who dies without a will is described as dying intestate. If a decedent has no will, the property in the estate is distributed according to the Georgia laws of intestate succession. People who inherit property through an intestate decedent are referred to as heirs of the estate, as distinguished from beneficiaries, the term that applies to individuals who inherit under a will or trust.
Medicaid planning: For seniors, estate planning includes Medicaid planning and nursing home planning. This aspect of estate planning focuses on issues relating to long-term care and government benefits that can help pay the high cost of long-term care for seniors.
Elder law: An area of law practice for some estate planning attorneys, including Asset Protection & Elder Law of Georgia, elder law involves addressing all the concerns and challenges facing aging seniors and their families.
In our Cartersville estate planning practice at Asset Protection & Elder Law of Georgia, we assist clients with all aspects of creating and maintaining an estate plan. Our practice also includes matters relating to elder law, which enables us to assist with situations that arise as family members age.
We provide elder law and planning services to clients throughout the communities northwest of Atlanta, including in Bartow County, Cobb County, Cherokee County, Gordon County, Floyd County, and Paulding County. Call us at (770) 382-0984 or contact us through our online form.