Key Concepts and Terminology Explained
The world of estate planning has its own language, which can be intimidating. Before we dive deeper into wills and trusts, let’s define some of the key terms you’ll encounter. Understanding this vocabulary is the first step toward taking control of your plan.
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Estate: As mentioned, this is the sum of all your assets. It includes everything you own, from real estate and financial accounts to personal property like jewelry, art, and vehicles.
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Will (or Last Will and Testament): A legal document that outlines your wishes for the distribution of your property after your death. A will also allows you to name an executor to carry out your instructions and a guardian for any minor children.
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Trust (specifically a Revocable Living Trust): A legal arrangement where a person (the “trustee”) holds and manages assets for the benefit of another (the “beneficiary”). A “living trust” is created during your lifetime. “Revocable” means you can change or cancel it at any time while you are still capable.
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Probate: The official court process that takes place after someone dies. The court confirms the validity of the deceased person’s will (if one exists), inventories their assets, pays their debts and taxes, and then distributes the remaining property to the rightful heirs or beneficiaries.
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Executor (or Personal Representative): The person or institution you name in your will to be responsible for carrying out your wishes. Their job includes locating your assets, paying your final bills, and distributing your property according to the terms of your will.
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Trustee: The person or institution responsible for managing the assets held within a trust. If you create a living trust, you are typically the initial trustee, managing your own assets. You will also name a “successor trustee” to take over when you pass away or become incapacitated.
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Beneficiary: The person, people, or entity (like a charity) who will inherit your assets through your will or trust.
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Power of Attorney (POA): A legal document that gives someone you trust the authority to make financial and legal decisions on your behalf. A “durable” power of attorney remains in effect even if you become incapacitated. This is a critical part of planning for potential disability, not just death.
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Healthcare Directive (or Living Will): A document that specifies your wishes for medical treatment if you become unable to communicate them yourself. This can include instructions on life support and other medical interventions. It often includes naming a healthcare agent (or proxy) to make medical decisions for you.
While wills and trusts are the stars of the show, documents like a durable power of attorney and a healthcare directive are equally important parts of a comprehensive estate plan, as they protect you during your lifetime.
