Below is a glossary of common estate-planning terms. Click on a term to see its definition.
|Advance Directive||Healthcare Advance Directive||Revocable Living Trust|
|Durable Power-of-Attorney||Last Will and Testament||Trust|
An administrator is the person chosen by the court to handle the administration of an estate of a person that dies without a will. An administrator’s duties are the same as an executor or personal representative.
Advance Directive (aka Healthcare Directive or Living Will)
An advance directive is a legal document that specifies your end-of-life decisions should you be become incapacitated or unable to communicate. Most advance directives cover issues like whether you would want to prolong your life with medical treatment such as breathing machines, dialysis, forced hydration and/or feeding. They also cover when you would want to receive CPR and whether you want your organs and tissue donated. For women, an advance directive should also specify end-of-life decisions in the event you are pregnant (i.e., whether you should be kept alive until the baby can be safely delivered).
The benefits of an advance directive are that (1) you make your own healthcare decisions, (2) you do not have to endure unnecessary or painful medical procedures that are unlikely to meaningfully prolong your life, and (3) you avoid forcing your loved ones to decide whether to decline treatment and, therefore, allow you to die.
Advance directives are also referred to as healthcare directives or a living will.
Durable Power of Attorney
A durable power of attorney is a legal document that provides a person with certain powers to make decisions and take actions on your behalf. This person is called an agent. Unlike a regular power of attorney, a durable power of attorney does not terminate when you become incapacitated. Because of this, durable powers of attorney are used to name an agent to make decisions on your behalf in the event that you become incapacitated.
The agent named in your durable power of attorney will typically be authorized to keep your finances and investments in order. If you own a business, your durable power of attorney will likely allow the agent to continue running the business.
You can also include medical decision making in your durable power of attorney. But, often, it’s better to execute a separate medical power of attorney. For many people, the person most qualified to make financial decisions is not the person who they want to make medical decisions on their behalf.
An estate is comprised of everything that you own, including your personal property, bank accounts, investments, retirement accounts, insurance policies, real estate, and business holdings. Your estate also includes your debts and other liabilities. Essentially, your estate is comprised of ever thing included in your net worth.
Executor (aka Personal Representative)
An executor is the person named by the probate court to handle the administration of a deceased person’s estate. An executor’s duties include identifying all assets of the estate, valuing the assets, and distributing the assets to the beneficiaries or heirs of the estate.
An executor must also pay any debts of the estate or debts owed to the estate. Likewise, the executor must also initiate any lawsuits needed to vindicate the rights of an estate, such as a wrongful-death case, and defend any lawsuits against the estate.
Executors are also known as the personal representative of the estate. Sometimes a female executor is referred to as an executrix.
A fiduciary is a person designated to manage property (money, real estate, etc.) on behalf of a beneficiary. Fiduciaries are required to act in the best interests of the beneficiary. In estate planning, executors, personal representatives, guardians, and trustees are all fiduciaries
A guardian is a person named by you to assume the care of your minor children if you pass away. There are two kinds of guardians: guardians of the person and guardian of the estate. The first type, guardian of the person, takes custody of your child upon your death and is responsible for raising them. The second type, guardian of the estate, is the financial guardian. The financial guardian is responsible for making sure the guardian of the person has enough money to take care of all your child’s needs.
You can choose a single person to be both guardian of the person and of the estate. But many people like to choose separate guardians. The benefit of doing so is that two guardians acts as a team and there is oversight over how your child’s inheritance is spent and over how your child is raised.
Living Trust (aka Revocable Living Trust)
A living trust is a trust created by you during your lifetime. It allows your loved ones to avoid probate, which is the court process that takes place when you die with or without a will, when you pass away. Instead your estate is privately administrated by your successor trustee (like an executor) without any court filings.
Living trusts are also known as inter vivos trusts, revocable living trusts, or loving trusts.
Probate is the court process used to transfer your assets to your beneficiaries or heirs upon your death. You must go through probate in California if your assets exceed $150,000. The only way to avoid probate is if you have less than $150,000 in assets or your assets have been properly transferred into a living trust.
The probate process begins with someone in your family filing a petition to open probate. The court then name the executor, also known as the personal representative. That person is responsible for locating and valuing all of your assets. If necessary, the executor also collects debts owed to you, initiates lawsuits on your behalf, pays off your debts, and defends against any suits filed against you or your estate.
A trust is a legal entity created when a grantor gives property to a trustee to hold for the benefit of a beneficiary. The relationship between these three parties is governed by the trust agreement. There are two kinds of trusts, revocable and irrevocable. Revocable trusts can be modified by the grantor whereas irrevocable trusts cannot.
A trustee is a person who takes ownership of property and holds it for the benefit of another person. A trustee owes fiduciary duties to the beneficiary. That means the trustee must act in the best interests of the beneficiary and in accordance with the trust document.
A trustee can be an individual or a corporation, such as a trust company or bank. A trustee’s duties include managing and investing the trust assets and making distributions as required by the trust document.
Will (aka Last Will and Testament)
A will is a legal document that specifies how you would like your assets distributed when you pass away. The people who you chose to receive your assets are called your beneficiaries. Your will also names the person who will be in charge of gathering, valuing, and, if necessary, selling your assets prior to distribution. This person is called the executor, or personal representative, of your estate.
A will is sometimes more formally referred to as a last will and testament.