Breaking down confusing estate planning terms

You’ve finally made the decision to plan for what happens to assets when you eventually die, and you know it’s a smart move to make financial plans for the future. As you dig into the process, however, you’re confronted with a whole new set of terms to sort out.

Because estate planning is a legal process, it often involves legal jargon when referring to actions you’ll take and decisions you’ll make. It’s important to learn the meaning and context of some basic estate planning terms, and not simply to expand your vocabulary. It helps you make informed decisions about the best estate planning choices for you.

What is estate planning?

One of the first things to define is estate planning itself. A person’s “estate” — a term only relevant after death — consists of the assets and property under their ownership.

In the process of estate planning, a person determines what should happen with these assets in the event that they die or become incapacitated. These wishes are detailed within legal documents, including a will.

The purpose of estate planning is to vocalize and codify your directives while you are still living and in the best position to do so. You can alter these plans if you change your mind later, but a complete lack of plans puts those decisions out of your control if something happens to you.

What is a will?

The central product created through estate planning is a will. This legal document reflects your decisions about the distribution of your assets, including amounts and beneficiaries. It also specifies who will be responsible for making sure these financial decisions are carried out.

What is a trust?

When you create a trust, you legally set aside specific property for someone that will be held until a later date. This could be money that is banked until a child turns 18 or an investment that gets turned over to a friend when it matures on a specified date. You can leave money to someone in your will, but a trust is its own legal entity that will help avoid probate.

What is probate?

When a person dies, their will is analyzed by the appropriate court’s probate division for validity, and during asset distribution. For people who die without a will in place, the probate court distributes their assets in accordance with state law.

Estate planning terms about people

Decedent vs. Descendant

The confusion between these two words arises from their similarities, but there’s a clear and important distinction between them. A decedent, pronounced dee-SEE-dint, is a legal word for a person who has died.

A descendant, pronounced dee-SEN-dint, is the legal term for a person’s child, grandchild, great-grandchild, etc., who was born or adopted into their line of family descent. Descendants often stand to inherit assets after their parents or grandparents die.

Executor vs. Administrator

When creating a will, you must designate an individual whose responsibility it will be to see that your wishes are carried out. This person is called the executor of your will, and he or she manages the distribution of your assets and other property.

If you do not designate a will executor, or the designated person is unable to serve when needed, the court will appoint a person or a fiduciary business to conduct these duties. This person or company is called the will administrator. It’s beneficial to select an executor for your will, someone you trust, to avoid the appointment of an administrator.

Beneficiary vs. heir

You may hear the terms beneficiary and heir used interchangeably, but they have distinctly different meanings in the legal world. Both words are used to identify people who stand to inherit assets from someone who has died.

A beneficiary is a person specifically designated in documents to receive assets or property from a person’s estate after their death. The beneficiary is identified by name in a will or other legal documents related to asset distribution.

“Heir” is a term used to refer to a person who is entitled to some portion of a person’s estate, but in a situation without a will. If a person dies without having a will in place, a probate court judge determines the distribution of their assets and property. The judge will consider what individuals can be considered legal heirs of the person who died.

Estate planning terms about power and rights

What is power of attorney?

Deciding what happens with your money and property when you die is a critical part of estate planning. However, another important aspect of the process lies in determining how your affairs will be managed if you become incapacitated by illness or injury.

Power of attorney is a legal mechanism you can use to appoint someone you trust to manage your finances in case you are unable to do so. You create a written authorization for someone to make decisions in your place for some or all of your financial and legal matters.

Depending on the document you create, this person would pay your bills, manage decisions about the property you own and could transfer and withdraw funds based on needs that arose. Power of attorney terminates when the incapacitated person regains the ability to manage their own financial decisions or dies.

What is health care power of attorney?

Similar to the financial power of attorney, assigning a person as your health care power of attorney provides them with significant decision-making power. Health care power of attorney is a legal action that gives someone you trust the authority to make choices about your health care, in the event you become incapacitated.

Health care power of attorney also ends if the incapacitated person becomes able to make their own decisions about their care.

It can be difficult to consider situations arising that could result in your inability to make decisions for yourself. While no one wants to think about such tragic scenarios, you can protect your interests by using powerful legal tools such as a power of attorney and health care power of attorney.

We’re Here to Help

Whether you are a current client or if you are looking for family law or estate planning assistance, our team is here for you to address your concerns.

To the extent possible, we will offer remote consultations and provide services from a distance.

You may message us here, complete the form below to email our office, or call 815-600-8950 and one of our team members will be able to assist you.

This is a legal advertisement from Sterk Family Law Group. It does not constitute legal advice and should not be construed as such. This article is for informational and educational purposes only.

 

This is a legal advertisement from Sterk Family Law Group. It does not constitute legal advice and should not be construed as such. This article is for informational and educational purposes only.

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