The process of creating and revising your estate plan may seem daunting and intimidating, however, know that the Law Office of Mikel J. Hoffman, P.C. is here for you and your family every step of the way. In order to try to demystify the specific parts that comprise an estate plan, we’ve put together a glossary broken down by categories to help define certain elements of an estate plan that might be confusing. It is our hope that this glossary helps bring understanding to the elements that make up a complete estate plan.
· Not to be confused with “descendants” or the living offspring (children, grandchildren and great-grandchildren) of the person who has died.
· Estate: your estate is basically your total net worth from the perspective of the law. This would include your home, car, personal investments, bank accounts, life insurance, any additional properties under your name, and other assets of worth that could be considered taxable in a transfer.
· Estate Plan: this refers to the set of instructions, through several legal documents, describing how to distribute your estate and property among the surviving members of your family, friends and any other organizations upon your death. It also includes instructions on the care you wish to receive should you become incapable of requesting it, naming guardians of any children who are minors or are disabled, transferring of businesses to partners and other important considerations of your wishes after you die.
· Estate Tax: a tax set out by the federal government of the United States as well as some states that is imposed on the transfer of property and assets from a deceased person to his/her beneficiaries. The taxed amount depends on the deceased person’s total estate, not on the received inheritance of each individual beneficiary.
· Heir: officially, this is the term used to describe an individual who is eligible to receive part of an inheritance when someone dies without a will. However, in the vernacular, this is sometimes used interchangeably with “beneficiary.”
· Probate: the formal name of the legal process following a person’s death. This includes providing all assets of the deceased person’s estate, appraising said assets, paying taxes and debts owed and finally distributing the remaining portion of the estate.
· Last Will Terminology:
· Codicil: an amendment, addition or supplement of a will that can explain, change or revoke part of the will or the entire document. These changes must be signed by the person who wrote it and witnessed by another party.
· Executor: the person specified in the Last Will and Testament to carry out the legal and financial matters of your estate, including dividing it according to your directions in the Will. Executor refers to a male put in charge of this position, the female version is known as an executrix and the overarching gender-neutral term also seen is Personal Representative.
· Last Will & Testament: this is the main document of an estate plan which allows you to designate how your estate will be distributed after you pass away. It can also allow you to set aside funds for the caring of surviving pets and name guardians of any children who are minors at the time of your death.
· Trusts Terminology:
· Beneficiary: people or organizations that are specified in a trust or will that are designated to receive part of a deceased person’s estate.
· Grantor: a person who establishes a trust. Also commonly referred to as “settlor” or “trustor.”
· Successor Trustee: this is the “next-in-line” trustee in a trust, that is, it is the person who assumes the role of trustee should the original named trustee be unwilling to perform his/her duties, is unable to perform their duties for another reason, or if he/she dies.
· Trust: a broad term to describe an arrangement made in an estate plan to set out when and how pieces of an estate will pass on to specific beneficiaries. They can be used to put assets to be out of probate to save time in court and possibly avoid unnecessary taxation of the estate.
· Trustee: the person or entity chosen to have legal title to trust assets. This means that the person or entity sees to it that the designated instructions in the declaration of trust are followed and assets are distributed when and how the trust specifies.
· Estate Plan Directives Terminology:
· Advance Health Care Directive (AHCD): a two-part legal directive in which a person designates a health care proxy to make decisions for the person in question if he/she is not able to do so, as well as a living will to designate specific instructions of medical treatment and whether to accept or deny it based on the state of the person that created the AHCD.
· Durable Power-of-attorney: similar to the standard power-of-attorney document, however this version allows the designated person to hold their decision-making power even when the original person who designated them is medically incapable of making decisions or is incapacitated.
· Health Care Proxy: the person given the responsibility (through an Advance Health Care Directive) to make decisions about the medical treatment of a person when he or she cannot due to medical incapability. The health care proxy only makes decisions when the treatment in question is not specifically outlined in the AHCD. The health care proxy is also commonly referred to as the “Durable Power-of-Attorney for Health Care.”
· Power-of-attorney: a legal instrument that grants a person the right to make decisions for another in terms of their property and other affairs. Depending on the wishes of the person granting power-of-attorney the degree of decision-making abilities can be very broad or limited based on the incapable person’s wishes.
· The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding creditors or any federal or state tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation and estate planning.