When creating or updating your estate plan, the many terms and phrases surrounding estate administration and planning may be difficult to understand. In fact, that is the second most common reason that people avoid the estate planning process. It is difficult to enter into an area where it seems like everything you see is nothing more than a bunch of difficult legal jargon.There are some definitions, such as wills, that you see often and may know a bit about. However, it can be easy to misinterpret some estate planning terms or mistakenly use them interchangeably. It is important to understand basic estate planning terms and definitions because:
- Estate planning documents are legal documents.
- Probate law is complex and highly technical. While some words may seem interchangeable, they often aren't.
- Understand estate planning terms and definitions can make you feel more confident and less likely to procrastinate in the estate planning process. This is vital because there is no guarantee of what tomorrow may hold for you.
Ball Morse Lowe provides this basic set of estate planning terms and definitions as an education tool. It is not meant as a substitute for legal advice. To schedule a free consultation with our estate planning lawyers, please click here.
The following are some of the most common terms you may hear when speaking with your estate planning lawyer, as well as their definitions, according to the American Bar Association.
- Attorney in Fact – An attorney in fact is a person named as the agent of a power of attorney who is charged to handle the matters of another. The type of matters the attorney in fact may handle depends on the type of power of attorney. With a durable power of attorney, the attorney in fact can continue to make decisions on behalf of the person who appointed them even if the person is declared as incapacitated for a period of time.
- Beneficiary – This is a person who is named to receive assets or property from an estate, either in a will or trust. The beneficiary designation may be given to a family member or someone else you wish to include.
- Conservator – A conservator manages an incapacitated person’s property.
- Credit Shelter Trust – This trust is used in a will the person creating a will is married and their estate has a value that exceeds their remaining estate tax exemption amount. The person creates, at the first death, a marital trust known as an A trust that benefits their surviving spouse for life. This trust is also known as an A-B trust or A-B trust planning. It acts as a credit shelter. While it can be a simple matter, it does have its complexities. It is very important to talk with an estate planning attorney to learn more about marital deductions and how this type of trust may affect the surviving spouse as well as any surviving heirs upon the death of the surviving spouse.
- Decedent – A decedent is a deceased person, such as a deceased spouse.
- Descendants – The descendants are not to be confused with the decedent. Descendants are a person's children and grandchildren.
- Durable power of attorney – This is a power of attorney that does not end if the person who created it is declared incapacitated. That is what makes it durable.
- Estate planning – This is the process that creates a strategy to execute a will, creates a trust agreement, or creates the appropriate documents for the administration of the person's assets, such as retirement accounts, bank accounts, and real property, if they become incapacitated or when they die. Tax planning and liquidity planning are also part of the estate planning process.
- Estate tax – This is a transfer tax on the estate. It is not required for every estate. It is a federal tax.
- Executor – An executor is the one designated in a will to administer the property in the estate and carry out the other terms outlined in the document. An executrix is the female spelling. However, it is not required to use the female spelling if you wish to appoint a female.
- Fiduciary – A fiduciary is an individual, bank, or trust company appointed to manage the money or property for one or more beneficiaries. They are required to exercise a standard of care set forth in the governing document set forth as well as state law.
- Joint tenancy – Joint tenancy is an ownership status between two or more individuals. Together, they own property. There may be another concept involved known as rights of survivorship. When the property is held in joint tenancy or joint ownership, working with an estate planning attorney becomes an important concept.
- Health care power of attorney – Also known as medical power of attorney, this power of attorney appoints an attorney in fact to make medical decisions on behalf of the person who creates the document. Unless the document is durable, the ability to make decisions ends if the person is declared incapacitated.
- Inheritance tax – Charged by more than 20 states, an inheritance tax is a tax that is charged to the beneficiaries once they are in receipt of property from the estate.
- Intestate – This means that someone dies without a valid will in place. When this occurs, the person's assets are distributed according to Oklahoma probate laws.
- Irrevocable Trust – An irrevocable trust cannot be terminated, revoked, amended, or modified once it is created. Some changes may be made through special court actions known as decanting.
- Gift tax – This is a transfer tax on lifetime transfers from one person to another that exceed the gift tax exemption amount.
- Grantor – This is someone who creates a trust or contributes property or funds toward one.
- Gross estate – This term represents a federal estate tax concept that includes all the property owned by someone when they died as well as specific property transferred to this person previously that is subject to the federal estate tax.
- Marital deduction – A marital deduction is an unlimited federal estate and gift tax deduction used only for passing property to a spouse in a qualified manner. There is no transfer tax because the spouses are married.
- No-contest clause – This clause can exist in a will or a trust. It states that if someone named in the will or trust sues to receive more than what is listed or if they sue to try and overturn the governing document, they will lose their right to inherit from it. However, these clauses are not always legal.
- Personal representative – Personal representative is another name for the executor or administrator of the estate.
- Power of attorney – This is a written document that authorizes one person, known as an attorney in fact, to make decisions of some type on behalf of the person who creates the document. The type of decisions authorized is explained within the document. The authority expires when the person who completes the document becomes incapacitated, dies, revokes the document, or when the document itself expires.
- Probate – The court process proving a will’s validity or enacting a state’s intestacy law if there is no will, then distributing the estate’s property, is known as probate.
- Revocable living trust – A revocable trust is a type of trust that is created during the decedent's life. The decedent retains the ability to modify, amend, revoke, or terminate the trust.
- Special needs trust – This type of trust is established to benefit a person with one or more disabilities so that they remain eligible to receive government benefits.
- Tangible real property – Tangible real property refers to property that can be touched, such as furniture, cars, jewelry, and cars. However, it is not considered real property such as a home or another building that is permanently attached to the land.
- Testamentary trust – A testamentary trust is established in a person's last will and testament. It begins after the will is probated. Assets are distributed out of the trust.
- Testator – A testator is a person who creates and signs a will. If this person is a female, she may be referred to as a testatrix although this is optional.
- Trusts – A trust is an agreement meant to manage or distribute property for a beneficiary’s benefit, and can include specific terms to carry out.
- Wills – A will is a document that designates the beneficiaries to inherit your estate, usually upon your death, and names a representative to carry out your wishes.
There are many other terms and definitions that can be helpful to know, which an estate planning attorney can describe for you. This information is meant to give you a general understanding of probate estate planning basics, but should not be taken as legal advice. We hope that understanding these basic estate terms and definitions makes you feel more comfortable and prepared to begin your estate planning journey.
Ball Morse Lowe's estate planning attorney provides individualized attention to clients. We take the time to understand the individual needs of each client before making recommendations for an estate plan that is right for their needs. To schedule your free consultation, click here.