Estate planning can be intimidating for a beginner given the numerous different legal concepts, documents, and terms that are often involved. One way to lessen the intimidation factor is to learn more about those concepts, documents and terms. With that in mind, the Texas estate planning attorney at The Mendel Law Firm, L.P. put together the following definitions to help you familiarize yourself with some basic estate planning terms.
Administration – another word for probate. The process during which the executor or personal representative collects the decedent’s assets, pays all debts and claims, and distributes the residue of the estate according to the will or the state law intestacy rules
Advanced Directives – legal documents that allow the creator to make important end of life decisions and/or appoint an Agent to make healthcare decisions for the individual if the individual cannot make them due to incapacity or disability.
Annual Exclusion – allows a taxpayer to gift up to $14,000 (as of 2016) per year to an unlimited number of beneficiaries tax-free. Gifts made using the annual exclusion do not count toward a taxpayer’s lifetime exemption.
Beneficiary – person, entity, or even pet, that receives a gift in a Will or that receives the benefit of a trust.
Codicil – a formally executed document that amends the terms of a will so that a complete rewriting of the will is not necessary.
Conservator – an individual or a corporate fiduciary appointed by a court to care for and manage the property of an incapacitated person.
Executor – the person appointed by the Testator in a Last Will and Testament to carry out the terms of the Will and oversee the probate of the decedent’s estate. May also be called a Personal Representative.
Fiduciary – an individual or entity, such as a bank, designated to manage money or property for beneficiaries and required to exercise the standard of care set forth in the governing document under which the fiduciary acts and state law. Fiduciaries include Executors and Trustees.
Gift and Estate Tax – federal tax that is levied on the combined value of all gifts made during a taxpayer’s lifetime and the value of all assets owned at the time of the taxpayer’s death.
Grantor – a person, including a testator, who creates, or contributes property to, a trust. May also be referred to as a “Settlor” or “Maker.”
Guardian – an individual or entity appointed by a court to act for a minor or incapacitated person (the “ward”). A guardian of the person is empowered to make personal decisions for the ward. A guardian of the estate manages the assets and finances of the ward.
Heir – an individual entitled to inherit under applicable state intestate succession laws in the absence of a Will.
Intestate –refers to the estate of a decedent who dies without a valid Will in place. When a decedent dies intestate, the decedent’s estate is distributed in accordance with a state’s intestate succession laws.
Irrevocable trust – a trust that cannot be terminated, revoked, or otherwise modified or amended by the Grantor.
Joint Tenancy — an ownership arrangement in which two or more persons own property. If the joint ownership includes rights of survivorship, the interest of one owner will automatically transfer to the remaining owner(s) upon death without the need to go through probate.
Last Will and Testament – a writing specifying the beneficiaries who are to inherit the testator’s assets and naming a representative to administer the estate and be responsible for distributing the assets to the beneficiaries.
Lifetime Exemption – an exemption every taxpayer is entitled to when calculating federal gift and estate taxes. Permanently set at $5 million; however, adjusted annually for inflation.
Living Trust – formally referred to as an “inter vivos” trust, this is a trust that activates during the Settlor’s lifetime once all the formalities of creation are completed.
Marital Deduction – an unlimited federal estate and gift tax deduction for property passing to a spouse during probate.
No-Contest Clause – a provision in a Will that provides that someone who sues to receive more, or to have the Will declared invalid, will lose any inheritance rights he or she has.
Payable on Death or Transfer on Death Designation – a beneficiary designation for a financial account (and in some states, for real estate) that automatically passes title to the assets at death to a named individual or revocable trust without probate. Frequently referred to as a TOD (transfer on death) or POD (payable on death) designation.
Personal Representative – an Executor or Administrator of a decedent’s estate.
Pour Over Will – A Will used to sure that any property not transferred into a trust during the Testator’s lifetime is passed into the trust upon the Testator’s death.
Power of attorney — A power of attorney is a legal agreement that allows you (the “Principal”) to grant another person (your “Agent”) the legal authority to act on your behalf in legal matters or transactions.
- General – a general POA grants almost unlimited authority to the Agent, allowing the Agent to do things such as make withdrawals from the Principal’s accounts or enter into contracts in the Principal’s name.
- Limited – only grants an Agent the authority specifically enumerated in the POA agreement.
- Durable – traditionally a POA would terminate upon the death or incapacity of the Principal. A durable POA survives the incapacity of the Principal.
- Springing – a POA that activates upon the occurrence of a specific event.
Principal – person who grants the authority in a power of attorney.
Probate – the legal process following the death of an individual. Ensures the validity of a Will and distributes property under the terms of the Will or in accordance with a state’s intestacy law in the absence of a Will.
Revocable Trust – A trust created during lifetime over which the grantor reserves the right to terminate, revoke, modify, or amend.
Settlor – the individual who creates or establishes a trust. Also referred to as a “Grantor” or “Maker.”
Special Needs Trust – also referred to as a “supplemental needs trust. A trust established for the benefit of a disabled individual that is designed to allow the beneficiary to be eligible for government assistance programs by limiting the use of trust assets for purposes other than the beneficiary’s basic care.
Testamentary Trust – a trust that does not take effect until after the death of the Settlor.
Testator – the creator of a Last Will and Testament.
Trust — A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a settlor, who transfers property to a trustee. The trustee holds that property for the trust’s beneficiaries.
Trustee – the individual or entity designated to manage trust property and administer the terms of the trust.
