Estate Planning can be complicated, confusing and even somewhat convoluted. But trust us when we say — the more you understand about it, the less overwhelming it becomes. And as daunting as it may feel to get started, a properly-completed, comprehensive Estate Plan can be your first line of defense when it comes to protecting your family and your legacy.
But where do you start? What’s most important? What does all that crazy terminology even mean? Arm yourself with the knowledge and knowhow to navigate Estate Planning like a pro with our Estate Planning dictionary!
Top 15 Estate Planning Terms You Need to Know
Beneficiary - A beneficiary is a person (or sometimes an institution or organization like a charity or school) you name who will ultimately benefit from some or all of your estate. You’ll name beneficiaries on certain types of accounts, such as IRAs and other retirement plans, life insurance policies and in your Will or Trust documents. Importance to Estate Planning: Beneficiaries are an important part of the Estate Planning process because without them, there’s no direction as to who should get the assets in your estate. If you do not properly name your beneficiaries (and back up beneficiaries), your estate may wind up in a costly, timely, and stressful court proceeding. This could ultimately eat away at the overall value of your estate that should be passed down to your heirs.
Codicil - A codicil is simply an amendment, addition or change to part or all of a Will. It will either explain, modify or revoke aspects of an established document. Importance to Estate Planning: Codicils are necessary if you ever have major life events - like a birth, death, marriage, divorce, moving out of state - or any other reason to change part or all of your Will.
Decedent - A decedent is someone who has passed away. In Estate Planning, it’s typically the owner of a Will, Trust, policy, plan or account. Importance to Estate Planning: Having a term like decedent is important to be able to identify the most important person involved in an Estate Plan - the person who triggers action once they pass away.
Durable Power of Attorney (POA) - A Durable Power of Attorney (POA) grants authority to a person or institution to step in and make decisions on your behalf should you become incapacitated and unable to make them on your own. There are both medical and financial POAs, and the “durable” part is key, as it allows the document to take effect after incapacitation. Importance to Estate Planning: A POA is an essential component to an Estate Plan, as it allows you to appoint someone you trust to make decisions on your behalf.
Healthcare Directive - A Healthcare Directive is also known as an Advance Healthcare Directive, a Living Will, a Personal Directive and other names. It’s a document you create to state your personal preferences regarding your future medical care. It can include directions on what medical interventions you want (or don’t want), whether or not you want to donate your organs, and more. You can also appoint an agent to make medical decisions on your behalf in this document. Importance to Estate Planning: When you put a Healthcare Directive in place, you’re making sure that your wishes are known and will be honored when and if the time comes where you can’t make medical decisions for yourself.
Intestate - Dying without a Will, or Intestate, is a term used when a person passes away without any Estate Planning documents. In essence, it means there’s no valid Will or Trust to guide the distribution of your estate. If you die intestate, courts will step in and use state succession laws to determine who should benefit from your estate. Importance to Estate Planning: Dying intestate basically means you have zero control over what happens to both your estate and to your loved ones after you pass away. One of the best ways you can protect your family is by creating an Estate Plan.
Irrevocable vs Revocable - Irrevocable versus revocable are terms that describe whether or not your Trust documents can be changed. An Irrevocable Trust cannot be modified or dissolved easily. You would need to seek approval from beneficiaries to make changes to an Irrevocable Trust. Sometimes Irrevocable Trusts are used for asset protection. A Revocable Trust, on the other hand, can be very easily altered and is typically not used for asset protection Importance to Estate Planning: Understanding the difference between a revocable and an irrevocable document is key when deciding what type of plan you need. Make sure that you understand the benefits and the drawbacks of each.
Joint Tenancy - Joint tenancy is a term used to describe co-ownership on a property. Properties owned with joint tenancy have what’s known as “right of survivorship,” which means when one party passes away, the property automatically passes to the survivor. Importance to Estate Planning: Knowing how to title your property can save your loved ones the hassle of having to tie up loose ends with your properties after you pass away.
Pay on Death (POD) / Transfer on Death (TOD) - POD and TOD accounts are set up so they’ll automatically pass to a named beneficiary upon your passing. Importance to Estate Planning: POD and TOD accounts can be a simple and effective way to ensure certain people are entitled to an account or policy you have.
Probate - Probate is the legal process of validating a Will, paying off any debts an estate has, and distributing remaining property to named beneficiaries. The probate process will distribute property per court order, following state laws, in cases where there is no Will. Importance to Estate Planning: Probate can be a messy, timely, costly, public process. Setting up your Estate Plan thoroughly and thoughtfully can drastically reduce how complicated the process will be, and in some cases it may allow your loved ones to avoid it altogether.
Testator - A Testator is the person who is making and owns a Will. Importance to Estate Planning: As a Testator, you are the most important component of your Estate Plan.
Trust - A Trust is a legal Estate Planning document that involves three parties: a Trustor, a Trustee and a beneficiary (or beneficiaries). It’s set up by a Trustor to give a Trustee authority to hold and manage assets on behalf of your named beneficiary or beneficiaries. There are several types of Trusts, and which one is right for you will depend on the size of your estate, your goals and the legacy you want to leave. Importance to Estate Planning: Despite what people once thought, Trusts are not just for the very wealthy. The truth is, a Trust is a valuable document that can provide many protections, including privacy and the ability to avoid probate.
Trustee - A Trustee is the person you name to hold the title of Trust property. He or she is responsible for administering the terms of the Trust, as you state them, for the benefit of the beneficiaries you name. Importance to Estate Planning: Understanding the duties and responsibilities of a Trustee is imperative so that you choose a person fit for the role.
Trustor - The Trustor is you, the person who makes the Trust. Importance to Estate Planning: As the Trustor, you’re setting up how your legacy will live on for those you love the most.
Will - A Will is a legal document that directly states how you want your property distributed after you pass away. It also allows you to name guardians for your children and specify your final arrangement wishes. Importance to Estate Planning: If you aren’t ready to tackle your entire Estate Plan at once, you should make sure that you have a valid Will in place at the very least. This is the beginning of all the safeguards you’ll establish to protect those important people in your life.
Estate Planning can feel like a lot. But it’s one of the most responsible and loving things you’ll do in life. Not only does it give you a say in how your estate will be passed down, it also lets you feel confident in the knowledge that you have set up a future for your loved ones.