To avoid the pitfalls of intestacy and the other methods of passing title, first evaluate your present estate planning, establish your personal and estate planning goals, and educate yourself on the steps necessary to accomplish your goals. The first step is to familiarize yourself with certain principles of estate planning and the terminology.

What is an Estate Plan?

An estate plan is the arrangement by which you provide for independent authority to manage assets during lifetime, but also during any period of inability or disability to manage independently. An estate plan is also effective to transfer assets after death to intended beneficiaries. The goal is to give effect to your wishes, both your unique desires for your lifetime benefit as well as to allow your beneficiaries to receive your estate in a way which maximizes benefits to them and avoids unintended tax and non-tax factors.

What is a Will?

A Last Will and Testament is the traditional method of designating the beneficiaries of the assets you own in your name alone at the time of your demise. A Will is revocable or changeable, but has no lifetime effect for the individual who creates and executes it. A Will results in a legal probate process, according to the laws of the state in which you reside at the time of your death, for any assets of your “probate estate” which will be transferred to designated beneficiaries. This probate estate does not include those assets which will pass by separate beneficiary designation (without unplanned for issues which may interfere), but does apply the Court supervised process for all other assets.

What is Probate?

Probate of a decedent’s estate is a formal process, established and conducted according to state law, that allows the conveyance of legal title from the deceased’s estate to the beneficiaries designated in the Will- or by law, if the decedent died intestate. The Probate Court determines the validity of the decedent’s Will, and appoints an executor or administrator to gather the assets, conduct necessary sale of assets through court order, notify and pay creditors and distribute the assets pursuant to the Will’s terms. The court governs the process by requiring approval and accountings at various steps throughout the procedure and grants costs and standard fees, which may be up to six percent of the gross probate estate.

What is an Executor/Administrator?

An Executor (Executrix) is the individual designated in a Will to administer the estate probate process(es) and transfer a decedent’s assets pursuant to the terms established in the decedent’s Will. Often the Executor must be appointed or approved by the court before he or she may act. An Administrator (Administratrix) is appointed by the court in an intestate probate proceeding and serves under direction of the court. Additionally, the Executor or Administrator may be required to post a bond while serving the Estate.

What is a Trust?

A Trust is basically a contractual agreement whereby one or more persons (the Grantor) transfers property to another (the Trustee) to manage for the benefit of one or more persons (the Beneficiary). Initially, the Granter, Trustee and Beneficiary may be one person, with designation of a Successor Trustee and any final beneficiaries. There are several types of trusts, and the most common include:

  • Revocable Trusts. Also known as a “Living Trust”, “Family Trust’\ “Loving Trust”, or
    “Asset Protection Trust” this trust may be modified, should wishes or circumstances change, at any time during your lifetime. The assets which the Granter conveys to the Trust are managed and distributed pursuant to the directions in the Trust, and do not pass through the probate process. Another contrast between a Will and a Trust is that a Revocable Trust may include lifetime planning, not merely instructions for asset distribution to beneficiaries upon death.
  • Irrevocable Trust. This Trust is not subject to change or revocation and is used to make a completed gift without allowing the donee to have immediate or outright ownership. A Revocable Trust may become irrevocable upon the occurrence of an event. Irrevocable Trusts are also used in conjunction with other specific estate tax planning goals.
  • Testamentary Trust. A Testamentary Trust is usually created in a Will and only comes into existence after your death. Unfortunately, the deceased’s estate must often go through the probate process to obtain transferability to the newly created Trust.

What is a Trustee?

A Trustee is the individual(s) or institution who manages trust property under and during the terms of the Trust. Trustees may include the original Grantor and any subsequent or Successor Trustee designated by the Grantor. Selecting a Trustee, as with selecting other fiduciaries, involves consideration of time, skills and abilities to act in the best interest of the beneficiaries.

What is a Fiduciary?

This term refers to an individual or institution fulfilling the responsibilities of an Executor, Administrator or Trustee, and describes the duties of trust and confidence required in acting for another’s benefit.

What is a Durable Power of Attorney?

A Durable Power of Attorney is used to designate another person or entity (Agent) to serve in your general asset and resources management, or to manage your business affairs and finances. Another Durable Power of Attorney instrument may also be used to authorize another to make your health care decisions if you are unable to do so. When authorizing an agent to participate in care decisions, compliance with federal law (including the Health Insurance Portability and Account Act) and state law should be included in the directive. A “Special” or “Durable” Power of Attorney may state that it is effective only upon your incompetency, inability or incapacity, or that it is presently effective and continues in effect upon incompetency, inability or incapacity. Powers of Attorney may be revoked at any time or specify a termination date within the document. However, any Power of Attorney terminates upon the death of the individual who granted the power (Principal).

What is a Guardian?

A Guardian is an individual appointed by the court to care for another’s financial or personal matters when an individual is legally incapable of handling his or her own affairs. A Guardian serves under and reports to the Court. A Conservator or Custodian has duties similar to a Guardian, but with legally imposed restrictions. A guardianship is typically necessary only when there is no lifetime planning or when there are no directives in place before incapacity, and involves a Court supervised process for the duration of the Guardianship.

What is a Living Will?

Technically called a “Declaration to Physicians,” this document allows you to direct that certain future medical procedures be withheld or withdrawn if doctors determine that such a procedure only artificially prolongs the process of dying.

Now that we’ve covered the basics, it’s time to consider your estate planning goals and how to achieve them. Read on to learn more about what is involved when making the decision.