Estate plans and many of the basic legal terms ascribed to them date back to the archaic early days of English probate law, from Judeo-Christian primogeniture to the Wills Act of 1837. Since then, the basic principles of estate planning have barely changed, and while some terms are newer than others, most of them remain confusing to first-time readers.
In practice, an estate plan is still meant to lay the groundwork for the bequeathment of a decedent’s wealth onto their beneficiaries, usually their next of kin (heirs and spouse). However, modern-day estate planning helps provide greater flexibility to decide when, how, to whom, and to what degree one’s wealth and legacy are distributed, as well as making several important end-of-life decisions.
35 Must-Know Basic Legal Terms
It’s easy to get lost in the basic legal terms and terminology of estate planning. Understanding how your estate plan functions are integral to ensuring that it accurately reflects your wishes and intents, so you can best work with your attorney of choice. We’ve put together a basic glossary of basic legal terms to help you get a better grasp of how your estate plan might be put together.
- A-B TRUST — A living trust for spouses built to avoid estate taxes on estates exceeding the federal exemption limit by considering the surviving spouse’s remaining exemption and ultimately passing the combined estate to the couple’s descendants after the surviving spouse dies. The A trust is a marital trust created for the benefit of the surviving spouse, and the B trust is a family trust or credit shelter trust to the benefit of the grantor’s descendants.
- ADMINISTRATOR — The estate administrator is someone charged by the probate court overseeing the management and distribution of a decedent’s belongings, including contacting creditors, settling final bills and debts, appraising assets, and distributing them.
- ADVANCE HEALTHCARE DIRECTIVE — Also known as a “living will,” this is a document detailing your end-of-life care wishes, often used to permit or rule out certain procedures and life-saving measures if you are incapacitated or incapable of communicating your wishes in the future.
- AGENT/ATTORNEY-IN-FACT (POWER OF ATTORNEY) — A person named your representative in life to sign documents and manage financial and/or healthcare affairs, as per the specific details listed in a power of attorney document. Agents lose these privileges if they are specifically revoked, if the terms of the document have ended, or if the principal (you) dies.
- BENEFICIARY — An individual who inherits from an estate through a trust or will or other legal contracts.
- BYPASS TRUS — The B in the A-B trust. It can also be used on its own. It is designed to pass assets from one generation to the next once both parents have died, using the parent’s combined exemptions to avoid federal estate taxes.
- CHARITABLE TRUST — A trust written to distribute at least a portion of its income or principal to charity, during the grantor’s life or after their death.
- CODICIL — An amendment to an existing will.
- COMMUNITY PROPERTY — Property obtained during the marriage is considered co-owned by both spouses as community property. Certain states, like California, are community property states.
- CONSERVATORSHIP — Sometimes interchangeable with guardianship, but more often used to describe someone with legal responsibilities for an adult’s financial well-being and/or healthcare.
- DECEDENT — A person who has died.
- DURABLE POWER OF ATTORNEY — A power of attorney document that persists after the principal’s incapacity (but not death).
- ESTATE — What a decedent leaves behind after death, including belongings, assets, properties, and royalties.
- ESTATE PLAN — A selection of documents and legal entities created to organize a person’s estate distribution after death and prepare the family for their end-of-life care.
- ESTATE TAX — A federal tax (it also exists in certain states) on the total value of a person’s estate at their date of death. There is a considerable exemption on this tax, as well as a fairly high tax rate. State estate taxes differ from federal estate tax in terms of exemptions and tax rates.
- EXECUTOR — See administrator.
- FIDUCIARY — An individual who bears a legal and moral responsibility to act in the interests of their partner, beneficiary, grantor, and so on. A fiduciary obligation can include an executive’s responsibility to act in the best interests of their company’s shareholders. In estate plans, the trustee bears a fiduciary duty to the beneficiaries and grantor of a trust.
- GST TAX — The generation-skipping transfer tax, a federal tax imposed on gifts and trust transfers made to beneficiaries two or more generations younger than the gift giver or grantor.
- GIFT TAX — A federal tax on unconditional gifts with an annual and lifetime exemption limit. The lifetime exemption limit on gifts is shared with the federal estate tax exemption limit.
- GRANTOR — The creator of a trust, who also funds the trust with their assets and properties.
- GUARDIANSHIP — Sometimes interchangeable with a conservatorship, guardianship is usually used to describe being responsible for a minor (after the death of their parents, for example).
- ILIT — An irrevocable life insurance trust separates the payout of a life insurance policy from the grantor’s estate to avoid exceeding the federal estate tax exemption limit.
- INTESTATE — Dying without a will in place. Intestate law usually differs from state to state, but in general, it dictates that everything is equally divided among the next of kin (direct heirs and surviving spouse).
- IRREVOCABLE TRUST — A trust that is not easily amended but provides a greater degree of separation between the grantor and the trust’s contents (usually for tax purposes).
- LIVING TRUST — A trust that is created and instated during the grantor’s lifetime. Most trusts are living trusts. Living trusts can provide the grantor with certain benefits within their lifetime.
- PERSONAL REPRESENTATIVE — See administrator.
- POUR-OVER WILL — A will ensure everything not already funded into a trust is funded into one after the person has died.
- PRINCIPAL — Usually denotes either the creator and subject of a power of attorney document or the initial assets and property funded into a trust (not counting the trust’s income).
- PROBATE — The process of legitimizing a will and overseeing the distribution of an estate via the probate court. Probate is a matter of public record.
- REVOCABLE TRUST — A trust that can be amended but does not separate the grantor from the contents of the trust for estate tax purposes. The assets in a revocable trust can still bypass probate.
- TESTAMENTARY TRUST — A trust that becomes active after the grantor’s death.
- TRANSFER ON DEATH — A clause added to certain properties and accounts (payable on death), transferring assets and funds to a designated beneficiary, and bypassing probate.
- TRUST — A legal entity created to hold assets and property in the trust. For example, a grantor creates and funds a trust for named beneficiaries, and the trust is managed by a trustee once the grantor is no longer involved (in life or death).
- TRUSTEE — Someone responsible for the management and execution of a trust.
- WILL — A document created, witnessed, signed, and notarized, stating how one’s estate should be distributed after death. A will can also contain funerary wishes and guardianship wishes for minor dependents. Wills can be contested, given enough evidence, in a probate court.
When, Where, and How to Seek Professional Legal Help
Understanding these basic legal terms is important for making informed decisions throughout the estate planning process. However, if you are interested in drafting an estate plan to match your needs and circumstances, it is still recommended to work with an experienced local attorney. We can help you better understand the estate planning process and work with you to ensure that your plan accurately reflects your wishes. In addition, each estate planning document can differ in content and structure from state to state and from case to case. An individualized estate plan drafted by a specialist in probate law is your best bet for a smooth transition after death.