Estate planning can feel overwhelming, especially when lawyers start tossing around words like probate, trustee, or intestate. If you’ve ever sat through a conversation about your will and felt like you needed a dictionary, you’re not alone.
Understanding some basic terms used in estate planning isn’t just helpful – it’s empowering. Knowing what these words mean makes it easier to ask questions, make decisions, and feel confident about protecting your legacy and your loved ones.
We’re breaking down some of the most common estate planning terms to help you walk into our office feeling more informed and confident. While these are simplified definitions, estate planning can involve complex legal considerations, that’s where your attorney comes in. For more in-depth explanations and estate planning topics, explore our additional resources here.
Estate Planning
Estate Planning is the practice of analyzing a person’s over-all financial picture, strategizing to minimize estate tax, and other post-death administrative expenses, considering testamentary and other family needs, and implementing the plan of action. The concept of the ‘Family Trust’ or ‘Revocable Living Trust’ is basic to creating an estate plan.
Wills
A will is a traditional legal document that:
Revocable Living Trust
A Revocable Living Trust is a written legal document that partially substitutes for a will. The function of this type of trust is to avoid the slow and costly process of probate, hence the term ‘probate avoidance trust’ is sometimes used to more generically describe this type of trust. It is called ‘Revocable’ because you are allowed to revoke or modify the trust during your lifetime, for so long as you have mental capacity. The terms ‘Living Trust’ and/or ‘Family Trust’ are colloquial. When you set up a Living Trust, you transfer assets (your home, bank accounts and stocks, for example) from your name as an individual to your name as Trustee of your Trust, which you control. The effect of that transfer, in the eyes of the probate court, is to have divested yourself of your ownership interest in the transferred assets to a distinct legal entity, thus removing those assets from the jurisdiction of the probate court. The concept is simple, but this is what keeps you and your family out of the probate court.
Trust Administration
The administration of a Trust Estate after the settlor (again, that’s the person that created the trust) passes away. The Trust becomes irrevocable upon the death of the Settlor (person who established the trust). When the Trust becomes irrevocable, it becomes its own distinct tax paying entity and the Successor Trustee is required to obtain an Employer Identification number (EIN) for the trust administration. The EIN is like your Social Security Number, but it’s for the Trust Administration. All of the income and expenses of the Trust Administration are reported to the IRS on a Federal Form 1041 Fiduciary Income Tax Return. The 1041 is required to be filed with the IRS for each year in which the Trust is still operating, and incurs more than $600 of income. It is strongly recommended that the Successor Trustee hire a professional tax return preparer to prepare and file the 1041.
Probate
Probate is a court-supervised process for transferring a deceased person’s assets to the beneficiaries listed in his or her will. Typically, the executor named in your will would start the process after your death by filing a petition in court and seeking appointment. Your executor would then take charge of your assets, pay your debts and, after receiving court approval, distribute the rest of your estate to your beneficiaries. If you were to die intestate (that is, without a will), a relative or other interested person could start the process. In such an instance, the court would appoint an administrator to handle your estate. Personal representative is another term used to describe the administrator or executor appointed to handle an estate.
Guardianship and Conservatorship
Generally speaking, guardianships are for minors whose parents are no longer caring for their children, or when a child stands to receive an inheritance from a probate estate or a pay-out under a life insurance policy. Conservatorships are created for adults who have become incapacitated. Both Guardianships and Conservatorships are established by court order, create a fiduciary relationship between the Guardian or Conservator and the minor or Conservatee, and have strict accounting requirements. Further, both require periodic reporting to the Court system. The reporting and accounting requirements have been subject to recent changes, which have been implemented to establish a better mechanism of protection for the person subject to the Guardianship or Conservatorship. While these processes can be at first daunting, with proper guidance and representation, a Guardianship or Conservatorship can be the best way to assist a family member through a time of need.
Advanced Health Card Directive
The Advance Health Care Directive communicates your health care wishes and appoints an agent to carry out such wishes upon your inability to communicate with a treating physician. This document sets forth your decisions about artificial life support, types of treatment you may or may not allow, and other personal health care matters, well in advance of those questions ever arising. Not only does it ensure that your wishes will be heard, but prevents your loved ones from having to guess about what you would have wanted. In doing so, it prevents potential conflict within the family in a time of crisis. Any well-planned estate will include an Advance Health Care Directive.
Putting Knowledge Into Action
Estate planning might seem complicated at first, but understanding the basic terms can make the process far less intimidating. Whether you’re creating a will, setting up a trust, or planning for future health care decisions, having a grasp of this vocabulary empowers you to make informed choices and protects both your wishes and your loved ones.
Remember, while these definitions offer a helpful starting point, every estate plan is unique and often involves details specific to your personal situation. Don’t hesitate to seek professional legal guidance with us here at FLAS to ensure your plan reflects your goals and provides the peace of mind you deserve.
Explore our additional resources or connect with our team if you’re ready to take the next step in securing your legacy.
