Contrary to popular thought, estate planning is not just something for the extremely wealthy or the elderly. In fact, every adult should consider how they would like to preserve and pass on their wealth to future generations, charitable organizations, or other entities and individuals. In fact, there is perhaps no better time than now to think about your estate plan and what will happen to your children, partner, and assets down the road.
However, between considering tax implications, thinking about potential guardians to appoint for minor children, choosing healthcare agents to make decisions for you in the event you become ill, and a host of other decisions, it can be an overwhelming task to begin; not to mention the financial and legal jargon riddled throughout. To help you get situated, we have outlined 13 important terms in estate planning that you should know as you consider your own plan.
- Assets: Generally, anything a person owns, including a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, art, clothing, and collectibles.
- Beneficiary: A person or entity (such as a charity) that receives a beneficial interest in something, such as an estate, trust, account, or insurance policy.
- Distribution: A payment in cash or asset(s) to the beneficiary, individual, or entity who is entitled to receive it.
- Estate: All assets and debts left by an individual at death.
- Fiduciary: A person with a legal obligation (duty) to act primarily for another person’s benefit, e.g., a trustee or agent under a power of attorney. “Fiduciary” implies great confidence and trust, and a high degree of good faith.
- Funding: The process of transferring (re-titling) assets to a living trust. A living trust will only avoid probate at the trustmaker’s death if it is fully funded, meaning it contains all of the decedent’s assets.
- Incapacitated / Incompetent: Unable to manage one’s own affairs, either temporarily or permanently; often involves a lack of mental capacity.
- Inheritance: The assets received from someone who has died.
- Living probate: The court-supervised process of managing the assets of an incapacitated person. Conservatorship is another term used for this process.
- Marital deduction: A deduction on the federal estate tax return. This allows the first spouse who dies to leave an unlimited amount of assets to the surviving spouse, free of estate taxes. However, if no other tax planning is used and the surviving spouse’s estate is more than the amount of the federal estate tax exemption in effect at the time of the surviving spouse’s death, estate taxes will be due at that time.
- Settle an estate: The process of winding down the final affairs (valuation of assets, payment of debts and taxes, distribution of assets to beneficiaries) after someone dies.
- Trust: A fiduciary relationship in which one party, known as the trustmaker or settlor, gives another party, known as the trustee, the right to hold property or assets for the benefit of another party, the beneficiary. The trust should be memorialized by a written trust agreement, outlining how the trust assets will be distributed to the beneficiary.
- Will: A written document with instructions for disposing of assets after death. A will can only be enforced through a probate court. A will can also contain the nomination of a guardian for minor children.
The above list is not exhaustive, but it can help individuals as they begin to consider what forms of wealth preservation and contingency plans might be best for them. Of course, one of the most helpful first steps individuals can take is meeting with an estate planning attorney to discuss their unique situation and review options that may best serve them. If you would like to take this first step, or if you have any additional questions about estate planning, please contact us at 512-766-6082 or request a consultation online. We can make sure you have a comprehensive plan that is tailored to your unique needs and goals.