Breaking Down Terms in Estate Planning

Like any field in the practice of law, the realm of estate planning is filled with terms that many would consider “legalese.” Often times clients use the terms “trust” or “will” interchangeably when these documents are in fact distinct from one another. So let’s break down and define terms that are frequently used in estate planning to help you gain a better understanding the next time you are considering drafting an estate plan.

Estate

Let’s start with the basics, an estate is a total property owned by an individual prior to distribution through a trust or a will. This includes all real property and personal property. Real property means land and improvements to land, for example, your house. The personal property encompasses everything else. Personal property is any movable thing or intangible item of value capable of being owned by a person, for example, a gold watch.

Will

A will is a legal document that sets forth a person’s wishes and instructions for managing and distributing their estate after death. A person who has died and left a will is called a testator. When a testator desires to update or amend their will, they can do so by creating a codicil. A codicil is a legal document that acts as a supplement to a will. A will comes into operation only after a testator dies. Unlike a trust, a will must go through the probate process upon the death of the testator. 

Trust

In the context of estate planning, a trust is a form of division of property and a fiduciary agreement in which a beneficiary is granted beneficial enjoyment of property, while a trustee is granted actual ownership of the property. The creator of the trust is called the settlor. A trust, like a will, allows you to decide how your property will be distributed upon your passing. Trusts can be revocable or irrevocable. A revocable trust can be amended and changed during its creator’s lifetime. These trusts are often called living trusts. Living trusts are frequently used by estate planners as an alternative to wills. An irrevocable trust cannot be amended or changed after its creation. These forms of trusts are often used for asset protection and reduced federal estate taxes. Unlike a will, a trust becomes operable once it is created, not upon the death of the creator. Thus, the trust becomes the legal owner of your property during your lifetime. Additionally, unlike a will, a trust does not need to pass through probate upon the death of its creator. For more on the differences between trusts and a will click here.

Probate

Probate is the court-supervised process of the transfer of legal title of property from the estate of the person who has died to that person’s beneficiaries. The person who has died is called the decedent. 

When probate is testate, it means the decedent died with a will. When probate is intestate, it means the decedent died without a will. When a decedent dies with a will, the person appointed by the testator in the will to carry out the terms of the will is called the executor. When there is no will, the person appointed by the court to carry out the administration of the estate is called the administrator. The actual duties of the administrator and testator are functionally the same. To learn more about probate, click here.

Advance Health Care Directive

An Advance Health Care Directive (or AHCD) is a document that allows you to appoint an agent and give instructions about your health care. Your agent will be granted authority to make healthcare decisions on your behalf. AHCDs can be drafted to become effective immediately, or drafted to become effective in the event that its creator loses the capacity to make health care decisions on their own behalf.  

Durable Power of Attorney

A Durable Power of Attorney (or DPOA) operates similarly to the AHCD, however, it is used to address financial decisions. Under a DPOA, an agent will be granted authority to make financial decisions on your behalf. Like the ACHD, the DPOA may become effective immediately, or upon the event you become incapacitated. To learn more, click here.

The world of estate planning is filled with legal terms unique to the field. Hopefully, this helped to break down some of the most basic terms that frequently arise in the field of estate planning. If you need help drafting your estate plan or navigating probate in California, consider contacting the experienced attorneys at Naimish & Lewis.