Learn terms used in estate planning, wills and other legal documents
Estate planning allows someone to say how to share their assets after they die. Estate plans avoid conflict and complications, regardless of how much money or property is involved.
An estate is the total value of all a person's assets. Assets are anything of value, including:
Real property, such as land or buildings
Personal property like cash, jewelry, vehicles and home furnishings
Investments such as stocks, bonds, pensions and retirement accounts
An estate plan often includes 3 basic legal documents:
A will is a person's instructions for distributing their assets after they die. A will names an executor or personal representative, who pays the estate's bills and taxes and distributes what remains to the beneficiaries, who inherit assets from the estate.
The power of attorney for finances names a legal representative who can make financial transactions on the older adult's behalf.
The power of attorney for healthcare or advance directive names the person who will make healthcare decisions for an older adult if they are unable to make their own decisions. It can also spell out a person's preferences for emergency medical or end-of-life care.
Fiduciaries manage money and property for someone else's benefit. A fiduciary must be honest, trustworthy and act only in the other person's best interest. Common fiduciaries include attorneys-in-fact under a financial power of attorney, court-appointed guardians or conservators, trustees, executors or personal representatives for wills or estates, and:
Representative payees, appointed by the federal Social Security Administration to manage Social Security benefits for someone else
VA fiduciaries, appointed by the Department of Veterans Affairs to manage veterans benefits for someone else
Probate is the court process for:
Proving a will is valid
Identifying and determining the value of the deceased person's assets
Appointing a personal representative of the estate, if there is no valid will
Paying final bills and taxes
Distributing the remaining money, property and personal belongings to any beneficiaries
Non-probate assets aren't included in a will and go to beneficiaries separately. They include:
Money from life insurance policies and annuities
Money from 401(k)s, IRAs or other retirement plans
Property jointly owned with someone who has the "right of survivorship" when the older adult dies
Transfer on death (TOD) accounts or deeds, or payable on death (POD) accounts
Assets held in a trust
Since non-probate property isn't covered by the will, each of these assets names its own beneficiaries. Wills or trusts cannot change the beneficiaries listed on life insurance policies or retirement accounts. Reviewing and updating the non-probate property beneficiaries is part of estate planning.
A revocable living trust can be used instead of a will to name a trustee or trustees, who can manage a person's assets as described in the document, and to name beneficiaries, who inherit assets from the estate. The creator of the trust can change or dissolve it. Trusts are generally more complicated than wills but avoid the probate process.