Common Estate Planning Terms and Their Definitions
When creating an estate plan and discussing trust administration issues, it's important that we all work from the same framework and understanding. Here's a brief list of those common legal documents and terms we use as lawyers and what they mean in "plain English."
Frequently Used Legal Terms and What They Mean
ADvance Healthcare Directive (AHCD)
An advance health care directive (AHCD) allows you to appoint an agent who will make decisions about the medical care you wish to receive when you are incapacitated. You can also give your agent limited powers that will last after your death, such as the ability to make funeral arrangements and care for your pets.
Agent
An agent is someone who makes decisions on your behalf while you are alive.
Attorney-in-Fact
An Attorney-in-Fact is an agent who can make financial decisions for you.
Durable Power of Attorney (DPA)
A durable power of attorney (DPA) allows you to appoint an attorney-in-fact. Your attorney-in-fact can financial decisions and sign documents on your behalf. They will be able to manage your funds, pay your bills, and file your taxes.
A springing DPA will only become effective only when you are incapacitated and unable to manage your own affairs. An immediate DPA is effective as soon as you sign it.
Estate Plan
An estate plan is a collection of documents that describe your plan for how you want your healthcare and your assets managed while you are alive and after you pass away. The most common estate planning documents are a will, a trust, a durable power of attorney, and an advance healthcare directive.
Executor
An executor is the person with the authority to carry out your wishes after your death as expressed in your will.
Incapacity
Incapacity is the state of no longer being able to mentally or physically manage one’s own affairs
Grantor/Settlor/Trustor
The grantor, settlor, or trustor is the person who originally established the trust. They may or may not also be a trustee.
Probate
Probate is the the court-supervised process of distributing an estate. In California, probate is required when the estate is worth over $150,000 unless the assets of the estate are held in a trust.
Revocable Living Trust
A revocable (or living) trust allows you to manage your assets with more flexibility than a will. The trustee of your trust has certain powers over any assets you transfer into the trust. After your death, the trustee must distribute those assets according to your wishes.
While you are alive, the trustee will usually be you. However, you can choose someone else to manage your assets.
If you have a trust, you should still have a will. A pour-over will ensures that all your assets will be transferred to your trust upon your death, even if you did not transfer them while you were alive.
Trust Administration
Trust administration is the process by which assets held in a trust are distributed after the settlor dies.
Trustee
A trustee is a person with the authority to manage the assets of the trust.
Will
In a will, you can declare how you want your assets (such as your belongings, cash, investment accounts, and real estate) to be distributed after your death.
The executor of your will is responsible for distributing your assets according to the terms of your will. They will also be responsible for handling any debts or taxes due after your death.
You can also name a guardian for your children if they are under the age of 18.
We’re Here to Help
For general information on Estate Planning and California Law, view our articles on the topic and our legal resources. If you have specific questions about your estate, please contact us today to discuss your individual needs and concerns.
