Understanding Estate Planning Terminology

When you create an estate plan, you may encounter unfamiliar legal words and phrases that can make the process a little bewildering. While your lawyer will explain everything in detail, you can get a head start by understanding some basic estate planning terminology before you meet with your attorney.

In this discussion, East Valley estate planning attorney Shane Peterson explains words and phrases that are commonly part of the process of putting an estate plan in place.

What Is Estate Planning?

A good starting point for understanding estate planning terminology in context is knowing what “estate plan” and “estate planning” mean. Your estate plan is a set of legal documents that protect you, your loved ones, and your assets into the future. Your plan accomplishes a number of important goals that include:

• Establishing of the framework for orderly management and distribution of your estate after you pass away, according to your specific wishes
• Safeguarding your assets against potential risks and contingencies
• Designating individuals to act on your behalf in the event of incapacity
• Communicating your final wishes to your loved ones
• Providing for the care and financial security of your minor children

Estate planning is the process of working with a knowledgeable attorney to establish specific goals that address your individual personal and financial circumstances, then putting the essential legal documents in place to accomplish those goals. To make certain you have the right documents — and that those documents comply with the complex requirements of Arizona law — it is crucial to get assistance from an experienced estate planning lawyer. Attempting to use the do-it-yourself or DIY approach for an estate plan is a very serious mistake.

Estate Planning Documents

Most of the new terminology in estate planning relates to the individual legal documents in an estate plan. While every plan is as unique as the individual who creates it, specific documents are part of most estate plans.

Last Will and Testament

Virtually every estate plan includes a last will and testament — commonly referred to as a will — even though the role and content of the will varies, depending on the structure of the estate plan. A will is a legal document that takes effect on death and contains the final wishes of the testator, who is the person creating the will.

Beneficiaries are the persons or organizations (such as charities) who receive gifts in a will. The executor named in a will is the person chosen by the testator to handle administration and probate of the estate by applying to the court for appointment as the personal representative of the estate.

Trusts

While not every estate plan includes a trust, many plans benefit from using a trust to control distribution of property. A trust is a legal arrangement through which the settlor or grantor (person creating the trust) designates a trustee (individual or financial entity) to supervise and distribute assets placed in the trust by the settlor or grantor. A trustee has fiduciary duties under state and federal law, which means the trustee is held to a very high legal standard of care in managing the trust.

The legal arrangement is established by execution of a legal document referred to as the trust document or trust instrument. The written trust document designates the trustee and establishes all the terms for management and distribution of the assets in the trust. The document also names the beneficiaries of the trust, who receive the trust distributions.

A trust may be revocable or irrevocable. A revocable trust can be changed at any time by the grantor or settlor. An irrevocable trust can only be changed in very limited circumstances. Provisions in the trust document determine whether a specific trust is revocable or irrevocable.

A living trust or inter vivos trust is a trust that takes effect during the lifetime of the grantor or settlor. A testamentary trust is one that takes effect on the death of the grantor or settlor.

Trusts are often referred to according to the purpose for which the trust is established. For example: A revocable living trust is a specific type of trust that can provide benefits in many estate plans. Charitable trusts are trusts that benefit a charitable organization. There are many other specific types of trusts as well.

Durable Powers of Attorney / Advance Directive

Every estate plan should include durable powers of attorney, which are powers of attorney authorizing another person to act on your behalf in the event you become incapacitated temporarily or permanently. In Arizona, separate durable powers of attorney are necessary for health care (medical) and mental health decisions. A third durable power of attorney, called a durable financial power of attorney, designates a trusted person for financial decisions.

In addition to separate durable powers of attorney for medical and mental health matters, you may choose to include a living will in your estate plan to express your wishes concerning end-of-life care. The term advance directive or health care directive is sometimes used to refer collectively to a person’s durable health care power of attorney, durable mental health care power of attorney, and living will.

Business Succession Plan

If you own a business, your estate plan should include a business succession plan. This part of an estate plan addresses the future of your business, including contingencies that may arise. In a family-owned enterprise, the succession plan may also determine who inherits the family business.

Other Estate Planning Terms

There are a few other terms in estate planning that you may come across in discussions with your lawyer.

The term intestate refers to a person who dies without a will. When that occurs, the Arizona laws of intestate succession govern distribution of the estate.

Probate or probate administration is a court-supervised process sometimes required for an estate. Every estate goes through estate administration, which is the process of settling an estate, although not every estate goes through probate. In fact, avoiding probate is an estate planning goal for some individuals.

Schedule a Free Consultation With an Experienced East Valley Estate Planning Attorney

At Peterson Law Offices, estate planning is a primary focus of our practice. We invite you to reach out to us if you would like to create a new estate plan or revise an existing plan. Your first consultation is always free of charge.

We provide top-quality services at affordable prices and welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.