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Estate Planning, Probate, & Trust Law Terminology Explained

by | Mar 21, 2019 | Estate Planning/Will Preparation, Probate/Estate and Trust Administration |

At Ohnstad Twichell, we know that estate planning and will preparation are often a last-minute thought. Staying ahead of the curve and preparing for the inevitable can help relieve some of the pressure during life’s difficult moments. In order to successfully communicate your or a loved one’s wishes, it is important to understand some terminology related to estate planning and will preparation:

General Durable Power of Attorney: A general durable power of attorney is a legal document in which a person, known as a principal, provides broad powers to an agent, also known as an attorney in fact, to conduct legal and financial actions on behalf of the principal. For example, the principal can give the agent the power to access the principal’s financial accounts to pay the principal’s bills. Most powers of attorney come into effect upon signing and stay in effect until the principal revokes the power of attorney in writing or until the principal passes away. The powers of attorney are often “durable” which means the power of attorney remains in effect even if the principal becomes incompetent or incapacitated. Every adult should consider signing a power of attorney to have an agent to take care of financial and legal matters for the individual if the need should arise. An important consideration in creating a power of attorney is for the principal to select an agent who will fulfill his or her duties in the best interests of the principal.

Health Care Directive: A health care directive is a legal document in which a person designates a health care agent to make related decisions on their behalf if ever unable to communicate with health care providers.  The health care agent decisions include, among others, what medical procedures the individual should undergo and where the recovery process should take place. The health care directive also typically gives the agent access to the person’s medical records to allow the health care agent to make informed medical decisions on the person’s behalf. In addition to appointing a health care agent, the health care directive also can contain the induviduals’s instructions or desires pertaining to medical care. For example, the person can provide instructions on life prolonging treatment, on organ donation, and on his or her remains in the document. When executing a health care directive, the agent executing the directive should obtain several duplicate originals or copies of the document. The specified individual should provide these duplicate originals or extra copies to his or her primary and alternate health care agents and to any relevant medical facilities.

Last Will & Testament: A Last Will and Testament (Will) is a legal document in which a person can designate who will receive their probate assets after death. A Will can also designate an individual to administer the estate of the deceased, known as a personal representative, after the person passes away. For individuals with minor children, the person can nominate in his or her Will who he or she wants to become the guardian of his or her minor children in the event of death. If a person does not have a Will, state law governs who will inherit the deceased person’s probate assets when the person passes away; however, lack of directive may result in undesirable distributions to certain heirs. A Will allows the deviation from these state distribution statutes and disperses probate assets according to the deceased individual’s wishes. Wills can range from a simple, several page document to a very complex instrument that contains numerous beneficiaries, distributions by percentages or shares, special provisions for minors, trusts, etc. A Will only affects “probate” assets that pass under the terms of a Will. In contrast, non-probate assets are assets that pass under the terms of another instrument, such as a life insurance policy, deed, trust, or financial account, that have beneficiary designations, payable on death provisions, or joint ownership terms.

Revocable Living Trust: A revocable trust is a legal entity that can hold and administer assets for the benefit of one or more beneficiaries. The trust creator is referred to as the Trustor, Settlor, or Grantor. The person or entity responsible for administering the trust is the Trustee. The Trustee can be an individual, such as the Trustor, a family member, a friend, or an entity, such as a bank or trust company. The trust is “revocable” because the trust terms allow the Trustor to modify or revoke the trust at any time. The trust is a ‘living’ trust (also known as an inter-vivos trust), because the trust is established during the Trustor’s lifetime. A revocable living trust can serve as an individual’s primary estate planning document. The Trustor would sign a trust agreement establishing the trust, and then transfer ownership of his or her assets to the trust to allow the Trustee to manage these assets. The trust terms provide instructions on how the trust assets and income are to be distributed during the Trustor’s life, incapacity, and death. Trust benefits include avoiding or reducing probate costs, providing for successor Trustees, and privacy. Nevertheless, the trust does involve higher startup costs and requires continued oversight to ensure the trust has ownership of newly obtained assets.

‘Pour Over’ Will: A ‘Pour Over’ Will is an informal reference given to a Will that coincides with the use of revocable living trust. When an individual establishes a revocable living trust, his or her real property and personal property are transferred to the Trustee to allow the proper management of the assets under trust terms. If property left in the Trustor’s name is omitted from or left out of the trust it would be passed on under the terms of the person’s Will. A ‘Pour Over’ Will contains a distribution provision requiring the personal representative administering the deceased person’s estate to distribute (or ‘pour over’) property from the estate to the Trustor’s revocable living trust. The Trustee of the trust would then administer the transferred property as an asset of the trust. Therefore, the ‘Pour Over’ Will ensures that property intentionally or unintentionally left in a person’s own name would be governed by the terms of the established revocable living trust at his or her death.

DisclaimerThis article’s content is for general information purposes only. Readers should not rely on this article as legal or tax advice. Laws, regulations, and information change frequently, and the article’s content may not be current. This law firm makes no warranties, guaranties, or representations about the content of his article.  Readers should consult with a licensed attorney in his or her state concerning his or her own situation with regard to the reader’s specific legal or tax questions.