There’s a common misconception that only the extremely wealthy need to consider estate planning. But the reality is that it’s important for all adults to prepare these things for the future.
That’s because estate planning is an important tool in managing wealth, planning for retirement and ensuring a smooth transfer of assets to loved ones after your passing.
An estate plan can also appoint guardians if you have minor children, outline who can make healthcare decisions on your behalf in case you are unable to do so, and designate who manages your estate.
So when an estate plan plays so many important roles, why do people put it off? One of the main reasons is that people feel overwhelmed by the process and don’t understand the terminology.
To help guide you in preparing for your estate planning, our team at Generations Law Group has outlined 13 important terms you should know and what they mean for your long-term planning in this blog.
1. Assets
An asset is anything that the person(s) drafting the estate plan owns. This can include any of the following:
- Money in your bank account
- Investments
- Real estate
- Life insurance proceeds
- Furniture
- Other belongings
As part of an estate plan, most people outline who these assets will pass to and how they’ll be divided and distributed.
2. Beneficiary
The beneficiary is the person or entity named as receiving assets as part of an estate plan.
A beneficiary could be a relative, friend, or even a charitable organization that the asset owner wants to transfer wealth or possessions to.
3. Distribution
When assets transfer to beneficiaries, this is known as distribution. Distribution happens with both money and property to the person named in the estate plan.
4. Estate
When assets transfer to beneficiaries, this is known as distribution. Distribution happens with both money and property to the person named in the estate plan.
5. Fiduciary
A fiduciary is a person who has a legal obligation to carry about an estate plan. This person could be a trustee or agent. Individuals who are fiduciaries have power of attorney.
When naming a fiduciary, you should always choose someone that you trust to do what’s in the best interest of your estate.
6. Funding
Retitling or transferring assets to a trust is called funding. The only way to avoid probate for a trust is if it is fully funded when the trustmaker dies. This means that it must contain all the trustmaker’s assets.
7. Incapacitated/Incompetent
When a person becomes incapacitated, it means that they cannot manage their affairs. It often relates to mental capacity. Incapacitated or incompetent can be temporary or permanent.
8. Inheritance
An inheritance is the assets that a beneficiary receives after someone passes away.
9. Living Probate
When a person becomes incapacitated, the court can supervise a process of managing that person’s assets. You might also hear this process referred to as conservatorship.
10. Marital Deduction
When one spouse passes away while the other is still living, the marital deduction allows for all assets to transfer to the surviving spouse without paying estate taxes.
11. Settle an Estate
Settling an estate includes paying taxes and debts, distributing assets, and completing all final affairs after your passing.
12. Trust
A trust enables an individual to give another party (the trustee) the rights to hold assets for the beneficiary. Trusts must be a written agreement and outline how the trustee will transfer those assets to the beneficiary.
13. Will
A will is a document that outlines how assets should be transferred after the will-maker’s death. It can also provide guardian information if the will-maker has minor children. Wills must go through probate court.
Contact Generations Law Group for Estate Planning Services
Never let estate planning terms keep you from completing the important work of preparing your estate plan. Generations Law Group is here to answer your questions and guide you through the planning process. Learn how we can help by scheduling a consultation today.
