The ABCs of Estate Planning and Administration: A Simple Dictionary
If you are planning for your future or dealing with the death of a loved one, you may encounter some unfamiliar terms related to estate planning. Estate planning is the process of arranging how your assets will be distributed after your death and who will make decisions on your behalf if you become incapacitated. In this article, we will explain some of the common terms that you may encounter in estate planning and why they are important.
An attorney-in-fact is a person who is authorized to act on behalf of another person (the principal) under a power of attorney. A power of attorney is a legal document that grants the attorney-in-fact certain powers and duties, such as making financial or medical decisions for the principal. A power of attorney can be general or specific and can be durable or non-durable. A durable power of attorney remains in effect even if the principal becomes incapacitated, while a non-durable power of attorney terminates when the principal becomes incapacitated.
Authorized HIPAA Recipients:
Authorized HIPAA recipients are persons who are allowed to receive protected health information (PHI) from healthcare providers under the Health Insurance Portability and Accountability Act (HIPAA). HIPAA is a federal law that protects the privacy and security of PHI, which includes any information that relates to the past, present, or future physical or mental health or condition of an individual. Authorized HIPAA recipients can include healthcare agents, family members, friends, or anyone else whom the patient designates in writing.
A beneficiary is a person or entity that receives a benefit from your estate, such as money, property, or other assets. You can name beneficiaries in your will, trust, life insurance policy, retirement account, or other documents. You can also change your beneficiaries at any time, unless they are irrevocable.
A person who has died. The decedent’s estate is the collection of assets and liabilities that the decedent owned or owed at the time of death.
An estate is the total value of everything you own at the time of your death, minus any debts and liabilities. Your estate includes your real estate, personal property, bank accounts, investments, life insurance proceeds, and any other assets that you own or have an interest in.
Executor or Personal Representative:
An executor or personal representative is a person or entity that is appointed in your probate to carry out the instructions in your will and administer your estate after your death. The executor or personal representative has many duties and responsibilities, such as collecting and inventorying your assets, paying your debts and taxes, distributing your assets to your beneficiaries, and filing any required court documents.
A fiduciary is a person or entity that has a legal duty to act in the best interest of another person or entity. For example, an executor or personal representative is a fiduciary to the beneficiaries of the estate, a trustee is a fiduciary to the trust beneficiaries, and an attorney-in-fact is a fiduciary to the principal.
A gift tax is a federal tax that may apply when you transfer money or property to another person during your lifetime without receiving anything of equal value in return. The gift tax applies to gifts above a certain amount per year per recipient. You can avoid or reduce the gift tax by using the annual exclusion amount, the lifetime exemption amount, or certain exemptions for gifts to spouses, charities, or education and medical expenses.
A guardian is a person or entity that is appointed by a court to make personal custodian for financial decisions for a minor child or an incapacitated adult. A guardian has the authority and responsibility to act in the best interest of the ward (the person under guardianship) and to report to the court on a regular basis.
A healthcare agent is a type of attorney-in-fact who is authorized to make healthcare decisions for another person (the patient) under a healthcare power of attorney. A healthcare power of attorney is a legal document that allows the patient to appoint a trusted person to make medical decisions for them if they are unable to do so themselves. A healthcare agent can consent to or refuse any type of medical treatment or procedure for the patient, unless otherwise specified in the document.
An inheritance tax is a state tax that may apply when you receive money or property from someone who died. The inheritance tax varies by state and depends on the relationship between the decedent and the beneficiary, the value of the inheritance, and any exemptions or deductions that may apply.
The condition of dying without a valid will. If you die intestate, your estate will be distributed according to the laws of intestacy in your state. These laws may not reflect your wishes or benefit your preferred beneficiaries.
An irrevocable trust is a type of trust that cannot be changed or revoked once it is created. An irrevocable trust transfers ownership of the assets in the trust to the trustee and removes them from your taxable estate. An irrevocable trust can provide various benefits, such as asset protection, tax savings, charitable giving, or special needs planning.
A living trust is a type of trust that you create during your lifetime and that allows you to transfer ownership of your assets to the trustee while retaining control over them. A living trust can help you avoid probate (the court process of administering your estate), protect your privacy, plan for incapacity, and provide for your beneficiaries.
Power of Attorney:
A power of attorney is a legal document that allows you to appoint another person (called an attorney-in-fact) to act on your behalf in certain matters. A power of attorney can be general (giving broad authority) or specific (giving limited authority). A power of attorney can also be durable (remaining effective even if you become incapacitated) or non-durable (ending if you become incapacitated)
The court-supervised process of validating a will (if there is one), appointing an executor or personal representative, identifying and notifying creditors and beneficiaries, paying debts and taxes, and distributing assets to heirs. Probate can be time-consuming, costly, and public. You can avoid probate by using a living trust or other methods of transferring assets outside of your estate.
A revocable trust is a type of trust that can be changed or revoked by the person who created it (the grantor) during their lifetime. A trust is a legal arrangement that allows a third party (the trustee) to hold and manage property for the benefit of another person or group (the beneficiaries). A revocable trust can help avoid probate, protect privacy, and provide flexibility and control over the distribution of assets.
A successor trustee is a person or entity that takes over the role of the trustee of a trust when the original trustee dies, resigns, becomes incapacitated, or is removed. The successor trustee has the same duties and responsibilities as the original trustee, such as managing and distributing the trust assets according to the terms of the trust. The successor trustee can be named by the grantor in the trust document, or appointed by a court if no successor trustee is named or available.
A will is a legal document that expresses your wishes regarding how your property and assets should be distributed after your death. You can also name a guardian and conservator for your minor children and a personal representative who will manage your estate. A will must be signed by you and witnessed by two other people. A will can be changed or revoked at any time before your death.
We hope this article has helped you understand some of the common terms used in estate planning. If you have any questions or need assistance with creating or updating your estate plan, please contact our experienced Washington state estate planning attorneys at Jensen Estate Law. We are here to help you protect your legacy and your loved ones.