Estate Planning - Common Concepts and Terms
Estate Planning - Common Concepts and Terms
The following is offered as a brief introduction to some of the common concepts and documents. My goal was to keep this to one page regardless of painful oversimplification (believe it or not).
1. Probate. Probate refers both to a division of the court that handles estates, and also to the probate of an estate, including the entry of a will into probate at the probate court. If there is no will, the estate is subject to administration according to default statutory rules.
2. Last Will and Testament. Everyone should have a well-drafted will, and usually the will should allow for the informal selling of real estate, waiver of bond for the executor, nomination of executor, and nomination of guardians for minor children.
3. Probate Avoidance. Probate proceedings protect the beneficiaries and property, but probate is expensive (~$5,000 for a standard estate) and ties property up for 7-12 months. If litigation occurs between beneficiaries, the time and cost are multiplied.
4. Pay on Death and Transfer on Death. Probate can be avoided if beneficiaries are designated on bank accounts, retirement accounts, real estate, and vehicles. However, if one beneficiary dies, the beneficiary designations may lapse, and we are back to probate.
5. Revocable/Living Trust. This document creates a legal relationship between the Grantor, Trustee, and Beneficiary that avoids the need for probate. A trust provides for greater control, flexibility, and contingency planning with regard to beneficiaries and property.
6. Pour Over Will. This is a last will and testament that incorporates a trust by reference. Just in case a probate proceeding is necessary, the trust provisions override default rules.
7. Supplemental/Special Needs Trust (SNT). Critical if any beneficiary is receiving social security or Medicaid benefits to preserve eligibility and still benefit from an inheritance.
8. General Durable Power of Attorney. Through this document, an agent is designated to make financial transactions and decisions during the incapacity of the principle.
9. Healthcare Durable Power of Attorney. Through this document, authority to make medical decisions is conferred upon an agent.
10. Living Will. If a terminal condition exists, only comfort care will be provided.
11. Do Not Resuscitate (DNR) – A present statement, signed also by a physician, that cardiopulmonary resuscitation (CPR) will not be performed.