Important Estate Planning Terms
In most legal situations, the language or “legalese” can be confusing. Sometimes, even words or phrases that have one meaning in common parlance can have a completely different meaning in a legal setting.
Estate planning is no different. Many people fail to complete an estate plan because it seems too confusing. This week, we are going to break down and explain some of the terms you may have encountered when researching estate planning.
A beneficiary is a person (or sometimes an institution or organization like a charity or school) you name who will ultimately benefit from some or all of your estate. You’ll name beneficiaries on certain types of accounts — such as IRAs and other retirement plans — life insurance policies, and in your will or trust documents.
Why are beneficiaries important to estate plans?
Beneficiaries are an important part of the estate planning process because without them, there’s no direction as to who should get the assets in your estate. If you do not properly name your beneficiaries (and back up beneficiaries), your estate may wind up in a costly, timely and stressful court proceeding. This could ultimately eat away at the overall value of your estate that would otherwise be passed down to your heirs.
A codicil is simply an amendment, addition or change to part or all of a will. It will either explain, modify or revoke aspects of an established document. We covered codicils in more detail a while back.
Why are codicils important to wills, trusts, and estate plans?
Codicils are necessary if you ever have major life events — like a birth, death, marriage, divorce or out-of-state move — or any other reason to change part or all of your will.
A decedent is someone who has passed away. In estate planning, it’s typically the owner of a will, trust, policy, plan or account.
Why are decedents important to estate planning?
Having a term like decedent is important to be able to identify the most important person involved in an estate plan — the person who triggers action once they pass away.
Durable Power of Attorney
A durable power of attorney, or POA grants authority to a person or institution to step in and make decisions on your behalf should you become incapacitated and unable to make them on your own. There are both medical and financial POAs, and the “durable” part is key, as it allows the document to take effect after incapacitation.
How is a durable power of attorney important to estate planning?
A POA is an essential component to an estate plan, as it allows you to appoint someone you trust to make decisions on your behalf.
A healthcare directive is also known as an advance healthcare directive, a living will, a personal directive and other names. It’s a document you create to state your personal preferences regarding your future medical care. It can include directions on what medical interventions you want (or don’t want), whether or not you want to donate your organs, and more. You can also appoint an agent to make medical decisions on your behalf in this document.
Why is a healthcare directive important to your estate plan?
When you put a healthcare directive in place, you’re making sure that your wishes are known and will be honored when and if the time comes when you can’t make medical decisions for yourself.
Dying without a will, or intestate, is a term used when a person passes away without any estate planning documents. In essence, it means there’s no valid will or trust to guide the distribution of your estate. If you die intestate, courts will step in and use state succession laws to determine who should benefit from your estate.
What does intestate have to do with estate planning?
Dying intestate basically means you have zero control over what happens to both your estate and to your loved ones after you pass away. One of the best ways you can protect your family is by creating an estate plan.
Irrevocable is a term used to describe a trust. In an irrevocable trust, the documents cannot be altered or dissolved easily. In order to change an irrevocable trust, you would need to receive permission from beneficiaries, Sometimes irrevocable trusts are used for asset protection or tax planning.
Why is it important to understand irrevocable trusts when you are completing your estate plan?
Understanding the difference between a revocable and an irrevocable document is key when deciding what type of plan you need. Make sure that you understand the benefits and the drawbacks of each.
Joint tenancy is a term used to describe co-ownership on a property. Properties owned with joint tenancy have what’s known as “right of survivorship,” which means when one party passes away, the property automatically passes to the survivor.
What does joint tenancy have to do with wills & trusts?
Knowing how to title your property can save your loved ones the hassle of having to tie up loose ends with your properties after you pass away.
Pay on Death/Transfer on Death Accounts
Pay on death (POD) and transfer on death (TOD) accounts are set up so they’ll automatically pass to a named beneficiary upon your passing.
Why are pay on death or transfer on death accounts relevant to estate plans?
POD and TOD accounts can be a simple and effective way to ensure certain people are entitled to an account or policy you have.
Probate is the legal process of validating a will, paying off any debts an estate has, and distributing remaining property to named beneficiaries. The probate process will distribute property per court order, following state laws, in cases where there is no will.
What does probate have to do with wills and trusts?
Probate can be a messy, timely, costly and public process. Setting up your estate plan thoroughly and thoughtfully can drastically reduce how complicated the process will be, and, in some cases, it may allow your loved ones to avoid it altogether.
A will is a legal document that directly states how you want your property distributed after you pass away. It also allows you to name guardians for your children and specify your final arrangement wishes.
Why is a will an important part of an estate plan?
If you aren’t ready to tackle your entire estate plan at once, you should make sure that you have a valid will in place at the very least. This is the beginning of all the safeguards you’ll establish to protect the important people in your life.
If you are like most Michigan residents, chances are you don’t have a will or an estate plan. Without these important documents in place, you could be putting your assets and your family’s peace of mind in jeopardy. Contact The Mitten Law Firm today for help with getting your estate plan started.
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