Unless you’re estate planning experts and probate specialists, like us, you and your family members are probably very confused about how and when to use various terms related to estate planning, probate, trusts and wills, etc. We hope you’ll find the estate planning glossary below helpful.
What Is Estate Planning?
It’s putting in place a plan, known as an “estate plan” that says what should happen if you can’t take care of things (either because you are incapacitated or not alive).
- It can include a bunch of tax planning when needed.
- It provides a way to make sure your young children are raised by who you want if something happens to you.
- It deals with how your assets should be handled and who should handle them.
- It deals with who will be the one to make medical decisions for you, if you can’t make them yourself.
An estate plan may be very simple (you or your loved one may just need a simple will), or it can be very complex (for example, with many different trusts and tax planning). It will all depend on your particular circumstances, and what type of will and trust vehicles and documents need to be put into place. Our will lawyers and trust lawyers will help you figure the aforementioned out.
What Is Probate? What Is Probate Court
To “probate” something means to go through the court system (the Probate Court) to get authority from the court to do something and/or to have the Probate court direct how something should be handled. If an asset is in your name alone without a beneficiary, this would need to go through probate upon your death.
One important aspect of Probate is to have the court legally appoint a Guardian for your minor child if you are not living. The Guardian is appointed by the court. As outlined below, our team of probate attorneys and estate planners can help your family avoid going through the process and dealing with the implications of a Court-appointed Guardian.
What Is a Will?
Often referred to as a “Last Will and Testament”, a will is a set of instructions which dictates:
- Who should take care of things for you after you pass away – some states call this an Estate Executor or Will Executor, although most states now call this person a Personal Representative (we’ll call that person a Personal Representative from here on);
- Who you would like the court to appoint or approve as Guardian for minor children (children under the age of 18 years old); and
- Where you want your probate assets to go upon your death.
What Is a Power of Attorney?
As part of developing an estate plan for you, our estate planning firm can help you complete Power of Attorney documents. A “Power of Attorney” is a written document created by you (the “principal”) that gives power to someone else (called an “Agent” or “Attorney in Fact” – we’ll call this person an “Agent” from here on) so that they can legally step into your shoes to handle something for you if you are incapacitated. Our estate planning lawyers can explain to you what legally is considered incapacitated.
A Power of Attorney can be very limited in scope (e.g. giving the power to someone to sign legal documents so that you can close on the sale of your home while you are away) or it can be very general (e.g. the person basically steps into your shoes and can do anything you could have done…for you). In either case, the Agent is supposed to act on your behalf to make sure things are taken care of for you.
- A Power of Attorney that is very limited in scope is called a Limited Power of Attorney.
- A Power of Attorney that is general in scope is called a General Power of Attorney.
You can provide in the Power of Attorney that your Agent has immediate power to handle things for you (either indefinitely (“continuing”) or for a certain period of time – e.g. 30 days), or in many states (but not all) you can state that your Agent only has power to handle things if you are incapacitated (this is called a springing Power of Attorney). If you give someone immediate power, then that person can start doing things immediately for you. In Massachusetts, both an immediate Power of Attorney and a springing Power of Attorney are permitted.
A Power of Attorney can be durable – meaning that it will not terminate because of your subsequent incapacity. In order words, for an Immediate Power of Attorney, the power will not stop if you become incapacitated later. For a Springing Power of Attorney, it will float with your condition. For example, with a Springing Power of Attorney, if you become incapacitated, your Agent will have the power to act for you; if you gain capacity again, your Agent’s power stops; and if you lose capacity in the future, your Agent’s power will spring into effect again.
What Is a Health Care Proxy?
If you are ever unable to make medical decisions for yourself, a “Health Care Proxy” or “Health Care Power of Attorney” gives the person you’ve designated, an “Agent”, the legal authority to make medical decisions on your behalf if your health care providers are unable to communicate directly with you because of your medical condition. As part of creating your estate plan, our team of estate planners can help you put this document and other important healthcare documents in place.
What Is a Trust?
A “Trust” is a set of instructions that says what you want to have happen to whatever assets the Trust owns (or that the Trust receives upon your death through a beneficiary designation) (the “Trust Assets”).
- It sets out who will follow those instructions and take care of whatever the Trust Assets are (the “Trustee”).
- It also lays out the rules for what that Trustee must or may do.
- It also says who should benefit from the Trust Assets (the “Beneficiary”).
- The person who creates a Trust is commonly known as: a Settlor, a Grantor or a Trustmaker. We will use Settlor for our discussion.
There are two kinds of Trusts: Irrevocable Trusts and Revocable Trusts. They have very different purposes.
Irrevocable Trusts are Trusts that are, well, irrevocable. Basically, an irrevocable trust is a type of trust where its terms cannot be modified, amended or terminated without the permission of the Settlor’s named beneficiary or beneficiaries. Once a Settlor puts in place an Irrevocable Trust and transfers an asset to it, the Settlor no longer owns it and has no control over it anymore (so, normally the Settlor is not the Trustee or the Beneficiary). Depending on the circumstances, the Settlor may have a right to income, but other than that, the Settlor personally will not be benefitting from the Trust Assets. There are many different kinds of Irrevocable Trusts.
Revocable Trusts are Trusts that are revocable. Unlike an irrevocable trust, revocable trust can be modified, amended or terminated without the permission of the Settlor’s name beneficiary or beneficiaries. Generally, if you’ve taken steps to establish a Trust, you normally won’t want to revoke it, but with a Revocable Trust you (as the Settlor) keep full control during your life over the instructions (the “terms”) of the Trust as well as whatever the Trust Assets are. As such, you can change the terms of the Revocable Trust and whatever the Trust Assets are. Normally, with a Revocable Trust, you are a Trustee during your life, and you are also a Beneficiary during your life. It is basically a way to hold assets during your life for your benefit. Because you keep full control of the Revocable Trust during your life, it normally uses your social security number for any Trust Assets (therefore, you don’t need to file a separate tax return for a Revocable Trust during your life).
How To Know Which Type of Trust to Establish
When you engage our team to help you with your long-term planning needs, through empathetic listening and detailed discussions about your and your family’s specific situation, our trust lawyers and estate planners can help you decide whether a revocable trust or an irrevocable trust makes the most sense for you. They can explain the nuances and implications of terms like “living revocable trust” and “irrevocable life insurance trust.” That said, read on to get an initial sense of which type of trust might be right for your particular needs.
As you can imagine, you don’t want to establish an Irrevocable Trust unless you’ve thought very carefully about it and worked with Trust lawyers and estate planning professionals like us to put it in place. Think of this kind of Trust as a “one and done” type of Trust. People will usually consider establishing an Irrevocable Trust if:
- They are worried about asset protection (e.g. they work in a field where no matter how good of a job they do (or don’t do), they are likely to be sued at some point; or, the person might be of an advanced age and want to try to provide for some asset protection if they should ever need to go into a nursing home (this is called “Medicaid planning.”; as explained here, we can help you or your loved one determine if you or they might qualify for Massachusetts Medicaid coverage, known as MassHealth);
- They may want to gift an asset that they no longer need or want; or
- They may be doing it to minimize a future potential estate tax upon their death.
People will usually consider doing a Revocable Trust for the following reasons:
- They want to avoid Probate Court/the Probate process.
- They may want an easier way to have someone take care of their assets if they should ever become incapacitated (Remember, the person who sets up a Revocable Trust is usually the Beneficiary during their lifetime. If something is owned by the Trust, it is whoever the Trustee happens to be at that time who is authorized to handle it on behalf of the Beneficiary.)
- They may have a Federal Estate Tax exposure or may live in a state, such as Massachusetts, where there is a State-level Estate Tax (a Revocable Trust that is set up properly can help minimize an Estate Tax for a married couple).
- They may be trying to protect Trust Assets for their Beneficiary – either because: the Beneficiary is too young to receive Trust Assets; the Beneficiary has special needs; and/or the person setting up the Revocable Trust may want to provide for some asset protection for the Beneficiary.
