If you’re interested in estate planning, the first thing you should know is that it can be intimidating and complicated. Not only do you have to familiarize yourself with legal terminology, but you also have to deal with all the emotional and personal aspects of planning your own death. To help you get started, we’ve created this list of 10 estate planning terms everyone should know and provided some brief explanations below each one.
1) Living Trust
Living trusts are a special type of trust designed to avoid probate. This estate planning tool allows individuals (or couples) to transfer ownership of assets into a trust that bypasses probate. If you want to keep your assets out of probate and give them to your heirs directly, consider creating a living trust.
Probate is a legal process that allows for a deceased person’s assets to be dispersed according to their wishes. The probate court oversees financial accounts, such as checking, savings, and investment accounts.
It also applies to real estate and assets in joint names. If you have assets worth less than $150,000, you might not need to go through probate. Small estates are handled administratively by your local state government without court oversight.
An heir is a person who inherits an estate. The right to inherit, or become an heir, comes from your relationship with another person; in most cases, your parent(s) or spouse. The deceased person’s will dictates which heirs are entitled to inherit and in what proportion; parents may leave everything to their children, for example.
When a person dies, they are referred to as a decedent. The estate of a decedent includes everything they own at their time of death, including assets like real estate and investments.
The estate also includes debts, like mortgages and credit card balances. The executor is in charge of distributing any money that is left over after paying off all expenses following a decedent’s death.
The executor is responsible for managing your estate. The executor can sell your assets, pay off debts and expenses, and distribute any remaining funds to beneficiaries.
If you die without a will (known as dying intestate), your executor may be named in a default order—for example, it could be your spouse or next of kin. An alternate executor can also be named in case something happens to the first one (hopefully not).
Someone who stands to receive a particular asset or property. For example, if you name your spouse as the beneficiary of your IRA, he or she will be entitled to that asset should you pass away. Beneficiaries are generally named in wills and trust documents. (The beneficiary of an estate is referred to as an executor in some legal documents.)
A Guardian is a person or institution that is chosen to care for minor children in case something happens to their parent(s). A guardian may be named in a will, and they can also be appointed by a court.
The court with authority over your estate is called its jurisdiction. The jurisdiction of a person’s estate depends on that person’s location when he or she dies, and his or her nationality.
9) Executor Fee
The fee paid to an estate executor for carrying out legal duties in accordance with a will. This is separate from probate fees, which are typically more expensive and paid after a will is accepted by a court. If you choose not to use an executor or have no named executor in your will, you’ll need to file with a court of law to have probate proceedings set up.