Whether you are just starting to think about estate planning or have had a plan in place for years, it is important to familiarize yourself with the terminology used in estate planning documents. Not only will this help you make informed decisions about preparing or updating your plan, but it will help you understand your loved ones’ estate plans as well.
Here is a brief introduction to 10 key terms you will almost certainly see in your estate plan:
1. Advance Directive
An advance directive is an estate planning tool that allows you to provide instructions to your healthcare provider in the event of your incapacity or to appoint a loved one to act on your behalf and follow through with your wishes.
A beneficiary is an individual, charity or other entity that is entitled to receive a share of your estate after your death under the terms of your estate plan. A beneficiary can also be someone who is entitled to a percentage of your estate based upon a designation made for a bank account, retirement account, life insurance policy or other eligible asset.
A codicil is a written amendment, or change, to a will. In some cases, a codicil will be appropriate when it is necessary to make changes, and in others, it may make more sense to create a new will entirely.
A devisee is a beneficiary who receives his or her interest in your estate through your will. A gift made in a will is a “devise,” and the recipient of a devise is a devisee.
A guardian is a person who you select to care for your minor children if you and your children’s other parent both die before your children reach age 18. While this may not be a scenario you want to think about, as a parent, choosing a guardian is an essential part of the estate planning process.
An heir is someone who is entitled to a portion of your estate under New Jersey law. If you do not have an estate plan or your estate plan is incomplete, then all or a portion of your estate will be distributed to your statutory heirs.
7. Personal Representative
Your personal representative is the individual who will administer your probate estate after your death. You will appoint a personal representative in your will.
8. Power of Attorney
A power of attorney is used to appoint someone to make medical or financial decisions on your behalf in the event of your incapacity. A “durable” power of attorney is one that is effective even if you become physically or neurologically disabled.
Probate is the judicial process used to formally recognize a will, authorize someone to administer a person’s estate, and to ensure that those who are legally entitled to inherit assets or be paid receive what they are entitled to receive. Probate can be simple in some cases, and in others it can be time-consuming, costly and litigious. Where there is an estate of any kind, some form of probate is unavoidable.
A trustee is an individual (or entity) responsible for managing a revocable or irrevocable trust. If you incorporate one or more trusts into your estate plan, you will need to carefully choose a trustee for each trust who you feel can effectively manage the trust in the best interests of your chosen beneficiaries.