Estate Planning Terms to Know

Estate planning is a legal process that involves making arrangements for the management and distribution of an individual's assets after their death. The heart of estate planning lies in making sure your assets are distributed according to your wishes, minimizing potential taxes, and facilitating a smooth transfer of your wealth to your beneficiaries. This process can help you have a say in how your financial legacy is managed and allows you to leave specific instructions for your loved ones regarding your property, the care of minor children, and your preferences for healthcare and final arrangements. 

However, given the complexity of estate law and the variety of assets that may be involved in estate planning, there are numerous terms and concepts that everyone should be familiar with before preparing their estate. Understanding these key terms is the first step for effectively creating the proper documents and making sure your wishes are honored after your passing. 

At the Law Offices of Julie A. Schejbal, CHTD, located in Dunkirk, Maryland, we believe that informed decisions require informed knowledge. Here are some essential terms you should know when it comes to estate planning. 

Beneficiary 

A beneficiary is an individual or entity who is designated to receive benefits from an estate, trust, retirement account, or life insurance policy upon the death of the estate holder or trust creator. Beneficiaries are chosen by the person planning their estate and can include family members, friends, charitable organizations, or trusts.  

In your estate document, it is important to identify each beneficiary to make sure your assets are distributed according to your intentions. This can minimize the likelihood of disputes or legal challenges among your beneficiaries.  

Estate Tax 

An estate tax, often referred to as a "death tax," is a federal or state tax that is levied on the transfer of a deceased person's assets to their heirs and beneficiaries. The tax rate and exemption thresholds for estate taxes can vary significantly depending on the jurisdiction.  

Federal estate taxes are imposed only on estates that exceed a specific value, which is adjusted periodically. Proper estate planning with a knowledgeable attorney can help you employ strategies to minimize or even avoid estate taxes, granting a larger portion of your estate directly to your beneficiaries. 

Executor 

An executor is a person or institution appointed in someone's will to manage the affairs of the deceased person's estate. This role entails a broad range of responsibilities, including but not limited to, gathering and inventorying the deceased’s assets, paying any outstanding debts and taxes, and distributing the remaining assets to the designated beneficiaries.  

When setting up an estate plan, it's important to select a competent and trustworthy executor who can make sure your estate is administered according to your wishes. Executors are often family members or close friends, though it's not uncommon to appoint a professional, such as an attorney or a financial institution, especially in more complex estates. 

Guardian 

A guardian is an individual who is appointed to oversee the physical and financial well-being of a deceased's dependents, such as minor children or adults with disabilities. The decision to appoint a guardian should be made with considerable thought, factoring in the individual’s capability, relationship with the dependents, and willingness to assume this responsibility. It is also advisable to name an alternate guardian in the estate plan, to prepare for any unforeseen circumstances that might prevent the primary guardian from fulfilling their duties. 

Healthcare Directive 

A healthcare directive, also known as a living will or advance directive, is a legal document that allows an individual to outline their preferences for medical care if they are unable to communicate their wishes. This document helps guide their healthcare providers and loved ones when making critical medical decisions on behalf of the individual, including the administration or withholding of life-sustaining treatments.  

Intestate 

Intestate refers to the state of dying without a legally valid will. When an individual dies intestate, the distribution of their assets is conducted according to the state's intestacy laws, rather than the individual's wishes. These laws vary by state but typically prioritize spouses, children, and other close relatives as heirs.  

The intestacy process can often result in unintended beneficiaries receiving assets and can lead to potential disputes among family members. To prevent your estate from going through intestacy, it is critical to create and maintain a valid will that clearly articulates your distribution wishes. 

Power of Attorney 

A power of attorney (POA) is a legal document that grants one person or entity (known as the "agent" or "attorney-in-fact") the authority to act on behalf of another person (the "principal") in legal or financial matters. The scope of this authority can be broad or limited, and it may include the power to make financial decisions, manage property transactions, or handle legal claims.  

Appointing a power of attorney allows your affairs to be managed according to your wishes if you are unable to do so yourself due to health issues or incapacity. However, take care in selecting a reliable and trustworthy person for your POA, as this individual will have significant control over your assets and finances. 

Probate 

Probate is a judicial process through which a deceased person's estate is valued, their beneficiaries are determined, and their assets are distributed under the supervision of a court. This process applies whether the deceased left a will (testate) or did not leave a will (intestate).  

Probate makes sure that the estate is administered according to the deceased’s wishes or according to state law if no will exists. It also provides a legal framework for addressing any claims against the estate and paying outstanding debts and taxes. However, the duration of the probate process can vary depending on the size and complexity of the estate, the clarity of the will (if one exists), and the applicable state laws.  

Testator 

A testator is an individual who has created and signed a valid will. A testator needs to make sure their will is clearly written, legally valid, and up to date to reflect any changes in their personal circumstances or wishes. In preparation for creating a will, it is advisable to work closely with an experienced estate planning attorney to ensure that all the legal requirements are met. 

Trust 

A trust is a fiduciary arrangement that allows a third party, or trustee, to hold and manage assets on behalf of one or more beneficiaries. Trusts can be established for a variety of purposes, including to provide legal protection for assets, to make sure those assets are distributed according to the trustor’s wishes, and to avoid or minimize estate taxes and probate.  

There are several types of trusts, each designed to serve different needs and goals. A revocable trust can be changed or terminated by the trustor during their lifetime. An irrevocable trust, however, cannot be altered once it is established.  

Will 

A will is a legally enforceable document in which an individual, known as the testator, outlines how they wish their assets to be distributed upon their death. It names an executor to manage the estate and can specify guardians for minor children or dependents. The creation of a will is a fundamental component of effective estate planning, ensuring that the testator’s assets are distributed according to their wishes, rather than being subject to the state's intestacy laws, which take effect if the estate holder dies without a will.  

How Can an Attorney Help? 

Estate planning requires more than a cursory understanding of key terms; it requires comprehensive legal know-how to make sure your estate will be distributed according to your wishes. An experienced estate planning attorney can clarify the complex language and concepts associated with estate planning, helping you make informed decisions about the management of your assets.  

An attorney can also help you craft robust estate plan documents, such as wills, trusts, healthcare directives, and powers of attorney, and help you anticipate and plan for changes in legislation that could affect your estate, offering strategies to minimize taxes and avoid probate, where possible.  

At the Law Offices of Julie A. Schejbal, CHTD, we're committed to ensuring that you're fully informed and comfortable with every aspect of your estate plan, providing peace of mind that your wishes will be honored and your legacy preserved. Located in Dunkirk, Maryland, we proudly serve clients throughout Calvert County, Prince George’s County, Charles County, and St. Mary's County.