Estate Planning Definitions and Terms

Estate Planning Definitions and Terms

Estate & Business Planning Attorney

Estate Planning Definitions and Terms

An anatomical gift is “a donation of all or part of a human body to take effect after the donor’s death for the purpose of transplantation, therapy, research or education.” A.R.S. § 36-841(3).

Not only is it important to make sure that all of your real property and financial accounts are in your trust, but you also need to make sure that your personal property is in your trust too. Think of your personal property as the possessions inside of your home – the stuff that gets put in the moving truck when you move houses. It’s things like jewelry, art, furniture, appliances, electronics, tools, sporting equipment, coins, collectables – you get the idea. If these items are not properly owned by your revocable living trust, it is possible that your loved ones would have to go through the probate process in order to receive these items. The Assignment of Personal Property assigns your belongings to your trust to ensure these items do not have to go through the probate process. This is a very important document that we see missing from estate plans all of the time, especially plans prepared online or by Certified Legal Document Preparers. Just one more reason it is so important to use an experienced estate planning attorney, like Woods Law Group.

A beneficiary is a person or entity which stands to receive a legal benefit, usually a financial benefit, upon the death of another. This legal benefit is often conferred by a legal instrument such as a trust. Beneficiaries may also be designated in an insurance policy, real-estate deed, retirement plan, profit sharing business arrangement, financial account with a payable-on-death provision, or other types of non-probate transfers.

If you have ownership interests in any Limited Liability Companies (LLC membership interests) or closely held corporations (stock or shares in the corporation), it is important that such interests be included in your comprehensive estate plan. Generally speaking, such interests need to placed into your trust to ensure that they are not tied up in probate when you pass away. Probate is often a death knell for small business and must be avoided at all costs. Many estate planning attorneys will not help you complete these documents, which leaves what may be your most important asset outside of your trust. Planning for your business interests is extremely important and should be a key part of your estate plan.

This is one of the most used documents in your estate plan. The certification of trust is the document that you use to fund your revocable living trust. Funding is the process by which you put assets into your trust. As you go to your bank or financial institutions to let them know about your trust, they will need proof that you have a valid, legal trust. The certification of trust provides this all-important proof. Instead of providing your entire estate plan to your financial institutions, you instead provide a copy of the 1 to 2-page document to show proof of your trust and to maintain your privacy as much as possible. This document has many very specific legal requirements that are often missed or overlooked in do-it-yourself documents or documents prepared by someone who is not an experienced estate planning attorney. When the certification of trust is improperly prepared and executed, you then are at the mercy of your financial institution and may be forced to provide them with copies of estate planning documents, which should be private.

No matter the age of our clients, we always prepare a “Certification of No Abuse.” This document protects your estate plan. When you sign this document in front of the notary, you are swearing under oath that you believe you have the mental capabilities to execute your estate plan and that no one abused you or coerced you into your estate planning decisions. The execution of the document is an affirmative way to show you understand that you are completing an estate plan and that your choices are your own choices. This helps reduce the likelihood that someone will successfully contest your estate plan in the future. This is just one more document that is prepared by Woods Law Group that is often left out of other non-comprehensive estate plans.

The legal term for a person who has died.

For most people, their home is one of their most valuable assets. This is why it is so important to make sure that your real property is correctly transferred into the name of your revocable living trust. By transferring the real property into the trust, your real property will avoid probate and get to the people you want it to go to efficiently. In Arizona there are a couple of different deeds that we use to effectuate this transfer. One is a special warranty deed and the other is a beneficiary deed. Depending on your circumstances, one may be better than the other. It is the job of your experienced estate planning attorney to understand the pros and cons of these deeds and be able to recommend the appropriate deed for you. An experienced estate planning attorney will never prepare a quit claim deed as part of your estate plan as this is a flawed and inferior deed.

A devisee is a person or entity named in the decedent’s will which stands to receive a legal benefit, usually a financial benefit, upon the death of the decedent.

A Durable Financial Power Attorney allows your chosen agent to deal with assets during your incapacity (think stroke, heart attack, or serious car accident) or unavailability (such as being stranded in a foreign country). The person you appoint as your financial power of attorney is typically your “Agent” and has a couple of primary responsibilities. First, when you have a revocable living trust, your financial power of attorney Agent manages any assets that are not titled in the name of your trust, such as your retirement accounts, life insurance policies, vehicles, and perhaps real estate that was not deeded into the trust. Second, your Agent is also in charge of other daily life tasks that you may not be able to complete yourself due to incapacity: they may have to dispute a bill, call one of your utility companies, or even open your mail. Due to the nature of duties required of your Agent, and the power they have, it is crucial that you choose a person or professional entity that is money-savvy and that you can trust completely. If you have a trust, the trustee of your revocable living trust is in charge of the day-to-day management of all your other assets should you become incapacitated.

States differ in whether they use the term executor or personal representative. In Arizona, we use the term personal representative rather than executor.
See “Personal Representative” below.

A fiduciary is an individual or organization which has been given authority to act on behalf of the best interests of another. Fiduciaries are often called upon to manage financial matters and assets for another who is unable to. A fiduciary owes a duty of care and loyalty to the persons or entity for which it acts. As a fiduciary manages assets, the fiduciary does so not for its own benefit, but rather for the benefit of the principal or beneficiaries. In estate planning, trustees, personal representatives, guardians and executors all take upon themselves fiduciary roles on behalf of the principal or beneficiaries.

The term grantor refers to a person or entity who creates and transfers assets to a trust. Other terms which are synonymous include: settlor, donor, creator, and trustor.

This is one of the most important documents to have prepared ahead of time to maintain family harmony during a crisis. The health care power of attorney is the document where you choose who you want to make medical decisions for you if you cannot make your own decisions. This person may be required to be a decision maker during a medical crisis so it is important that you choose someone that can handle that kind of stress.

When you don’t have a health care power of attorney, several problems may occur. If you are married, medical professionals usually look to the spouse to make decisions. That arrangement is generally fine so long as the spouse is able to make those decisions. But what if, for example, your spouse was in a serious car accident along with you and is also unable to make medical decisions? What if your spouse develops dementia or Alzheimer’s and can no longer make decisions for you? Or perhaps you are not married. You may simply assume that your children can then make those medical decisions for you. Most medical facilities, however, will need a majority agreement between your children before they can act on your behalf. If you have two children, they must agree unanimously. If there is no majority, your children could end up in probate court in a guardianship proceeding to determine who will be in charge of your medical decisions. Regardless of agreement or not, the process of obtaining multiple children’s agreement may be time consuming – wasting valuable time you may not have.

Arizona has specific language for mental health care decisions that must also be included in your medical power of attorney if you want such decisions to made on your behalf. If your plan lacks this important language, your loved ones will face an uphill battle to get you mental health care if the need ever arises. The mental health care language was enacted as part of a complete overhaul of the Arizona code that occurred in 2009. If you have a plan that was created prior to 2009 or moved from out of state, you likely need to update your plan. This is one example illustrating why it is so important to keep your documents up to date as well as make sure they comply with state law if you’ve moved with a plan from another state.

An heir is a person who will receive a legal benefit, usually a financial benefit, based upon the laws of intestacy upon the death of the decedent, in the absence of a valid will, trust, beneficiary designation, or joint ownership with right of survivorship.  This usually  includes the person’s spouse, children, other direct descendants, siblings, parents, and other close family members, though it can vary based upon the circumstances.  Intestate inheritance is primarily governed by A.R.S. § 14-2101 through 14-2104.

Unfortunately, most people have no idea what this document is or what it does but it is extremely important. HIPAA is the Health Insurance Portability and Accountability Act, which was enacted in 1996 and protects your health information from disclosure by others. Without a patient’s explicit authorization, a medical provider, such as a doctor or hospital, cannot legally share your health information with your family or loved ones, even in a medical emergency. A HIPAA Authorization allows you to plan ahead of time to give certain people access to your otherwise protected private medical information. This is a document that even many experienced estate planning attorneys are unaware of, but at Woods Law Group, it is part of our comprehensive estate plans.

One real-life example of the problems associated with not having a HIPAA Authorization:

A family friend that we’ll call Mike went into the hospital with double pneumonia. Mike had done some basic estate planning and had a health care power of attorney and living will, but he did not have a HIPAA Authorization form. Because of the pneumonia, Mike slipped into a coma. His wife, being his Health Care Agent, oversaw making his health care decisions. One doctor told her that Mike would pull through and come out of the coma, while another doctor told her that Mike would not wake up and that she should start preparing to withdraw support. The second doctor had access to all of Mike’s medical information and he could see that Mike had an underlying condition that made his recovery impossible. The problem though, is that the doctor could not reveal this underlying condition or even state that Mike had this condition because he had to protect Mike’s medical history. Mike’s wife had to make all of her decisions in a vacuum, without knowing all of the facts. Eventually his wife used the living will and withdrew Mike from support. It wasn’t until the death certificate was issued that Mike’s family finally found out about his underlying condition – the true cause of his death. The family felt terrible because they had left Mike on support much longer than they would have, had they known or had access to his entire medical history.

Instructions to your successor trustee (the person or entity that takes over management of the trust after your death) are also included in most estate plans. Your successor has a very important job and should be someone you can trust, capable of keeping accurate records, meeting legal deadlines, and handling complex financial issues.

It is crucial to properly fund your trust, otherwise the trust will not work like you want it to. Funding is the process by which your assets are placed in the trust. A trust is a bit like a bucket that has a rule book attached to it that controls who can hold the bucket and what is to happen to its contents. The trustee is the person who holds the bucket and protects and controls the assets inside. The rule book directs the trustee on what he or she can and cannot do. The trustee has no power to control assets that are not placed into the bucket (the trust). As such, it is critical for all of your assets, with a few exceptions such as retirement accounts, to be “put inside the bucket.” The method in which assets are placed into the bucket varies based upon the type, size, and nature of the asset. The Funding Instructions document provides detailed instructions so that you can ensure all of your assets are properly placed into the trust both initially and throughout the years that follow the creation of your trust.

An interested person is generally defined as any person or entity which has a property right or claim against a trust or estate. This typically may include children, spouses, heirs, devisees, beneficiaries, and creditors. An interested person may also include a trustee, personal representative, or other fiduciary.

If an individual has died without having a will, that person is said to have died intestate. Generally, if a person dies with a will (testate), the estate is distributed according to the provisions of the will. If a person dies intestate (without a will), the assets of the estate will generally be distributed according the default intestacy laws of the state where the decedent has died, rather than according to the desires of the decedent or the decedent’s family.

The living will is the document in which you make decisions regarding end of life care – “pulling the plug.” If you are in a persistent vegetative state, irreversible coma, or have some other terminal condition and have no reasonable hope of recovery, do you want to be kept alive artificially with feeding tubes? Do you want to be resuscitated if you have a heart attack? Making these important decisions ahead of time is one of the greatest gifts you can give to your loved ones. We’ve seen many a family torn apart because these decisions weren’t made ahead of time and one family member was left with the burden of deciding to maintain or withdraw medical support. Don’t force your loved ones to make such a difficult decision without your input.

Sadly, Terri Schiavo become the poster child for why you need a living will. Mrs. Schiavo was a mere 27 years old when she had a heart attack that left her in a persistent vegetative state. In the years that followed her heart attack, her parents claimed she wanted to be kept alive while her husband fought to withdraw the artificial life support. For 15 agonizing years, Mrs. Schiavo was kept alive via feeding tube and hydration while the court battle between her parents and husband raged. Finally, after trial, 14 appeals in state court, and five separate federal court cases, a federal court finally sided with her husband and ordered that Mrs. Schiavo’s life support could be ceased. Mrs. Schiavo passed away shortly after, leaving her family in ruins. Her parents had fought with her husband for years and they both spent large sums of money in the process. This lengthy battle could have been avoided if Mrs. Schiavo had a living will. You can save your loved ones from these kinds of tragic disputes by creating a living will as part of your comprehensive estate plan.

There are very few experiences in life more difficult or emotionally draining than the passing of a loved one. Those that have lost a close loved one can attest to the fact that the last thing they wanted to do following the death of a loved one was to plan for funeral services.
There are many considerations involved with planning for such services. Which funeral home do you use? Did your loved one want to be cremated or buried? Which cemetery did he or she want to be buried at? Did they already have a burial plot? Which casket do you choose? Open casket or closed? Which urn? Who will speak at the services? Who will deliver the eulogy? What songs would they want at the services? Performed by whom? Do they want scripture versus, poems, or stories read? Who will serve as pall bearers? What types of flowers should you have at the services? The choices can be overwhelming.
Fortunately, you can plan such details ahead of time so that the loved ones you leave behind do not have to guess at what you would have wanted at your funeral, or even worse, so they do not fight over those decisions. Sadly, we have found that planning funerals can often trigger disagreements among children, siblings, or other family members that can destroy family harmony. Sometimes such fighting or hurt feelings can last for years or even decades; ruining relationships instead of strengthening them.

The personal property memorandum is a document which allows you to leave specific personal items to specific individuals and works in conjunction with your will or trust. Whether you have a will-based or trust-based plan, this document is part of Woods Law Group’s comprehensive estate planning. The great thing about this memorandum is that it is a form that is filled out by you and can be amended by you whenever you desire. There is no need to go through an attorney if you change your mind about the disposition of your personal belongings.

States differ in whether they use the term executor or personal representative. In Arizona, we use the term personal representative rather than executor.

A personal representative is the person who has been assigned in the will, or appointed by the court, to carry out the provisions of a decedent’s will. This person is often a spouse or child of the decedent, although the testator is free to select some other trusted individual such as a close friend or trusted advisor to fulfill this role. As it is common for a child or spouse to be the personal representative of an estate, it is also common for a personal representative to also be a beneficiary of the estate. In some cases, a person may choose to refuse to accept the role as personal representative and the testator or the court can select another individual to fulfill this duty.

A court-supervised process for administering and distributing a decedent’s estate. Probate can be lengthy and costly but can often be avoided through proper estate planning.

The term settlor refers to a person or entity who creates and transfers assets to a trust. Other terms which are synonymous include: grantor, donor, creator, and trustor.

The revocable living trusts prepared by Woods Law Group average about 90 pages for a married couple and about 75 pages for an individual. That’s a lot of legal information to digest. To simplify the overall big picture of the trust, we prepare a detailed summary of the trust. The summary is a great way to quickly get to and understand the key provisions of the trust. The summary is organized using the same Articles and Sections that are in the actual trust document. For the sections in which you’ve made specific decisions, the summary goes into more detail. A detailed summary of the trust is rarely done in basic plans or plans done online. This demonstrates one more reason why it is important to make sure you receive a comprehensive estate plan, such as those created by Woods Law Group.

Testate is a term that refers to the condition of a decedent’s estate when the person has died with a will. If the individual has died without having a will, that person is said to have died intestate. Generally, if a person dies with a will, the estate is distributed according to the provisions of the will. If a person dies intestate (without a will), the assets of the estate will generally be distributed according the default intestacy laws of the state where the decedent has died, rather than according to the desires of the decedent or the decedent’s family.

A person who makes a will or has died after having created and executed a valid will is called a testator. Testatrix is a word that is used to describe a female testator. The word testator, however, may be used to describe a person – whether male or female – who executes a valid will.

A trust is a legal document that takes care of your assets while you are alive and disposes of your assets after your death. It is the center-piece of most estate plans. A trust can provide greater control over what happens to your assets upon death, is generally a private document, and can help to avoid probate. A revocable trust is a trust that can be changed, amended or revoked during the creator’s lifetime. The creator of a trust is typically called the “grantor,” “settlor,” “trustor,” or “trustmaker.” A revocable trust generally becomes irrevocable after the grantor’s death. The opposite of a revocable trust is an irrevocable trust. An irrevocable trust is a trust that cannot be changed or revoked from the moment it is signed. A living trust is a trust created while the grantor is alive. The opposite of a living trust is a testamentary trust, which is a trust that springs to life after the creator’s death, generally through language found in the person’s Last Will and Testament.

A person or entity who has been given legal authority to manage a trust for the benefit of its beneficiaries.

The term trustor refers to a person or entity who creates and transfers assets to a trust. Other terms which are synonymous include: settlor, donor, creator, and grantor.

The biggest myth surrounding estate planning involves wills. We regularly hear this statement (or some variation of it), “I have a will so my family won’t have to go through probate.” Sadly, nothing could be further from the truth. A will forces probate. A will is merely instructions to the probate court outlining the disposition of your assets and other related matters upon death. If the only planning you’ve done is via a will, you are almost guaranteeing that your loved ones will go through a probate court or at least some kind of informal probate process.