What is an Estate Plan?

As estate planners, we use legal terms to express our client’s wishes in a meaningful manner. Like speaking to a physicist or a doctor, talking to an attorney can seem confusing. The goal of this post is to help to untangle some commonly used estate planning terms.

What Is an Estate Plan?

An estate plan is a set of documents containing your instructions for your estate during life and after your death. Your estate consists of certain rights and all the property you own.

What Is a Fiduciary?

Trustees, executors, and attorneys-in-fact are all fiduciaries (someone in a position of trust), because they owe a fiduciary duty towards principles and beneficiaries to act only for the principle’s or beneficiaries’ benefit, and not their own. A trustee is a fiduciary for a trust. An executor is a fiduciary appointed in a will. An executor and a trustee are similar in that they both have a duty of absolute care to the beneficiaries of the estate/trust, but their roles are different in that an executor is more of a liquidator, whereas a trustee is more of a business manager. An attorney-in-fact is a fiduciary who is authorized to make binding decisions on behalf of a principal during life, as though they were the principal.

What Is a (Revocable) Living Trust?

A trust is a legal relationship in which one party, known as a trustor, gives another party, the trustee, legal title (ownership on paper) to property or assets for the benefit of a beneficiary. The beneficiary has equitable title (the right to the benefits of the property or assets). In most living trusts, while the trustor is alive, the trustor, trustee, and beneficiary are the same person. That’s why it’s called a “Living” Trust.

Do I Need a Trust?

Trusts are established to provide for the management and disposition of the trustor’s assets, to and, in some cases, avoid or reduce inheritance or estate taxes. Trusts are also used to avoid probate.

What’s a “Probate?”

Probate is the court supervised process of proving a will (if one exists) and administering the estate of a decedent (a person who has died) whether or not they had a will. Probate is quite expensive and time consuming.

What Is a Will?

A will is a written legal declaration of a person's wishes regarding the disposal of his or her estate after death. Each will appoints an executor. The executor's main duty is to carry out the instructions and wishes of the deceased. In California, most estates with a will only (and no trust) require probate. Where a trust is prepared in conjunction with a will, a pour-over will is generally created. It’s called a pour-over will because any assets contained in the probate estate get poured over into the trust to be administered according to a central plan contained in the trust.

What Is a Durable Power of Attorney?

A Durable Power of Attorney is a legal document that enables the principal to designate another person called the agent or attorney-in-fact to act on behalf of the principal. A Power of Attorney is “durable” if it remains valid even after the principal becomes incapacitated (in a coma, persistent vegetative state, or suffering from other advanced debilitating conditions such as Alzheimer’s). Most Durable Powers of Attorney are “springing,” which means that they only become operative at the happening of an event, usually upon the incapacity of the principal.

What Is an Advanced Health Care Directive?

An Advance Health Care Directive or Advanced Directive is a document by which a person makes provisions for health care decisions in the event that in the future, he or she becomes physically or mentally unable to make those decisions. Basically, it’s a Power of Attorney for Healthcare. Much like Durable Powers of Attorney, Advanced Health Care Directives are usually “springing,” which means that they only become operative at the happening of an event, usually upon the incapacity of the principal.

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