Unfortunately, the terminology involved with estate planning can be confusing. A quick run down of common terms can help:
Durable Power of Attorney: A power of attorney is a grant of power or lawful authority by which one person enables another to perform a specified legal act on their behalf. A durable power of attorney generally appoints a person to perform any legal act for the maker, even in the event the maker becomes incapacitated. This can be helpful in avoiding guardianships, but it does involve handing over the keys to the kingdom. A durable power of attorney should never be granted without consulting an attorney about the potential ramifications of doing so.
Trusts: Legally enforceable arrangements whereby a fiduciary (the trustee) agrees to handle property given to them by the person making the trust (the Grantor or Settlor) for the benefit of the trust beneficiary. The beneficiary can sue in court to enforce the terms of the trust, thereby making the trustee a lot more trustworthy. There are many, many different types of trusts. They have existed for centuries and are an estate planner’s best friend because their use allows a deceased party to provide for his family in the manner of his choosing long after his demise.
Designation of Health Care Surrogate is a document through which a person can appoint another to make health care decisions for them in the event that they are unable to do so for themselves. The surrogate can give informed consent to physicians on behalf of the patient. This can operate in relatively minor scenarios through to end of life scenarios.
Will ,often referred to as a Last Will and Testament, this term refers to a written document, validly executed, which controls what happens to the maker’s property upon death.
Living Will is a very unfortunate name for a document in which a person can assert the circumstances under which they will be permitted to die without implementation of artificial measures to prolong their life.
Living Trust is another unfortunate name for a common estate planning tool more appropriately termed a Revocable Trust. It is a trust established during the maker’s life time and the maker has the right to change the terms of the document or revoke it all together. This document has become the centerpiece of many estate plans because it can allow for a more efficient settling of one’s affairs than is typically possible in an estate that is probated. Also, trustees of a revocable trust can continue to manage the affairs of a person who becomes incapacitated or infirm without missing a beat.
Testamentary Trusts are trusts established by the terms of a Will. This was once the most common method of establishing a trust. While no longer the preferred method for most trust planning, it is still an effective means for establishing a relatively simple trust, such as for the minor children of a deceased parent.
Irrevocable Trusts are trusts that cannot be amended or revoked after they are established. This seeming disadvantage leads to a great advantage: the trust is usually a separate tax entity from the maker. That separation allows for innumerable possibilities in terms of estate and gift tax planning. ILITs (irrevocable life insurance trusts), CRTs (charitable remainder trusts) CLTs (charitable lead trusts), and GRTs (Grantor retained
interest trusts) are all estate planning options that make use of irrevocable trusts.
Probate is the court proceeding in which a deceased person’s estate is settled by a personal representative (or executor) under the supervision of a judge. It involves collecting the person’s assets, determining and paying the person’s debts, and distributing the person’s property to those entitled under the will or applicable law (and there can be a big difference between the two). Decried by critics (and those selling books about trusts) as slow and expensive, it is also a straightforward and transparent way to settle an estate.
Guardianship is perhaps best thought of as an on-going probate estate for a living butincapacitated person with the ultimate goal of ensuring that the best interests of the ward are served. Guardianships can be slow and expensive proceedings. Many times they are avoided because a trusted person has a durable power of attorney or a trust exists. Guardianships do offer a transparent forum with the oversight of a judge, which is sometimes necessary or best.