Common Estate Planning Terms & Documents

Like so many things in life, estate planning comes with its own vocabulary. Knowing more about these foundational terms and documents can help make the process of setting up your own planning feel more approachable. Any of these documents can be revoked or amended any time by the person who created them, so long as that person has the capacity to understand what they’re doing.

Wills

A will is the most basic estate planning document. It can accomplish a few different things, but is very limited in other ways. The most common and well-known function of a will is to direct how your assets will be distributed when you die. A will can also nominate an executor, nominate guardians of minor children, and detail burial or cremation wishes.

However, a will does not avoid probate, does not take effect until you die, and provides no benefits during life. It does not control or direct assets held in trust, or assets with independent death benefit provisions, such as life insurance policies, retirement plans, or pay-on-death bank accounts where beneficiaries have been specified (unless the beneficiary specified is your estate). A will also does not control property held in joint tenancy with right of survivorship, unless you are the last surviving joint tenant.

Still, a will can be very important in combination with other documents. A will controls your interest in property held as tenants in common; property you own as joint tenants, if you’re the last surviving owner; accounts where a beneficiary is named but dies before you. If you don’t have a trust, your will controls who inherits your property. If you do have a trust, your will is an important backup plan – it can “pour” assets into the trust if you didn’t transfer them yourself. And your will nominates your executor - the person in charge of carrying out your wishes and dealing with the probate court.

If you die owning assets (that have no beneficiary named on the account) but without a will or trust, state law and the probate court will determine who inherits your assets. You have the right to decide, but you have to have the right documentation in place to do so.

If you have moved to California from another state, and you already had a will that was valid in the previous state, California will honor that will. However, anytime you move to a new state it is best to have your documents reviewed by a licensed and experienced estate planning attorney in the new state, to ensure you are not missing out on any benefits or requirements unique to that state.

Make sure to tell your executor and close friends or relatives that you have a will and where to find it. It should be kept someplace safe and secure, but also needs to be accessible to the right people after you’re gone. A good option is to keep the original in a safe or safe deposit box, and a copy somewhere it can easily be found.

Probate

Probate is the court-supervised procedure for handling your estate if you die with a will, or without an estate plan. Wills do not avoid probate; trusts do. During the probate proceeding, your executor notifies your beneficiaries, heirs, and creditors, winds up your affairs, pays your debts, and distributes your assets. A judge supervises each step to ensure that your will and with the law are followed. Probate in California can take anywhere from one to two years, if all goes well. Court fees, attorney’s fees, and executor’s fees can really add up; they are based on the gross fair market value of your assets. The time and costs involved are two of the big reasons many people benefit from having a trust and avoiding probate.

A simplified probate procedure may be available to transfer assets to a spouse or Registered Domestic Partner, or for estates worth less than $166,250.

Durable Powers of Attorney for Property

A Durable Power of Attorney appoints someone to manage your assets for you if you’re unable to. Your agent, also known as your attorney-in-fact (note: not an actual attorney), can pay your bills, manage your assets, and generally take care of your finances any time you are incapacitated or unavailable. A durable power of attorney is one that continues to function even if you become incapacitated, which is important in the context of estate planning. A power of attorney can be affection immediately (as soon as you sign the document), or only if you become incapacitated. It can be limited or broad. No matter what authority you give your agent, you should choose someone trustworthy and capable of doing a good job.

A Durable Power of Attorney expires when you die, and does not work on assets that are held by your trust (but that’s ok because your trust serves a similar function - both are important).

Advance Health Care Directive

An Advance Health Care Directive (AHCD) allows you to appoint someone to make health care decisions for you if you become unable to do so, and provide them with guidance regarding life-sustaining treatment (life support), organ donation, funeral arrangements, and how to best make you comfortable and improve your quality of life. An advance health care directive is also sometimes called (in other states) a durable power of attorney for health care and/or a living will.

Everyone age 18 years and older in the United States should have an advance health care directive. Without it, nobody is legally authorized to make these decisions for you (nope, not your spouse, not your parents, nobody).

Make sure to give copies to your health care agent(s), your medical provider, and your family and/or friends. Talk to your those closest to you about what you want, so that they understand your views on life support and other health issues, and will work with you to follow your wishes when the time comes. If you are admitted to a hospital or nursing home, bring a copy.

Revocable Living Trusts

A trust serves many of the functions we think of as being handled by a will, and more. A trust allows you to legally state who inherits your property when you die. Trusts also avoid the need for probate, when done properly, and provide a whole lot more options, control, and flexibility than wills. Because trusts avoid probate, they are also much more private than wills; court proceedings are public record, while trusts are not. Perhaps most importantly, a trust makes it much easier to take care of you if you become unable to manage your own finances.

When you set up a trust, it is important to transfer ownership of your assets to the trust; it does not work if you don’t (there are some exceptions to this). When you transfer assets from yourself to your revocable living trust (“fund” your trust), you are not giving up control. You can continue to manage your assets however you like. You can modify the trust anytime. You’re not restricting yourself in any way.

The trustee is the person who manages the assets in the trust. As long as you’re alive and well, you can be your own trustee, and most people do so. When you set up the trust, you also choose a successor trustee: someone you trust to take over managing your assets if you become incapacitated or die. Your trustee then manages your assets for your benefit during your lifetime, and distributes them to your beneficiaries when you die.

Trusts have an additional benefit if you want to leave your assets to someone who is young, irresponsible, or can’t/shouldn’t manage the assets themselves for any reason. For example, trusts are great for parents of young children who want the assets to be managed for their kids to ensure that education, health care, and living expenses are prioritized. You can choose who will manage the assets for your kids/grandkids/nieces/nephews/etc., how you want the money prioritized, and even at what age the kids can gain control over the assets. Without a trust, age 18 is the default.

Trusts are also great if you own real property in multiple states. With one trust you can avoid probate court proceedings in multiple states. However, property outside of the United States should generally not be transferred to a U.S. trust, as there may be expensive and unintended consequences. If you have ties to other countries, such as citizenship, residency, or assets held outside of the United States, be sure to seek qualified legal counsel in that country before setting up or funding a United States trust. The U.S. treats trusts differently than other countries do.

Revocable living trusts are only one type of trust, though they are the most common.