An individual’s Last Will and Testament, a key component of an estate plan and an important estate planning glossary addition

Creating an estate plan often feels like navigating through a maze of complex terminology. Understanding the key terms is essential to ensure the effective protection and distribution of a person’s assets, empowering them to make astute decisions. Read a comprehensive estate planning glossary, and explore the legal options available to individuals looking to manage their affairs; contact an experienced Florida and Minnesota estate planning lawyer from Roulet Law Firm, P.A. by calling their Florida office at 941-909-4644 or their Minnesota office at 763-420-5087.

What Is Estate Planning?

According to the American Bar Association (ABA), planning an estate refers to the process whereby an individual consults with various advisors, such as financial planners, lawyers, and accountants, familiar with their concerns, goals, assets, and family structure to discuss and arrange tax planning, asset distribution, and other personal affairs. The key document typically linked to this process is an individual’s will.

In this process, individuals can designate beneficiaries to inherit their assets, establish financial and tax planning strategies to minimize tax implications, and create provisions for inheritance planning to safeguard their wealth for future generations. A comprehensive estate plan not only safeguards a person's property and assets but also includes considerations for medical power of attorney, probate administration, and guardianship, ensuring the upholding of an individual's wishes in all aspects, even in unforeseen circumstances.

What Are the 7 Steps in the Estate Planning Process?

When looking to craft an effective estate plan, a structured process exists designed to secure a person’s assets, protect their loved ones, and establish a lasting legacy. Understanding these seven essential steps in this planning process is crucial to ensuring a comprehensive and effective plan:

  • Define goals and objectives: The initial step involves clarifying the individual's objectives, including asset distribution, healthcare provisions, and charitable contributions.
  • Gather relevant information: Collecting details on assets, debts, beneficiaries, and important documents is vital for informed decision-making.
  • Designate beneficiaries: Naming beneficiaries ensures that specific assets pass to intended individuals or entities according to the individual's wishes.
  • Create a will or trust: Establishing a will or trust, defined by the Internal Revenue Service (IRS) as a relationship established according to a state’s laws where one individual or entity holds the legal title of someone’s property to use or keep the asset in a manner that benefits another party, enables individuals to outline asset distribution, appoint guardians for minor children, and minimize tax obligations.
  • Implement tax planning strategies: Developing financial strategies helps minimize tax liabilities and maximize the value of the estate for beneficiaries.
  • Consider healthcare directives: Including provisions for medical power of attorney, living wills, and healthcare proxies help address healthcare decisions in case of a person’s incapacity.
  • Review and update regularly: Regularly reviewing and updating the estate plan is essential to accommodate life changes, new assets, or evolving legal requirements.

What Is the 5 by 5 Rule in Estate Planning?

A comprehensive estate planning glossary contains a variety of terms and concepts that individuals may wish to familiarize themselves with to navigate the process of creating an estate plan effectively, and one of these is the “5 by 5 Power” rule. This rule relates to a trust document provision that grants the trustee, referring to the individual or entity responsible for managing a trust, with specific powers linked to the distribution of the trust’s assets to the trust’s beneficiaries.

Specifically, the rule allows the trustee to distribute a maximum of $5,000 or 5% of the value of the trust’s assets, whichever is greater, per beneficiary annually without the trustee needing court or beneficiary approval, offering flexibility in terms of asset distribution and simplifying the trust’s administration. Worth noting is that the trustee must exercise this power in line with state laws and the trust’s terms while acting in the interests of the trust’s beneficiaries.

This is a power that you or may not want to include and that you should discuss with your attorney. While it provides flexibility, it is also “leaky” from a creditor standpoint.

What Are the 3 Main Priorities You Want To Ensure With Your Estate Plan?

Individuals frequently have specific priorities they want to address to ensure the seamless carrying out of their wishes when developing an estate plan. Here are three main priorities to consider when planning your financial, legal, and personal affairs:

  • Asset distribution: One of the primary objectives of planning an estate is to determine how an individual wants to distribute their assets and property among their beneficiaries. Clearly outlining who is going to receive certain assets can help prevent confusion or disputes among family members in the future.
  • Protection of loved ones: Another key priority of creating an estate plan is to protect a person’s loved ones, both financially and personally. This may involve appointing guardians for minor children and/or pets, establishing trusts to provide for the financial needs of dependents, creating advance directives to ensure the correct management of an individual’s healthcare and financial powers of attorney for financial affairs per their wishes if they become incapacitated. By taking steps to protect their loved ones, individuals can provide them with peace of mind and security during difficult times.
  • Minimization of expenses and taxes: Establishing an estate plan also involves strategies to minimize the taxes and expenses associated with the transfer of a person’s assets. This may include techniques such as gifting, setting up trusts to help avoid probate, and utilizing tax-efficient inheritance planning tools. Minimizing taxes and expenses enables people to preserve more of their estates for their beneficiaries and reduce the financial burden on their heirs.

Acquire a more detailed understanding of the terms found in an estate planning glossary, and find out how an experienced Minnesota and Florida estate planning lawyer might assist people with their estate, tax, and inheritance planning concerns. Visit the website of Roulet Law Firm, P.A. today to complete a contact form and organize a consultation.

What Are the Four Major Components of a Last Will and Testament?

Per the Department of State, a will, or Last Will and Testament, refers to a legal document outlining a person's wishes regarding estate and property distribution after their passing. Explore the four major components of a will below:

  • Declaration of intent: This section establishes the document is an individual’s will, often beginning with phrases such as "This is the Last Will and Testament of [the person’s name]," followed by a statement affirming they are of sound mind and legal age to make a will.
  • Appointment of executor: The executor is the person appointed to perform the instructions in the will. This individual manages the estate, pays the estate’s debts and taxes, and distributes assets to the beneficiaries according to the deceased’s wishes. Choosing someone trustworthy and competent to serve as the executor is vital for ensuring the management of an individual’s estate in line with their wishes.
  • Distribution of assets: This section of the will specifies how someone wants to distribute their assets upon their death. An effective will typically lists the person’s beneficiaries, whether they are individuals or organizations, and the assets to distribute to them. To avoid disputes, the recommended approach is to be specific about particular items and include distribution percentages if relevant.
  • Residual clause: Also known as the residuary clause, this component addresses any assets not directly discussed in the will or any assets acquired after the will’s creation. These clauses direct how to distribute the outstanding assets among the individual’s beneficiaries, ensuring the will considers all property distribution aspects.

Depending on a person’s circumstances and preferences, individuals may add additional provisions or clauses to address other specific concerns to their wills. For instance, the will could also include information about the guardianship of minor children, charitable bequests, or funeral arrangements.

Comprehensive Estate Planning Glossary

Estate, inheritance, and tax planning involve a variety of terms and concepts that are essential to comprehending the effective arrangement of a person’s affairs, allowing individuals to precisely distribute their assets. Here are some key terms to help navigate the complexities of planning an estate:

  • Administrator: An individual or fiduciary appointed by the probate court to manage an estate if there is a failure to appoint an executor or personal representative, or if the appointee is unable or unwilling to serve.
  • Advance directive: Legal documents that outline a person’s preferences for medical treatment in the event they become unable to communicate their wishes.
  • Ascertainable standard: The legal standard used in determining distributions from a trust, ensuring they are not excessively vague or uncertain.
  • Beneficiary: An individual or entity designated to receive assets or benefits from a trust, will, insurance policy, retirement account, or other financial instrument.
  • Codicil: A legal document used to amend or supplement an existing will without revoking it entirely.
  • Estate: This refers to the total net worth of an individual from a legal perspective, encompassing assets such as real estate, investments, bank accounts, life insurance, and personal property.
  • Estate tax: The tax imposed on the transfer of a deceased person's estate to their beneficiaries, based on the total value of the estate, which varies depending on the jurisdiction and the size of the estate.
  • Executor: The person nominated in a will responsible for carrying out the decedent's wishes, managing the estate, and ensuring the proper distribution of assets.
  • Fiduciary: An individual or institution entrusted with the distribution and management of assets on behalf of others, held to a high standard of care and loyalty.
  • Generation-skipping transfer tax (GSTT): A tax imposed on transfers of assets to beneficiaries who are more than one generation younger than the donor. This tax is separate from estate and gift taxes.
  • Gifting: The act of transferring assets to another person or entity during a person's lifetime, typically used as an inheritance planning strategy to reduce the size of the taxable estate.
  • Grantor: Also known as the settlor, this refers to the individual who creates a trust.
  • Guardian: A person legally appointed to make decisions regarding the care and upbringing of minor children or incapacitated adults who are unable to care for themselves.
  • Healthcare proxy: A legal document that designates a trusted individual to make medical decisions on behalf of an individual if they become unable to make those decisions for themselves.
  • Inheritance tax: The tax imposed on assets inherited by beneficiaries, varying based on the jurisdiction, value of the inheritance, and the relationship between the deceased and the beneficiary.
  • Intestate: This refers to dying without a valid will. In such cases, state laws (intestacy laws) determine the distribution of the deceased's assets.
  • Irrevocable trust: Frequently utilized to minimize estate, gift, and generation-skipping transfer taxes, the grantor cannot alter or revoke these types of trust once established.
  • Living trust: A trust created during the grantor's lifetime to hold and manage assets, regularly serving as a mechanism for asset distribution and management distribution both during the grantor's lifetime and after death.
  • Living will: A legal document outlining somebody's medical treatment and end-of-life care preferences in case they become incapacitated and lose the ability to communicate their wishes.
  • Probate: The legal process through which a court validates a deceased person's will, ensures the payment of the deceased’s debts, and supervises the distribution of the deceased’s assets.
  • Power of attorney (POA): These are legal documents authorizing someone to act on another person’s behalf in legal, medical, or financial matters.
  • Revocable trust: A trust that a grantor can revoke or change during their lifetime, often used to avoid probate and provide flexibility in managing assets.
  • Testator: A person who makes a will.
  • Property: Assets, belongings, or possessions that comprise an individual's estate and are subject to distribution or transfer according to the estate plan.

Contact a Minnesota and Florida Estate Planning Attorney Today

When a person understands key terms related to estate plans, like medical power of attorney or probate, they can confidently navigate the intricacies of crafting an effective estate plan (whether this involves creating a will, establishing a trust, or appointing an administrator) and ensure they secure their legacy for their loved ones. Gain a further understanding of the information within this estate planning glossary, learn more about the key financial planning terms, and discover how a Minnesota and Florida estate planning attorney can help individuals create sound estate plans. Contact the Minnesota office of Roulet Law Firm, P.A. at 763-420-5087 or their Florida site at 941-909-4644 today or fill out the contact form on this page and a member of our team will reach out to contact you.

And if you would like to learn more ahead of time, click here to sign up for our free online masterclass where I reveal insider strategies for your will, trust, health care directive, power of attorney and more.

Chuck Roulet
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Nationally Recognized Estate Planning Attorney, Author, and Speaker