As an elder law attorney, I am frequently asked questions, the answers of which have been taken for granted during the ordinary course of business. The common denominator among these questions surfaces from a misunderstanding of words and phrases used daily. I thought it would be a good idea to write a piece explaining some of the words and terms we use that generate questions, ultimately assisting you in moving forward with your estate planning, or perhaps, reviewing the plan you have already put in place.
The person you name to act on your behalf under the terms of your power of attorney or health care proxy is your agent. Your agent generally must act in your best interests.
Your basis is what you paid for an asset. Basis is the value that is used to determine gain or loss for income tax purposes.
A distributee is a person entitled to take or share in the property of a decedent under the statutes governing descent and distribution. For instance, you may draft a Last Will and Testament (“Will”) leaving everything to your spouse. Under New York State law, however, your spouse and children are your distributees, because they would all inherit your property if you had no Will.
An Executor is a person you nominate in a Will, later approved by the Court, to carry out the terms of the Will and to administer your estate.
A fiduciary is a person or entity, usually an Executor or Trustee, designated to manage money or property for beneficiaries, and required to exercise the standard of care set forth in the governing document under which the fiduciary acts.
A guardianship is a court-controlled program for persons who are unable to manage their own affairs due to mental or physical incapacity.
Issue includes an individual’s children, grandchildren, and more remote persons who are related by blood or because of legal adoption. An individual’s spouse, stepchildren, parents, grandparents, brothers, or sisters are not included. The term “descendants” and “issue” have the same meaning and includes posthumously born children.
Operation of Law
In this context, the phrase “by operation of law” means the way some assets will pass at death, based on state law or the ownership of the asset, rather than under the terms of a Will or trust.
Pour Over Will
A Will used in conjunction with a Revocable Trust is called a “Pour Over Will” and passes title at your death to property not transferred to the Revocable Trust during lifetime.
Power of Attorney
A Power of Attorney is a document that authorizes one or more individuals to act in your place as agent (see above) with respect to some or all legal and financial matters. The scope of authority granted is specified in the document. It is important to take the time necessary to work with an elder law/estate planning attorney to modify the terms of your power of attorney.
Probate is the Court’s supervised process of proving the validity of a Will.
A Revocable Trust is a trust created during one’s lifetime over which the creator reserves the right to terminate, revoke, modify, or amend the trust. Revocable Trusts are becoming increasingly popular.
Special Needs Trust
A Special Needs Trust is a trust established for the benefit of a disabled individual that is designed to allow him or her to be eligible for government financial aid (usually Medicaid) by limiting the use of trust assets.
Assets are given a new basis when transferred by inheritance (through a will or trust) and are re-valued as of the date of the owner’s death. If an asset has appreciated above its basis (what the owner paid for it), the new basis is called a Stepped-Up Basis.
Transfer on Death
Transfer on Death is a beneficiary designation for a financial account that automatically passes title to the assets at death to a named individual without probate. Frequently referred to as a TOD (transfer on death) or POD (payable on death) designation.
A Trust is a legal entity created by a creator (generally, you), for the benefit of designated beneficiaries under the laws of a state. The trustee holds a fiduciary responsibility to manage the trust property for the economic benefit of all the beneficiaries. A trust can be irrevocable or revocable.
A Trustee is the individual or bank or trust company designated to hold and administer trust property (also generally referred to as a “fiduciary”). A trustee has the duty to act in the best interests of the trust and its beneficiaries and in accordance with the terms of the trust instrument.
How timely is this as we approach tax season and many clients are reviewing their estate docs. Some clients are very creative in assigning names and titles to their documents and we’ve chuckled after figuring out what is meant by their designations.
Thanks for “making it plain.”