Estate Planning Terms Explained
This guide walks you through common terms that you will come across when planning your estate and helps you to better understand these terms.
Estate PlanningEstate Planning allows you to appoint who will act as your agent with regard to your property and health care should you become incapacitated prior to your death; it allows you to determine how your health care and treatment will be handled in making end of life medical decisions; and is your way of ensuring the simple and swift distribution of your real and personal property in accordance with your desires upon your death.
WillA Will allows you to declare how you want your property to be handled and distributed at the time of your death. Setting up a will is a simpler and less expensive estate planning method than setting up a living trust. It allows for you to:
-decide who will inherit your assets and, in particular, make specific gift to the people you want to receive them
-name a guardian for your minor children
-decide who will manage your minor children's inheritance until they become of age to received full distribution, and at what age it will be distributed
-no need to retitle and/or transfer all assets to a trust
-maintain control over your assets
-restrict creditors to a final cut-off date for bringing claims against your estate
Wills are subject to estate taxes and probate court, and become public record upon filing. Probate can be slow and costly.
TrustLike a Will, your Trust allows you to determine how your property is handled and distributed at the time of your death. The Trustee will administer the Trust even if you become incapacitated, provided you make provision for a Successor Trustee. The Trust allows for you to:
-decide who will inherit your assets and, in particular, make specific gifts to the people you want to receive them
-maintain control of your assets
-give away trust assets to reduce your taxable estate
-are not subject to probate and, therefore, do not become public record
-are more difficult to contest than a Will
Trusts do not allow for you to name a guardian of your minor children and will require a Will to appoint a guardian. Assets not transferred to the Trust are subject to probate. Creditors do not have a final cut-off date for claims.
Advanced DirectiveYour advanced directive, or living trust, is a written statement that makes your end of life decisions very clear to your family and all medical providers should you be unable to decide for yourself at that time. If you cannot make health care decisions for yourself, as determined by two health care professionals, and do not have a living trust a health care "surrogate" will be chosen for you and can be a family member or close friend.
ProbateProbating is a process done with the aid of an attorney to determine the validity and authenticity of a deceased person's will and settle their estate. During this process the deceased's property is distributed to the beneficiaries according to their wishes and all remaining debts are paid.
Living WillA living will, unlike a health care power of attorney, applies only if you have a terminal condition and tells your health care professional whether you wish to have death-delaying procedures. You can write a living will using the standard form, or create your own if you have specific directions about the procedures you wish to have in place. Two people, aside from your health care professional, must witness the signing of the will and you must tell your health care professional if you have a living will or if it has been canceled. If you have both a living will and a power of attorney, the agent will make the primary decisions.
Illinois Department of Public Health
Power of Attorney for PropertyYou want to be sure that your agent is someone you trust; someone you can rely on to make the decisions you would make were you able to do so personally. Do you want that agent's power to become effective immediately upon signing your Power of Attorney? If yes, then again, is that person someone you trust implicitly.
Power of Attorney for Health CareWhen choosing your agent for health care, you should consider choosing someone you trust who will follow your wishes for care and end of life care. You should review and discuss the care and end of life care options carefully with your agent. Your agent should fully understand what it is you want and willing to accept the responsibility of seeing it through.
Charitable PlanningCharitable planning is a type of estate planning that specifically donates your money to charities and there are many different types such as charitable trusts, donor advised funds, and charitable gifts. Within charitable trusts there are two kinds: remainder and lead. Charitable Remainder Trusts are irrevocable trusts that give money to the donors for life and then provide money to the assigned charity when the grantor dies. A Charitable Lead Trust, on the other hand, donates a portion of money to the given charity and, after the allocated amount of time, gives the remainder of the money to the trustees. Donor Advised Funds are gifts to a charity over time and gifts are donations to a charity at one time. All of these options are used to increase a tax deduction and avoid capital gains taxes or estate taxes.