There’s a common misconception that only incredibly wealthy people need to consider estate planning.
On the contrary, all adults need to think about estate planning in order to prepare for the future.
That’s because estate planning is an important tool in managing wealth, planning for retirement, and ensuring a smooth transfer of assets to loved ones after your passing.
An estate plan also allows you to appoint a guardian for your minor children or choose who can make decisions on your behalf in an event that you become incapacitated.
These last points came into play in estate planning attorney Jennifer Reardon’s life when she had an unexpected appendix rupture, leaving her two young sons without a plan. She quickly realized on a personal level the importance of an estate plan not just for when someone dies, but for when they become incapacitated, as well.
So yes, everyone needs estate planning documents and plans in place. But so many people put it off because it seems complicated.
That’s why our team at Reardon Law Firm has put together a short guide of the top 10 estate planning terms you need to know.
First, let’s talk about what an estate actually is: A person’s estate is their net worth – the sum of a person’s assets (subtracting all their debts and liabilities) when they are either alive or dead.
So what are assets? Assets include anything that the person drafting the estate plan owns, including any of the following:
- Legal rights
- Money in your bank account
- Real estate
- Life insurance proceeds
- Other belongings
As part of an estate plan, most people outline who these assets will pass to and how they’ll be divided and distributed.
The beneficiary is the person who will be receiving assets in an estate plan. Beneficiaries can be any of the following:
- Other relatives
- Charity or organization
(Yes, a person can even pick a charitable organization to transfer wealth or possessions to if they so choose!)
Distribution is the process of passing those assets to the designated beneficiaries (stated in the estate plan). Distribution occurs when either money and property are given to beneficiaries.
Probate is the legal process that takes place after someone dies. It makes sure property and possessions are given to the correct people, and any taxes or debts owed are paid in full. It can often be a pretty long and drawn-out process.
A will is the most commonly-known estate planning document. A will outlines how the will-maker wants their assets to be transferred after their death, as well as guardian information (in terms of minor children), if necessary. Wills are required to go through probate.
Trusts are also often talked about, although people may have a misunderstanding about their importance. People create trusts to have the ability to manage their affairs during their lifetime as well as after their death without sending their families through probate. There are many types of trusts, including:
- Revocable (living)
- Life insurance
- Special needs
- Charitable remainder
You can even create a pet trust!
8. Incapacitation / Incompetency
Incapacitation or incompetency typically refer to a person’s mental ability, or lack thereof, to manage their affairs. Incapacitated or incompetent can be temporary or permanent. (For example, when Jennifer Reardon’s appendix burst, she was temporarily unable to make her own healthcare decisions because she was incapacitated.)
An inheritance is the assets that a beneficiary receives after someone passes away.
10. Settling an Estate
The process of paying all taxes and debts, distributing assets to the proper beneficiaries, and completing all final affairs after someone passes is known as settling an estate.
Contact Reardon Law Firm for Estate Planning Services
Estate planning can be easy with the right guidance. Jennifer Reardon is not only an estate planning attorney, but she also worked as a Certified Public Accountant for 20 years. She’s here to answer all your questions and guide you through the estate planning process. Schedule a free consultation with Jennifer today.