There is a current legal trend to avoid using legal terms and to make the language of law accessible for clients. For example, lawyers use less Latin than they used to. However, there are some terms that are unavoidable, and it helps to be familiar with them when considering your estate planning, a sentiment echoed by the recent article, “Learn lingo of estate planning to help ensure best outcome” from The News-Enterprise.
Accordingly, I wanted to define some common estate planning terms. If you are on the fence about creating an estate plan but found this article to get started, you may also want to review this article on the important of having a will. https://www.galliganmanning.com/understanding-why-a-will-is-important/
Fiduciary – the person you named to a role in your estate plan and who acts with your best interest in mind. They owe you a fiduciary duty to act with prudence and loyalty to you.
Principal – the person who creates the fiduciary relationship, especially in a power of attorney.
Agent or Attorney-in-Fact – this is the person named to act on your behalf under a power of attorney. They aren’t your “power of attorney,” they are your agent.
Within a last will and testament, there are more: testator or testatrix, executor, administrator, beneficiary, specific bequest, residuary beneficiary, remote contingency and even more. There are also many variations on these terms based upon location and common practice.
Testator – (Testatrix is the feminine version of it) is the person who makes a will.
Executor – the person who is appointed in a will to administer an estate. Note, in Texas you often see “Independent Executor” or references to an independent administration. This is because Texas has grades of executors, and independent executors largely work free of court supervision. Most states don’t have this distinction.
Administrator- generally stated, this is the person who administers an estate just like an executor, but who wasn’t named in the will. So, for example, if you name John Smith, and if he can’t then Kevin Horner to be your executors, and neither serves after you pass away, a third person may be granted permission to administer your estate. They will be an administrator, and not an executor, because you didn’t name them.
Beneficiaries are individuals who receive property from the estate or a trust. Contingent beneficiaries are “backup” beneficiaries, in case the original beneficiaries are unable to receive the inheritance for whatever reason. Sometimes you see the phrase per stirpes or by representation or something similar. These indicate who the contingent beneficiaries if the original beneficiary is deceased. Generally speaking, these indicate the original beneficiary’s children.
Specific Bequest – these are clauses giving specific property to a beneficiary. So, for example, “I leave the real property known as 123 Main Street to my daughter” is a specific bequest. In most cases, it is distributed first.
Residuary beneficiary – these are beneficiaries of the “residuary” or the “residue.” This means all of the property in an estate or trust that isn’t already distributed. So, using my above example, if your will says 123 Main Street to daughter, but you also own stock, another house, a car, bank accounts and items in your home and don’t otherwise address those items in your will, then everything except for the 123 Main Street goes to the beneficiaries you list as a residuary beneficiary. These are often dealt with by percentages or shares. So for example, “all of the rest, residue and remainder of my estate to my children, by representation.” If you have three children, they are splitting the residuary in thirds.
In the world of trusts, you often have trustor, trustee and then beneficiaries which are very similar to the beneficiaries described above.
Trustor – Many states have different names for this, we just happen to use trustor. This is the person who creates the trust. Other names for it are grantor, settlor or trustmaker. I’ve even seen founder and originator in my career. If the trust is created by will, which is often called a testamentary trust, then the trustor is the testator.
Trustee – this is the person who administers a trust.
There are more terms than this of course, but these are some of the most common estate planning terms. Getting comfortable with the terms will make the estate planning process easier and help you understand the different roles and responsibilities involved.
Reference: The News-Enterprise (Jan. 18, 2022) “Learn lingo of estate planning to help ensure best outcome”