Among the reasons why it can feel daunting to take action and create an estate plan is the terminology. With help from experts, here are definitions of words associated with estate planning. Understanding them is useful—and confidence boosting—when it comes to planning for our own affairs or overseeing the affairs of loved ones.
Knowledge For All of Us
Family experts at Cholewka Law remind us that estate planning is not just for the “uber wealthy” or for those who are retired: “On the contrary, estate planning is something every adult should do.” Through estate planning we are able to name guardians for minor children, make decisions about our own care in the event of an accident or decline and, of course make arrangements for our assets to pass on to others. Doing all this means that our friends and loved ones are armed for difficult times—and we are too. Here’s a breakdown of terms typically encountered during estate planning, as explained by experts:
Assets. Generally, anything a person owns, including a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, art, clothing, and collectibles.
Beneficiary. A person or entity (such as a charity) that receives a beneficial interest in something, such as an estate, trust, account, or insurance policy.
Distribution. A payment in cash or asset(s) to the beneficiary, individual, or entity who is entitled to receive it.
Estate. All assets and debts left by an individual at death.
Settle an estate. The process of winding down the final affairs (valuation of assets, payment of debts and taxes, distribution of assets to beneficiaries) after someone dies.
Fiduciary. A person with a legal obligation (duty) to act primarily for another person’s benefit, e.g., a trustee or agent under a power of attorney. “Fiduciary” implies great confidence and trust, and a high degree of good faith.
Fiduciary bond is another term frequently encountered during estate planning. As lawyers explain, “A fiduciary bond is a legal instrument that essentially serves as insurance to protect beneficiaries, heirs and creditors….” Basically, a fiduciary bond guarantees that the fiduciary designated to administer the affairs of the estate will act in the best interest of beneficiaries and in accordance with the law. Fiduciary bonds are frequently referred to as estate bonds and it is quick and easy to obtain estate bonds and other fiduciary bonds from leading national provider, Colonial Surety. The steps to obtaining an estate and other bonds at Colonial are easy: get a quote online; fill out the information, and enter payment. Then, print or e-file the bond in minutes—even while at the law office.
Wills and Trusts Explained
Typically, estate plans are anchored by wills or trusts—or sometimes a combination. It is through wills and trusts that we are able to gift assets to others. Trusts allow us to even arrange for our own care if we decline. Unlike wills, trusts also enable us to set up distributions to others over time, or based on other criteria—as spelled out in the trust document, known as an agreement. Cholewka Law offers these basic definitions of wills and trusts:
Trust. A fiduciary relationship in which one party, known as the trustmaker or settlor, gives another party, known as the trustee, the right to hold property or assets for the benefit of another party, the beneficiary. The trust should be memorialized by a written trust agreement, outlining how the trust assets will be distributed to the beneficiary.
Will. A written document with instructions for disposing of assets after death. A will can only be enforced through a probate court. A will can also contain the nomination of guardian for minor children.
Note that when there is a will, the fiduciary appointed to administer it is typically referred to as an executor. When there is a trust, the fiduciary is a trustee. No matter what term is used, the family member, friend or professional appointed has a fiduciary obligation “to act with the utmost good faith,” putting the interests of the beneficiaries before their own, while administering the affairs of the estate.
As you work on your estate plan and designate fiduciaries, be sure to arm them with an understanding of their duties as well as necessary information about information about accounts and passwords. Given the responsibilities involved, fiduciary bonds are commonly required. Essentially, fiduciary bonds, such as executor bonds and trustee bonds, guarantee the faithful performance of the representative appointed. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain an executor bond, a trustee bond or a guardianship bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere—even the estate planning office.
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