Throughout our lifetime, many of us will find ourselves in a legal scenario. Whether it is a marriage, the passing of a loved one, or creating your own will, there are some difficult terms to navigate. Since most people are not legal professionals who need to use these terms daily, legal diction tends to be quite difficult to grasp. However, it is good to know at least the basics of legal terminology. Here are some key terms and definitions that may be helpful as you begin to navigate the estate planning process.
Agent: The person who acts on the principal’s behalf and has the legal authority to make decisions for the principal. The agent can have many roles: a health care agent makes decisions about medical care, and a financial agent makes decisions about money for the principal. They might be the same person, or they might be different.
Artificial nutrition & hydration: In some religions and cultures, artificial nutrition and hydration is kept separate from other forms of medical care. It is the intravenous distribution of nutrition and hydration, when a person is incapable of consuming solid food.
Asset: Any real or personal property, tangible or intangible, that belongs to a person and has value. A bank account is an asset, as is something you own, like your car. It includes your creative works and intellectual property, too. All of your assets together comprise your estate.
Beneficiary: A person or other entity (like a trust, or a charity) who inherits the asset when it is distributed after death. They might be named in a will or on a separate beneficiary form, specific to a financial organization or insurance company.
Dependents: A person who relies on you for financial support. This is typically a child, but it can be anyone who needs your support.
Durable Power of Attorney: A document that appoints the person that the principal has chosen to act on the principal’s behalf for health care and/or financial decisions. The document is “durable” because it remains effective when the principal has lost capacity, whether they are unconscious or have lost decision-making abilities, like in cases of dementia.
Estate: The combined assets of a person, real and person, tangible and intangible. An estate is the collection of all the things that make up a life. Even if you are not “wealthy,” you have an estate that needs to be divided after you die.
Estate Plan: The collection of documents that describe how to manage a person’s estate. The documents have expanded to include information that is relevant and important even if the principal is still living, such as a living will or a durable power of attorney. An estate plan must be signed, witnessed, and notarized for it to be accepted in a court of law.
Fiduciary: A financial agent who acts on behalf of the principal. They are legally obligated to act in the principal’s best interest.
Health Care Directive: Also known as a living will. A document in an estate plan that describes a person’s wishes for their medical care under different scenarios. It allows a person to make medical choices, so in the event that they are incapacitated or unconscious, they can still assert their beliefs about their medical choices. A health care directive should be placed with other estate planning documents.
Will (Last Will & Testament): A document that describes the will-writer’s intentions for the distribution of their assets and care of their loved ones after their death.
Living Will: See health care directive.
Palliative Care: Health care with a focus on comfort and pain-management. It is not care that seeks a cure but rather seeks to make the patient more comfortable and to reduce pain.
Payable-on-Death Account: An account with a named beneficiary can bypass probate court and be distributed directly to the beneficiary with the presentation of a death certificate. This can be useful to keep assets out of probate. If titled improperly, however, it’s almost impossible to keep the money from being distributed to the named beneficiary.
Persistent Vegetative State: The brain no longer shows signs of function, but other bodily organs and functions continue as usual. In the case of a living will, a persistent vegetative state must be verified by two physicians before the living will’s instructions are followed.
Personal Representative: After death, the personal representative is responsible for the distribution and dissolution of the estate. They may be named in a last will, but they are ultimately chosen by the court, and they act under the court’s supervision. They have many responsibilities: everything from settling accounts to balancing different heirs’ interests until the estate is settled.
Power of Attorney: This document is separate from the durable power of attorney because it allows an agent to act on the principal’s behalf in certain situations, as long as the principal still has consciousness and capacity to make decisions. The power of attorney document does not have authority when the principal becomes incapacitated. The agent is also sometimes referred to as “power of attorney,” a title that means they are the appointed decision maker.
Principal: The person who has given authority to the agent to act on their behalf. Revocable
Living Trust: A type of trust that holds assets for a living person. It is “revocable” because it can be changed, altered, or revoked in the person’s lifetime. In some states, this type of trust creates privacy and avoids probate, but it’s important to discuss with an attorney in your state and to ensure the trust is created properly to receive its full benefit.
Terminal Condition: A condition caused by injury or illness that doctors agree is irreversible and impossible to recover from. It means that death is imminent. Like the persistent vegetative state, it must be confirmed by two doctors before the living will is consulted.
Trust: A legal entity that can contain assets. It can have very specific parameters that describe how and when the assets can be distributed. It is one part of the legal toolkit that can be useful for maintaining privacy and control over assets.