Estate Planning Terms to Know

Understanding estate planning terms can be challenging if you're not a legal professional. At McCarter | East PLLC, we believe knowledge is power and our aim is to simplify some of the jargon, so you can make more informed decisions about your estate and your estate planning needs.  

Below we discuss some of the estate planning terms you should know before getting started on your estate planning journey.

Wills 

A will is a legal document that specifies how you want your assets distributed after your death. It also allows you to name guardians for minor children. Without a will, state laws dictate how your property is divided, which might not align with your wishes.  

Trusts 

A trust is a fiduciary arrangement where a third party, known as a trustee, holds assets on behalf of beneficiaries. Trusts can be structured in many ways and can specify exactly when and how your assets pass to your beneficiaries. Trusts offer more control and flexibility than wills, but they can also be more complicated and costly to set up.  

Probate 

Probate is the legal process through which a deceased person's will is validated. During probate, your assets are distributed according to your will, and your debts are paid off.

Executor 

An executor is a person appointed in a will to manage the estate and ensure the deceased's wishes are carried out. The executor handles everything from paying bills to distributing assets to beneficiaries. The role of an executor is important, so it is necessary to choose a trustworthy and responsible individual. 

Beneficiary 

A beneficiary is an individual or entity entitled to receive assets from an estate or trust. Naming beneficiaries clearly can prevent disputes and simplify the distribution process. Beneficiaries may need to be reviewed and updated, especially after major life changes such as marriage, divorce, or the birth of a child. 

Power of Attorney 

A power of attorney (POA) is a legal document that designates someone to act on your behalf if you are unable to make decisions for yourself. This person can handle financial and legal matters, such as paying bills or managing investments. A POA should be carefully considered and only granted to someone you trust implicitly. 

Healthcare Directives 

Healthcare directives allow individuals to specify their medical wishes in case they become incapacitated or unable to communicate. These documents typically include a living will and a healthcare power of attorney. A living will specifies your preferences for end-of-life care, while a healthcare power of attorney designates someone to make medical decisions on your behalf. 

Living Will 

A living will, or advance directive, specifies your wishes regarding medical treatment if you become incapacitated. This document provides guidance to healthcare professionals and loved ones. It ensures that your preferences for treatments, such as resuscitation, tube feeding, and life support, are honored even if you cannot communicate them yourself. 

Guardianship 

Guardianship involves appointing someone to care for minor children or incapacitated adults. The guardian ensures your dependents are looked after according to your wishes. A guardian can be responsible for the personal welfare and financial management of the individual under their care. 

Inheritance Tax 

An inheritance tax is a tax imposed on individuals who inherit assets from a deceased person. The amount of inheritance tax owed depends on the value of the estate and the heir's relationship to the deceased, with closer relatives often enjoying lower tax rates or exemptions. 

Estate Taxes 

Estate taxes are levied on the total value of a deceased person's estate before it is distributed to beneficiaries. They are calculated based on current federal and state tax laws, and planning can help minimize their impact on the overall value of the estate. 

Revocable vs. Irrevocable Trusts 

Revocable trusts can be altered or terminated by the grantor during their lifetime, offering flexibility when planning your estate. Irrevocable trusts, however, cannot be changed once established, but often provide increased tax benefits and asset protection.

Deciding which type of trust is best for your situation depends on a variety of factors and should be discussed with an experienced estate planning attorney. 

Joint Tenancy 

Joint tenancy is a form of property ownership where two or more people own an asset together. Upon the death of one owner, the property passes directly to the surviving owner(s), bypassing probate. Joint tenancy can be an effective estate planning tool but should be implemented only after considering tax and liability implications. 

Tenants in Common 

Tenants in common is another form of joint ownership, but unlike joint tenancy, each owner has a distinct share of the property. Shares can be unequal, and property does not automatically pass to the surviving owner(s). Instead, it becomes part of the deceased's estate and is distributed according to their will or state law. 

Advance Healthcare Directive 

An advance healthcare directive combines a living will and power of attorney for healthcare. It specifies your medical treatment preferences and designates someone to make healthcare decisions on your behalf. This document makes your wishes clear in case of incapacitation. 

Durable Power of Attorney 

A durable power of attorney remains effective even if you become incapacitated. This is critical for managing your financial and legal affairs when you cannot do so yourself. A durable POA can be general, giving broad powers to the agent, or limited to specific matters. 

Special Needs Trust 

A special needs trust is designed to provide for a beneficiary with disabilities without disqualifying them from government benefits. This ensures that their financial needs are met while preserving benefit eligibility. 

Estate Planning Laws to Know in Tennessee  

Now that you have some fundamental vocab, here are some important legal considerations for Tennessee residents: 

• Tennessee has no inheritance tax, but federal estate taxes may still apply. 

• Tennessee law offers a simplified probate process for smaller estates, making it easier and less costly to settle them. 

• The Uniform Trust Code provides flexibility in establishing and managing trusts, allowing for modifications to meet changing family needs and circumstances. 

• The state allows for transfer on death (TOD) designations on bank accounts and securities, enabling assets to pass directly to named beneficiaries without going through probate. 

• Tennessee recognizes "Lady Bird" deeds, which allow property owners to maintain control over their real estate during their lifetime while enabling a smooth transfer to beneficiaries upon their death. 

Ready to Start Planning? 

Our experienced estate planning attorneys at McCarter | East PLLC provide dedicated legal representation. Whether you're facing a will contest or trust disagreement, we aim to help you safeguard your interests and seek a fair resolution. If you need help planning your estate in Murfreesboro or Woodbury, Tennessee, reach out to McCarter | East PLLC for a consultation.