When you are creating a last will and testament or a living trust, you may encounter a variety of legal terms. Understanding common terms in wills and trusts can make it easier for you to work through the process and help you feel knowledgeable as you plan for the future.
Last Will and Testament Terms
Your will records your wishes about your property: how it should be passed on, divided, or maintained. Here are some terms you need to know as you create your will.
Testator: The testator is the person who is making the will and signing his or her name. If the person making the will is female, the word testatrix is sometimes used.
Beneficiary: A beneficiary is someone who receives an inheritance through a will. Anyone you leave property to in your will is one of your beneficiaries.
Bequest: A bequest is a provision in a will that leaves property to someone.
Bequeath: This word is used as a verb in your will when you say you are leaving something to a beneficiary. Such as: “I bequeath my home to my son Richard.”
Heir: Every state has a law that determines how your property is divided if you die without a will. The statute names who your heirs are, the people that will inherit from you. Your spouse and children are first in line and if you do not have a spouse or child, other relatives are then listed.
Intestate: A person who dies without a will is intestate. State intestacy laws then decide who your heirs are.
Issue: Issue is another word for your direct descendants such as children and grandchildren. Issue includes natural born children and grandchildren as well as those who are adopted into the family. For most people, their issue are frequently chosen as beneficiaries.
Executor: The executor is the person you select who will be in charge of distributing your estate according to your will after you pass. A female executor is sometimes called an executrix.
Probate: The legal process through which a court examines, approves, and enacts the terms of a will is known as probate. The process generally takes several months and includes court fees.
Codicil: If you wish to make a change or addition to your will, you can add a codicil to it. This amendment keeps the original will in place but adds or changes some terms.
Testamentary trust: You may set up a trust by creating it through your will. This is known as a testamentary trust.
Guardian: If you have minor children you can name a guardian who will be legally responsible for their care after your death.
Residuary estate: After all your specific bequests are handled, whatever assets are left that you did not specifically leave to someone become part of your residuary estate. A last will dictates who receives this.
Living Trust Terms
A living trust is an important way to plan for the management of your assets in the future. Here are some terms that will be useful.
Grantor/settlor: The person creating the trust is called a grantor or settlor.
Trustee: The trustee is the person who administers the trust and manages its assets. Most people name themselves as trustee of a living trust during their lives and have a successor trustee in place to step in and manage and distribute the trust after their death.
Estate Tax: Many states and the federal government impose an estate tax: a tax on assets passed to heirs or beneficiaries after your death. There is usually a very large exemption, for example, the first $11.4 million of an estate is not taxed by the federal government.
Gift Tax: The federal gift tax is combined with the estate tax. As of 2019, each person can give $14,000 away to as many people per year as they wish without incurring gift tax. Lifetimes gift totals cannot exceed the estate tax exemption or they will be taxed.
Inheritance tax: A small number of states impose an inheritance tax, a tax on property that a person inherits from someone else.
Revocable trust: A revocable trust is a trust which can be changed, altered, or even cancelled by the settlor at any time.
Irrevocable trust: An irrevocable trust cannot be changed or altered by the settlor.
Pour over will: This type of will is used with a living trust. A living trust generally is created to distribute all of your assets. A pour over will is created as insurance. If any assets exist at the time of your death that are not in the trust, the will places them into the trust.
When creating or reviewing a will or living trust, make sure you understand all of the terminology in your documents so that you have a good understanding of exactly what they say. It’s much better to make informed decisions when you are making choices for your future.