Estate Planning: Understanding Key Terms and Concepts, Part Two

Having an estate plan means making provisions for your friends, loved ones, and yourself, should you become disabled or upon your death. It is an opportunity to memorialize your wishes as they relate to your medical care and the distribution of your assets. At Siedentopf Law, we help ensure that the estate planning and probate process is as smooth and stress-free as possible. We can help you to understand the process and identify the options that will work best for you and your family. For this blog, which is part two in the series, we are taking a look at more key terms and concepts related to estate planning and probate – and explaining how they function in estate law. (Click here for Part One of this blog series).

Marital Trust

A marital trust, also known as an “A-trust” is an estate planning tool that enables a person to provide for their surviving spouse while also ensuring that the couple’s children receive an inheritance. When the first spouse dies, his or her assets are transferred into the marital trust. The surviving spouse receives the income generated by these assets; the surviving spouse may also receive principal payments from the trust. When the second spouse dies, the trust is passed to the couple’s children (designated heirs). There are several types of marital trusts and they can be called a variety of things.

Per Capita

This is a legal term referring to the way an estate is distributed among the heirs. Per Capita is Latin for “by the head.” In a will, Per Capita distribution means that each surviving beneficiary receives his or her designated share of the estate. In a group of beneficiaries (ex: testator’s children), all members of this group will receive an equal share. However, if one member dies prior to the testator (ex: one of the children dies prior to their parent/the testator), then that member’s share will be re-distributed among the surviving members. See: Per Stirpes. Watch our video on Per Capita vs. Per Stirpes inheritance.

Per Stirpes

This legal term refers to the way an estate is distributed among heirs. Per Stirpes is Latin for “by the branch.” In a will, Per Stirpes distribution means that each branch of the family inherits an equal share of the estate. If a first-generation heir (ex: testator’s child) dies prior to the testator, his or her share of the estate would be distributed to the second generation (ex: testator’s grandchildren). See: Per Capita. Click here to watch our video on Per Capita vs. Per Stirpes inheritance.

Power of Attorney

This estate planning document enables a person to act on your behalf in the event of your incapacity or disability. A power of attorney can manage financial matters, real estate transactions, and other legal decisions. A person/principal can choose when the Power of Attorney forms go into effect (ex: immediately, on a specific date, under specific circumstances); however, these powers end at the principal’s death. Click here for additional information.

Qualified Terminable Interest Property Trust

A Qualified Terminable Interest Property (QTIP) trust is a type of marital trust. The terms require that a surviving spouse have a qualifying income interest only during his or her lifetime. Once the spouse dies, any assets remaining in the trust are payable to the couple’s heirs or children. One of the advantages of this type of trust is that it allows the Grantor to dictate who should receive the assets after both spouses have died.

Revocable Trust

A revocable trust is a type of trust that can be amended or revoked at any time by its Grantor (the person who created the trust). In the U.S., most trusts are presumed to be irrevocable (the terms of the trust cannot be revised until the purpose of the trust has been completed) unless the instrument or will creating it states it is revocable. A Living Trust is an example of a revocable trust.

Spendthrift Trust

This estate planning tool is typically created for the benefit of a person who is unable to manage or control his or her own spending. The definition of a “spendthrift” is a person who spends money in an extravagant, wasteful, or irresponsible way. A spendthrift trust gives an independent trustee full authority to decide how the funds may be spent for the beneficiary’s benefit. The beneficiary does not control the trust funds, and the beneficiary’s creditors cannot access the funds.

Testamentary Trust

These trusts are created in an individual’s Last Will and Testament, and typically become effective only upon the testator’s death. These trusts are designed to accomplish a specific estate planning goal, such as protecting a spouse’s financial future, preserving assets for children, providing for special needs beneficiaries, or gift money to a charitable organization. A will can contain more than one testamentary trusts, and may address a portion of or the entire estate.

Trust

A trust is a legal estate planning tool that describes how specific estate assets will be managed and/or held for the benefit of another person, beneficiaries, or organization. There are a multitude of trusts, each with their own terms and purposes. Click here to watch our video on how to place assets into a trust.

Trusts for Minors

Also known as Minor’s Trusts, these types of trusts hold estate assets for minors; the trust funds are typically distributed at a future, designated date. Trusts for minors usually stipulate that the estate assets will be held until the minor reaches the age of majority (ex: 21); however, the Grantor can also place conditions on the trust, which must be met before the minor can claim the assets. For example, the Grantor might require that the beneficiary be 25 years old and have graduated from college before receiving the trust funds.

Will

A will is a legal document in which a person provides instructions for the distribution of his or her assets, upon death. This document can also be used to designate a guardian for any minor children. The executor of the will, also known as a personal representative, will help ensure that an individual’s property is passed to the beneficiaries according to his or her final wishes. Click here to learn more about wills and the estate planning process.

If you have any questions about these estate planning terms, or if you would like to schedule an estate planning consultation, contact Siedentopf Law at (404) 736-6066 or via our online form.

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