This month I thought I would share with you the language of wills. In order to plan your estate you first should be able to grasp the terminology associated with your last will and testament. Understanding the language of wills will help when you meet with the attorney that is going to draft your will.
The individual who establishes a will is known as the testator for males and testatrix for females. Upon the death of the testator or testatrix he or she is sometimes referred to as the decedent. An executor (executrix), or personal representative, is the person or trust company named in a will and entrusted to carry out the will’s provisions, manage and protect property during the estate settlement process, and distribute the estate’s assets to heirs, those named to receive the estate assets. The assets that the heirs receive from the estate are often referred to as bequests, or legacies.
If you die without a valid will, you are considered to have died intestate, and state laws (the intestacy laws) will determine how assets are to be distributed. Without a will the court will appoint an administrator to handle an intestate estate.
A will often requires approval by a probate court. Probate is the legal process by which a will is proved to be genuine and properly signed and witnessed. Any asset in the name of the decedent alone (not jointly held or payable on death to someone else) at the time of death is referred to as probate property. Then there are non-probate assets that are held by the decedent in joint name with someone else or property payable upon death to a named individual. In other words, a will can only distribute probate assets, it cannot distribute non-probate assets. Common non-probate assets are the family home held jointly with the spouse, life insurance policies and retirement plan assets that have a designated beneficiary other than the estate of the decedent. For estate tax or inheritance tax purposes probate and non-probate assets make up the gross estate. An estate tax is imposed upon the total value of property owned at death, without regard to who will receive that property. An inheritance tax, on the other hand, is based upon who receives the estate and his or her relationship to the decedent. Just because non-probate assets pass outside of a will doesn’t mean that these assets escape taxation.
Because a will is a dynamic document meaning that it can be altered or amended by means of a codicil as long as you have your mental capacity. Simply, a codicil is an addition or amendment to a will, made with all the formalities of the will itself.
Instead of leaving your estate outright to an individual your will may direct that one or more trusts (testamentary trusts) be established for these individuals. A trust is an arrangement in which the ownership of assets is given to someone else, the trustee—very often a trust company but sometimes an individual. Many people appoint co- trustees the trust company and an individual. The trustee keeps possession of and control over the assets in the trust and is said to have legal title not ownership of these assets, which allows the trustee to manage these assets according to the terms of the testamentary trust established under the will. The trustee manages the assets in the trust for the trust beneficiaries, the recipients of the trust’s income and the trust’s principal (corpus). The beneficiaries are considered to have equitable title to the trust’s assets, meaning that they have the right to benefit from the assets managed by the trustee. Testamentary trusts can be called a marital trust that allows for the transfer of property from husband to wife or wife to husband and are designed to take advantage of the federal estate tax deduction available to them. Or, a credit shelter trust for the benefit of a surviving spouse that is created to avoid estate taxes at the first spouse’s death and which takes advantage of the available federal estate tax credit.
I hope this primer on the language of wills will help you when you meet with your estate planning attorney to develop your personal estate plan.