What Estate Planning Terms Should I Know?

Nowlan Law’s Glossary of Estate Planning Terms

Estate planning allows you to make legal and financial arrangements for how your assets and responsibilities will be managed during your life and after your death. A solid Estate Plan not only addresses your circumstances but also clearly communicates your wishes and protects your loved ones. It can also help minimize taxes, avoid probate, and reduce stress for your family during an emotionally charged time.

At Nowlan Law, our Estate Planning Lawyers take the time to answer your questions and create a plan that matches your reality.

Key Estate Planning Terms

Facing unfamiliar legal terms is overwhelming and can be a barrier for many people when creating their Estate Plan. Below are terms and definitions to guide you during the process and help you proceed with confidence.

Foundations of Estate Planning

• Estate: An estate includes all the property, assets, and debts owned by a person at the time of their death. This can include real estate, bank accounts, investments, personal belongings, and more.
• Decedent: The legal term for a person who has died, particularly in reference to the person’s estate and how it will be administered or distributed.
• Heir: An heir is someone who is legally entitled to receive all or part of the estate of a person who died without a valid will (intestate).
• Beneficiary: A beneficiary is an individual or entity named in a legal document, such as a will, trust, or insurance policy, to receive property or assets after someone’s death.
• Kin: Kin refers to a person’s relatives by blood or marriage. In estate planning, the term may be used to determine legal heirs when someone dies without a will.
• Intangible Property: Intangible property refers to assets that lack physical form but have value, such as bank accounts, stocks, retirement accounts, and intellectual property.
• Tangible Personal Property: This includes physical items that are not real estate, such as furniture, jewelry, vehicles, and household goods.
• Real Property: This is land and anything permanently attached to it, such as a house or other buildings.
• Will: A will is a legal document that outlines a person’s wishes for the distribution of their property after death. It can also name guardians for minor children and a personal representative to manage the estate.
• Trust: A trust is a legal arrangement in which one person (the trustee) holds and manages property for the benefit of another person (the beneficiary), according to instructions set by the person who created the trust (the settlor).
• Intestate: Dying without a valid will. If a person passes intestate, Wisconsin’s intestate succession law determines how their assets are distributed.
• Testate: Dying with a valid will.

Legal Roles and Parties of Estate Planning

• Testator: The person who makes a will.
• Settlor: Also known as the grantor, trustor, or trust maker, this is the person who establishes a trust.
• Personal Representative: The personal representative is the person appointed by the court to administer a decedent’s estate. This person performs tasks such as collecting assets, paying debts and taxes, and distributing property to heirs or beneficiaries.
• Trustee: A trustee is the person or institution responsible for managing the assets held in a trust according to the terms of the trust and in the best interest of the beneficiaries.
• Attorney-in-Fact/ Agent: An attorney-in-fact is the person appointed in a power of attorney document to make financial or legal decisions on someone else’s behalf.
• Guardian: A guardian is a person appointed by the court to make personal, medical, or financial decisions for someone who is unable to make those decisions on their own, such as a minor or an incapacitated adult.

Wills and Will Alternative Estate Planning Terms

• Last Will and Testament: This legal document outlines how a person wants their property transferred at the time of their death, names the personal representative, and names the guardian of any minor children.
• Joint Will: This is a will that combines the individual wills of two or more individuals into one document. These are not valid in Wisconsin.
• Holographic Will: This is a handwritten will and is not valid in Wisconsin. All wills must be typed and signed by the testator and two uninterested witnesses.
• Codicil: A codicil is an amendment or a supplement to an existing will. It is not a replacement for the will.
• Pour-Over Will: A pour-over will directs all assets outside of a trust to be transferred into that trust upon the testator’s death.
• Bequest: A bequest is a gift made in a will. It can refer to money, property, or other assets left to a person or organization.

Key Terms Related to Trusts

• Revocable Trust: A revocable trust is a trust that can be changed or revoked by the person who created it (the settlor) during their lifetime. It is commonly used to avoid probate and provide flexible estate planning.
• Irrevocable Trust: An irrevocable trust usually cannot be changed or revoked after it is created. Once assets are transferred into the trust, the settlor gives up control of those assets, potentially offering tax or asset protection benefits.
• Living Trust: A living trust is created during a person’s lifetime. It may be revocable or irrevocable and is used to manage assets during life and distribute them after death without going through probate.
• Spendthrift Clause: A spendthrift clause is a provision in a trust that protects a beneficiary’s share from creditors or poor financial decisions by preventing them from selling or pledging their interest in the trust.

Terms Regarding Powers of Attorney & Health Directives

• Power of Attorney: A power of attorney is a document that grants someone else the authority to act on your behalf. It can be limited to specific tasks or broad in scope and may be durable or non-durable.
• Durable Power of Attorney: A durable power of attorney is a legal document that allows someone (the attorney-in-fact) to manage your financial or legal affairs even if you become incapacitated.
• Non-Durable Power of Attorney: A non-durable power of attorney gives someone the authority to act on your behalf in financial or legal matters. However, this type of power of attorney becomes invalid if you become incapacitated. It is typically used for short-term or specific transactions.
• Power of Attorney for Health Care: A power of attorney for health care allows you to name someone to make medical decisions for you if you are unable to do so. This is a separate document from the financial power of attorney.
• Living Will: In Wisconsin, a living will—formally called a Declaration to Physicians—lets you state your wishes regarding life-sustaining treatment if you become terminally ill or are in a persistent vegetative state.

Property Ownership Estate Planning Terms to Know

• Joint Tenancy with Right of Survivorship: Joint tenancy is a form of shared ownership where two or more people own property together with equal rights. When one owner dies, their share automatically passes to the surviving owner(s), avoiding probate.
• Tenants in Common: Tenants in common is a form of shared ownership in which multiple individuals can own an undivided interest in a property, each with their own specific share (these shares do not need to be equal. There is no right of survivorship, meaning each owner’s share can be passed down according to their will or state intestacy laws upon their death.
• Community Property / Marital Property: Wisconsin is one of nine community property states in the United States. Under this law, most property acquired by either spouse during the marriage (after the date of the marriage or the date the couple moved to Wisconsin) is considered marital property, meaning both spouses jointly own it.
• Marital Property Agreement: A marital property agreement is a written contract between spouses that allows them to change how property is classified.
• Deed: A deed is a legal document that transfers ownership of real estate from one party to another. It must be signed, notarized, and recorded with the Register of Deeds in the county where the property is located.
• Quitclaim Deed: A quitclaim deed transfers the grantor’s ownership interest in a property to someone else without guaranteeing the title. It is often used between family members or to transfer property into a trust.
• Executor’s Deed: A personal representative uses an executor’s deed to transfer real estate from a decedent’s estate to heirs or beneficiaries during the probate process.
• Transfer on Death Deed: Wisconsin allows Transfer on Death Deeds, which let you name a beneficiary to receive real estate outside of probate upon your death. You retain full ownership during your lifetime and can revoke the deed at any time.
• Remainder Interest: A remainder interest is the right to receive property in the future after a current interest ends. For example, if someone retains a life estate in a home, the person with the remainder interest will take full ownership when the life estate ends.

Gift and Estate Tax Terms

• Gift Tax: The gift tax is a federal tax on transfers of money or property to another person without receiving something of equal value in return. Most routine gifts are not taxable due to exclusions and exemptions, but large gifts may require a federal gift tax return. Wisconsin does not have a separate state gift tax.
• Annual Exclusion: The annual exclusion is the amount you can gift to any individual each year without having to file a federal gift tax return or reduce your lifetime gift and estate tax exemption. The exclusion amount changes yearly, so it is important to check with the IRS or your attorney.
• Generation-Skipping Transfer Tax (GSTT): This is a federal tax on gifts or inheritances passed to grandchildren or others who are two or more generations younger than the person giving the gift. It applies in addition to the regular gift or estate tax.
• Estate Tax: Estate tax is a federal tax applied to the value of a person’s estate after death, but only if the estate exceeds a certain threshold. This threshold changes annually, so it is crucial to plan ahead if your estate may be greater than the exemption amount. Wisconsin does not have a separate state estate tax.
• Lifetime Gift and Estate Tax Exemption: The exemption is the amount of assets a person can transfer during life or at death without paying federal estate or gift tax. This is often referred to as the “lifetime exemption” and is tied to the federal estate tax threshold.
• Unlimited Marital Deduction: The unlimited marital deduction allows you to transfer any amount of assets to your U.S. citizen spouse during life or at death without incurring federal gift or estate taxes.
• Portability: Portability is a federal estate tax rule that allows a surviving spouse to use any unused portion of their deceased spouse’s federal estate tax exemption. To take advantage of portability, the personal representative of the deceased spouse’s estate must file a timely federal estate tax return (Form 706), even if no tax is owed.

Terms Related to Probate and Transferring Assets

• Probate: Probate is the legal process through which a court oversees the distribution of a deceased person’s assets, payment of debts, and validation of their will.
• Ancillary Probate: Ancillary probate is required when someone dies owning real estate in another state. If their primary probate occurs in Wisconsin, a separate probate process must be started in the other state to transfer the out-of-state property.
• Informal Estate Administration: Informal estate administration is a simplified probate process available in Wisconsin when there is a valid will or clear heirs and no major disputes.
• Estate Recovery Program: Wisconsin’s Medicaid Recovery Program allows the state to seek repayment from a deceased person’s estate for certain long-term care services paid by Medicaid.
• Per Stirpes: Per stirpes is a method of distributing assets where a deceased beneficiary’s share passes to their descendants. It ensures that each family branch receives an equal portion.
• Per Capita: Per capita distribution means assets are divided equally among surviving beneficiaries in the same generation. If one beneficiary is deceased, their share is reallocated to the others, rather than passing to their descendants.
• Uniform Transfer to Minors Act (UTMA): UTMA allows a person to transfer assets to a minor without creating a trust, using a custodial account managed by an adult until the child reaches the age of majority (21).
• Transfer on Death (TOD): A Transfer on Death designation allows you to name a beneficiary to receive specific assets, such as real estate, bank accounts, or securities, directly upon your death, avoiding probate.

Questions? Schedule a Consultation Today

When crafting an Estate Plan, the options are endless. With the help of our Southern Wisconsin Estate Planning team, you can create a plan that secures your legacy, honors your wishes, and eases the burden on your loved ones.

Do you have questions? Contact Nowlan Law today for answers.