Glossary
Estate-planning terms, in plain English
Short definitions of words that come up in the videos. Exact meanings can vary by state.
- Beneficiary
- A person or organization named to receive money or property, for example under a will, a trust, a life insurance policy or an account's beneficiary form. A beneficiary can be an individual or an organization such as a charity.
- Beneficiary designation
- The person or people named on an account's or policy's own beneficiary form, such as a life insurance policy, a retirement plan or a brokerage account with a transfer-on-death registration. The designation generally controls who receives that account, even if a will says otherwise: FINRA warns that a TOD or other beneficiary document on a brokerage account supersedes a will, and the Supreme Court has held that an employer plan governed by the federal ERISA law must pay according to its plan documents. State law can create exceptions; in Washington, for example, a will can override some designations in limited cases. A designation can generally be changed during the owner's life, though many 401(k)-type plans require a spouse's written consent to name someone else, and in some states a divorce automatically revokes an ex-spouse's designation. It can't be changed after death.
- Executor
- The person named in a will to carry out its instructions. Typical duties include paying the estate's debts and taxes and distributing the remaining property as the will directs. In probate, a named executor generally gets legal authority to act only once the court appoints them. If no executor was named, or the named person can't or won't serve, the court typically appoints someone else to manage the estate. 'Personal representative' is a broader term that covers both an executor and a court-appointed administrator, and courts sometimes use the terms interchangeably.
- Intestate
- Dying without a valid will. State intestacy laws then decide who inherits the property that doesn't pass some other way, such as by beneficiary designation, TOD registration, joint ownership with right of survivorship or a trust. Typically a surviving spouse and children come first, followed by other close relatives such as parents and siblings. If a will doesn't cover all of a person's property, the rest can pass under intestacy rules too. The estate is typically handled in probate court. Intestacy rules vary widely from state to state.
- Joint tenancy
- A way for two or more people to own property together, each with an equal, undivided interest and a right of survivorship: when one owner dies, the surviving owner or owners take that share. For a brokerage account owned this way (joint tenants with right of survivorship), FINRA says the assets can pass to the surviving co-owner without going through probate. It differs from tenancy in common, where each owner's share can go to that owner's own beneficiaries. Not all co-owned property has survivorship: the ownership document generally has to specify a joint tenancy, or the owners may be treated as tenants in common. Joint ownership is governed by state law, which varies by state.
- Living trust
- A trust created during a person's lifetime, as opposed to a trust created by a will. The term usually refers to a revocable living trust: a legal document that gives a trustee authority over the money or property in the trust and says who receives it after the creator dies. It covers only property that has actually been placed in the trust. Terminology varies, and in some states 'living trust' can mean a different type of trust. See Revocable trust.
- Pour-over will
- A will that leaves any remaining (residuary) estate property to the trustee of the person's living trust, so that property 'pours over' into the trust and is managed and distributed under the trust's terms. Because that property passes under a will, it generally still has to go through probate before it reaches the trust, though small estates may qualify for a simpler procedure. Rules vary by state. The Uniform Probate Code (a model law; 2010 version) and California's Probate Code §6300, for example, allow a will to leave property to the trustee of a trust even if the trust can be amended or revoked.
- Power of attorney
- A legal document that lets one person (the principal) give another person (the agent, also called an attorney-in-fact) authority to act on their behalf, for example with money or property. The agent doesn't have to be a lawyer. A 'durable' power of attorney stays in effect if the principal becomes incapacitated; a non-durable one ends at that point. In some states, such as Virginia, a power of attorney is durable unless it says otherwise. An agent's authority under a power of attorney ends when the principal dies. A person can also make a health care power of attorney for medical decisions, which is typically a separate document. Requirements vary by state.
- Probate
- The state court process for handling a person's estate after death: confirming that a will is valid (if there is one), and overseeing the collection of assets, payment of debts and taxes, and distribution of property to heirs or beneficiaries. Depending on the amount and type of property, an estate may not need to go through probate at all. FINRA notes that probate can take time and cost money. Some assets generally pass outside probate, such as a brokerage account with a TOD registration, a joint account with right of survivorship, or assets already transferred into a living trust. Having a will doesn't by itself avoid probate; property that passes under a will generally goes through probate. Procedures vary by state.
- Revocable trust
- A trust that the person who creates it (the settlor, grantor or trustor) can change or end during their lifetime, as long as they can still make their own decisions and the trust's terms allow it. A trustee manages the property in the trust for the beneficiaries. The creator can name themselves as trustee, and a successor trustee can be named to act if a trustee can no longer serve. It works as a substitute for a will for the property placed in it, but it generally doesn't give the creator the tax or creditor protections an irrevocable trust can. Often called a revocable living trust or living trust, though 'living trust' can mean a different type of trust in some states.
- Transfer on death (TOD)
- A registration that names who receives an account or security when the owner dies, for example a brokerage account titled 'Your Name, TOD Beneficiary Name.' The owner keeps control during life and can change or cancel the beneficiaries; at death, ownership passes to the named beneficiaries, generally without probate. Bank accounts can use a similar payable-on-death (POD) designation. FINRA cautions that a TOD supersedes a will or trust for that account. That's the general rule, but state law can create exceptions: in Washington, for example, a will that specifically refers to the account can override a TOD designation made before the will. FINRA notes that most states have adopted the Uniform TOD Security Registration Act, some with changes. Estate taxes may still apply, depending on the size of the estate.
- Will
- A legal document that states how a person wants their estate managed and distributed after death, and typically names an executor. To be valid, a will has to meet the legal requirements of the state where it's signed or where the person lived when signing it or at death; these commonly include being in writing, signed by the person making it, and witnessed. Rules and exceptions differ by state: Virginia, for example, also accepts a signed will written entirely in the person's own handwriting, and its courts can sometimes accept a will that missed a formality. A beneficiary designation or TOD registration on an account can override what a will says about that account. Having a will doesn't by itself avoid probate; property that passes under a will generally goes through probate. Without a valid will, state intestacy law decides who inherits property that doesn't pass some other way.