What is the difference between all of the different terms that are used in estate planning?
An estate consists of all of a person’s property, which may include real estate, personal property, bank accounts, furniture, automobiles, stocks, bonds, life insurance policies, retirement funds, pensions, etc. If planned well, an estate plan including a will can distribute property with minimal loss attributable to administrative fees and taxes, as well as minimal stress on surviving loved ones.
A will is simply a written document in which a “testator” (a person that makes a will) designates what is to be done with his or her property when he or she dies, usually naming a personal representative (also called an administrator or executor) to handle their affairs and to ensure that the terms of the will are carried out.
Note that not all of one’s “estate” will necessarily be distributed to his or her beneficiaries via a will. Property that is owned jointly with others (such as bank accounts or real estate), or property that has a beneficiary designated (such as a pension plan, 401(k), or life insurance policy) or property in held in trust, generally pass to the beneficiary or other owner that is designated through each instrument. Even so, a will is a vital part of an estate plan as it can act as a safety net to “catch” any property that would otherwise not pass via joint tenancy, beneficiary designation or trust.
A trust is way of having title to property held by one person (“trustee”) for the benefit of another (“beneficiary”). There are many different types of trusts, some are created while the “trustor” (the person creating the trust) is alive, for the benefit of themselves or another person(s). Other trusts are created after a trustor dies by virtue of the arrangements made in their will. Some trusts are used to reduce tax liability.