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A Guide to Key Estate Planning Terms

For many, estate planning is a delicate topic. Understandably, few people care to think extensively about their own death or the passing of relatives and loved ones. Unfamiliar and sometimes sophisticated terms, processes and laws can further complicate this already delicate—and often murky—process. However, having a holistic, comprehensive plan is key to establishing a legacy that lives on after a person’s death.

To help you feel as secure and equipped as possible through that planning process, we’ve defined some of the basic terms used in estate planning conversations here.

Estate Planning Documents

Financial Power of Attorney (FPOA)

A legal document which gives an agent the authority to carry on a person’s financial affairs and protect their property by acting on their behalf. FPOA helps an individual pay bills, write checks, make deposits, sell or purchase assets or sign any tax returns on behalf of another person.

Health Care Power of Attorney (HCPOA)

A legal document which gives an agent the authority to make health care decisions on your behalf if you are incompetent or incapacitated.

Living Will

A legal document that allows you to specify what end-of-life treatment you do or don’t want to receive if you become terminally ill or permanently unconscious with no chance of survival without the administration of life support.

HIPAA Authorization

A legal document that authorizes health care entities to disclose protected health information to a named individual.

Organ Donor Registry

A form that allows you to make decisions with respect to organ donation.

Last Will & Testament

A legal document that allows you to direct distribution of your property at the time of your death, nominate an executor (the person who is responsible for administering your estate) and nominate a guardian (the person who is responsible for the care and well-being of your minor children).

Trusts

A trust is a legal document where you can control the disposition of assets during your life and after your death. Below are descriptions of the various types of trusts:

Revocable Trust

Established by an individual, or a married couple, that becomes effective immediately and remains revocable and amendable during the lifetime of the person creating the trust. Common uses include: (1) avoid probate; (2) tax planning; (3) provide for management of assets during periods of incapacity; and (4) provide for ultimate distribution of assets after death.

Irrevocable Trust

A trust that cannot be revoked, modified or amended after it has been created. Often used in tax planning to remove property from a person’s taxable estate so that it will not be subject to estate tax upon his or her death.

Irrevocable Life Insurance Trust

Irrevocable trust that is funded with a life insurance policy. T he purpose of the trust is to exclude life insurance proceeds from a person’s taxable estate so those assets will not be subject to estate tax.

Supplemental or Special Needs Trust

Trust established to benefit a disabled person to provide supplemental support without disqualifying the beneficiary from eligibility for governmental assistance programs.

Grantor Retained Annuity Trust

Irrevocable trust that pays a fixed annuity to the grantor for a defined term, with the remainder of the trust passing to a beneficiary.

Spousal Lifetime Access Trust

Irrevocable trust that benefits grantor’s spouse or children, but removes the property transferred to the trust from grantor’s taxable estate so those assets will not be subject to estate tax.

Types of Estate-Related Taxes

Estate Tax

Tax imposed by U.S. government and some states on the transfer of property from a decedent to his or her heirs or beneficiaries. The estate tax is based on the size of the decedent’s gross estate and is the decedent’s estate’s liability, not a beneficiary’s. Each person is entitled an exemption from estate tax of up to $11.58 million. Ohio does not have an estate tax.

Generation Skipping Tax

Tax designed for transfers of property to individuals who are two or more generations below the person who is transferring the property. Each person is entitled to an exemption from generation skipping tax of up to $11.58 million for transfers made at any time during their lifetime or at their time of death.

Gift Tax

Tax on completed gifts from one person to another. Each person is entitled to an annual exclusion of $15,000 of gifts to any one person. Each person also has a lifetime exemption from gift tax of up to $11.58 million.

Inheritance Tax

Tax imposed on the amount received by a particular heir or beneficiary. Kentucky has an inheritance tax.

Have more questions about trust or estate planning? We’re here to help.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & Form CRS filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

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