Ask almost any fellow adult, and they'll likely tell you that they're familiar with the term "estate planning." If you inquire a bit further, they might even go as far as to tell you that they understand a will is a key component in an estate plan. However, they're knowledge of this important area of the law may stop there. And, as for probate? You may find that very few understand very much about this process unless they've had first-hand experience navigating it on behalf of a deceased loved one.
Our team at David E. Anderson, PLLC want to help expand your knowledge of the estate planning and probate process by defining a few terms and concepts that have to do with this legal practice area on which our Wilmington, NC firm focuses its practice. We hope this serves you well as you prepare to engage in estate planning yourself or if you find yourself in charge of administering the estate of a loved one.
Understanding What Estate Planning Is
Put quite simply, the word "estate" refers to anything you own, so it may include banking accounts, cash on hand, your home or other real estate, investment accounts, furniture and other household goods, your car, digital dropboxes or social media accounts, and virtually any other imaginable asset. So, as you might surmise, estate planning refers to making arrangements regarding the disposition (i.e., transfer) of those belongings upon your death or perhaps the control over them if you become incapacitated.
The North Carolina Judicial Branch does a good job of highlighting other commonly misunderstood estate planning terminology you should know. Those terms and a brief overview of what they mean include:
- A will: Also referred to as a "last will and testament," this is a legally binding document in which an individual outlines their final wishes, which may not only center around their property but allow them to appoint a guardian for their minor kids.
- A testator: This is the individual who drafts (executes) a will outlining their final wishes.
- Decedent: This refers to a person who dies.
- A living will: Also known as an advance healthcare directive, this document allows an individual to outline what types of medical treatment they'd want to receive if in an unconscious, incapacitated state. For example, individuals will commonly voice their do-not-resuscitate preferences in this document.
- A healthcare power of attorney: Also referred to as a healthcare proxy, this is a legally-enforceable document that allows you to appoint someone else to make medical decisions on your behalf if you're unable to do so due to unconsciousness.
- Financial power of attorney: This is a legally enforceable document that allows you to appoint someone else to make financial decisions on your behalf. Those decisions might entail making transactions at a bank, discussing matters related to your property, etc. While you can draft a power of attorney like this to last for a specific amount of time, a "durable" one will last indefinitely.
- Trusts: While wills are certainly an important part of the estate planning process, they're not the only one. An individual, commonly referred to as a trustor, may create a trust and fund it with their assets, like their home, and create trust instructions outlining how they would like its contents to be distributed. That description only describes one type of trust, and there are many others, many of which provide testators and their beneficiaries tax-saving benefits and also allow them to skirt the probate process we'll discuss below.
Making Sense of What Probate Is
The word "probate" can have different meanings depending on the context in which it is used.
For example, the "probate process" is used to describe estate administration, which includes the responsibilities a personal representative of an estate, known as the "estate administrator" in North Carolina, must take after a decedent dies. Some of those responsibilities this person is responsible for include inventorying a testator's assets, filing their final tax return, and distributing assets to their heirs per their will.
As another example, "probating a will" is a process whereby the filed will is reviewed by the Court to determine if it's the testator's actual final one. Determining this is necessary to lawfully effectuate the transfer of a property title to someone else.
Key terms related to the probate process aside from the ones described above include:
- Executors and administrators: Each of these terms refers to a "fiduciary," which is someone entrusted by the probate court to handle property belonging to someone else responsibly. That appointee is commonly referred to as a "personal representative" but is also called "executor" when named as such in a testator's will or "administrator" when a person dies without a will (intestate).
- Heirs and beneficiaries: These are both terms that are used, in addition to many others, for individuals who inherit property when someone dies intestate (without a will). Beneficiaries are named recipients of insurance policies or financial accounts and can also be those who acquire a decedent's property through a trust. These terms are often confused for "devisees" and "legatees," which North Carolina uses to refer to those who received a decedent's property through their will.
- Intestate: This term is commonly used by probate court to refer to how someone died. For example, when the Court refers to them having "died intestate," it means that there was no known valid will that the decedent had prepared at the time of their demise. North Carolina laws of intestacy apply in situations like these, which call for the distribution of property to a person's spouse, children, and potentially more distant relatives, depending on which family members are still surviving.
Where To Turn for Help in Navigating Estate Planning and the Probate Process in NC
If there's one detail we all should keep in mind, it's that good health and the next day isn't promised to us. If the last few years have taught us anything, it's that an illness can strike at any point and unexpectedly rob us of our ability to make our own health decisions. Injuries can do the same. This is why estate planning is so critical. It allows you to voice your choices so that your final wishes are upheld. Doing this can make matters so much easier on your loved ones if you find yourself incapacitated or you suddenly die.
And, if you're tapped to serve as someone's personal representative, the learning curve can be significant. You have certain responsibilities bestowed upon you, and any small missteps could leave you personally liable for outcomes that occur.
While the glossary of North Carolina estate planning and probate terms above is far from comprehensive, we hope it clarifies what some of the more common words you might hear thrown around mean. Contact our law firm, David E. Anderson, PLLC, to discuss any questions you might have about any of the above terms or related concepts with a Wilmington estate planning and probate attorney to ensure you don't make any missteps as you navigate this very important area of the law.