Estate planning is something each of us needs to do. In the event of illness or death, an estate plan makes it easier for your loved ones to manage your affairs and assets.

The prospect of completing your estate plan, however, can be overwhelming, especially if you don’t understand the terminology. That’s why we’ve compiled this list of the most common words used in planning the management and disposition of your assets upon your death. When you have a better grasp on key terms, you’ll be better prepared to complete an estate plan that meets your needs and helps your loved ones cope with whatever the future brings.

Understanding Key Terms

Will:

Your will is a legal document that nominates someone to be your personal representative (also called the executor), and specifies how you want assets that pass through your estate to be administered and distributed when you die. If you have minor children, your will is also where you’ll nominate someone to serve as legal guardian if you die before your children are 18 years old.

Trust:

Trusts are created when you (the trustor) give another person (the trustee) the right to hold property and assets for a third person (the beneficiary). There are many different types of trusts that can be used in an estate plan. The most common is a “revocable living trust” or “inter vivos trust.” When trusts are properly created and funded, your beneficiaries are able to avoid probate court when you die. Additionally, trusts can be used for long-term asset management for children or other beneficiaries, and are also frequently used as tax planning vehicles.

Estate Planning:

Estate planning is the process of creating legal documents now so that if you become incapacitated or die, your loved ones have a road map to follow rather than  trying to determine what you would have wanted. An estate plan may include a power of attorney, living will, trust, and last will and testament.

Power of Attorney:

A power of attorney is a legal document that authorizes someone else to handle your financial affairs during your lifetime. If you become incapacitated, the power of attorney can eliminate the need for someone to go to court to get a conservatorship over your affairs.

Letter of Instruction:

You can create a letter of instruction for your personal representative (executor) or trustee, providing additional details and background information about your wishes to help make administering your estate more straightforward.

Certificates:

Important legal documents like marriage certificates, birth certificates, death certificates for beneficiaries who predeceased you, and divorce decrees may all be needed after you die.

Healthcare Proxies/Living Wills:

A healthcare proxy, also sometimes called a health care power of attorney or health care directive, authorizes someone to be your voice for medical decisions. That document may also include specific guidance and instruction as to your wishes. Alternatively, in some states, those instructions can be found in a separate legal document called a living will.

Financial Asset Documentation:

Your financial asset documentation includes statements and any other relevant information about the types of assets you own and where accounts are maintained.

Life Insurance Documents:

Life insurance documents include statements, policies, or other information that can help your loved ones understand the type of life insurance you have and where to start with making a claim for benefits.

Liabilities:

Your liabilities include anyone to whom you owe money. Keep a record of your creditors, including mortgage lenders, car loans or lease records, credit cards, etc.

Quick Tips for Staying Organized

It’s important to make sure your power of attorney agent, personal representative, and trustee (if applicable) know where they can find your estate planning documents, life insurance documents, financial asset documentation, and information about your liabilities.

Keeping a list of key persons - including your financial advisor(s), insurance professional, and tax professional - can help your loved ones know where to start when it’s time to administer your estate. Be sure to also keep certificates, real estate deeds, car titles, and other key documents in a safe place, and let someone else know where to find those documents.

Finally, let your loved ones know what your wishes are for a funeral or memorial service, whether you’ve done any funeral pre-planning, and who should be notified of your death.

Planning for your own future incapacity or death is not fun. However, it’s something you should do now, while you’re able to do so. When you are deliberate about your estate plan and ensure your wishes are clearly documented, it can eliminate unnecessary guesswork and ultimately help your loved ones cope with anything that happens.