As an English major, I am passionate about vocabulary. For me, part of the appeal of practicing law is that lawyers have their own dictionaries! In preparing for law school, I purchased a copy of Black’s Legal Dictionary from Borders in Sand City, California (remember that store?) and learned terms of interest. Unfortunately, most legal jargon is not readily accessible to the average person. A lot of the terms are confusingly similar. In the Estate Planning context, there are several terms that appear to be the same but in fact have very different meanings. Below is an overview of some of the most common confusingly similar legal terms related to Estate Planning.
Power of Appointment v. Power of Attorney:
A “Power of Appointment” is a power granted in either a Will or a Trust that allows the beneficiary to direct the distribution of assets, either during the beneficiary’s life (a “lifetime Power of Appointment”) or upon the beneficiary’s death (a “testamentary power of appointment”). A “Power of Appointment” can be a very powerful tool to allow a beneficiary to change the disposition of a Will or a Trust as circumstances change. Furthermore, the creative use of a “Power of Appointment” can effectuate certain estate planning strategies related to taxes, preservation of benefits, and asset protection.
A “Power of Attorney” is a document that can be used to appoint a third party (an “Agent”) to make decisions on your behalf. A “Power of Attorney” can be “immediate,” meaning that as soon as you sign the document your Agent has immediate authority to act upon your behalf, or a “Power of Attorney” can be “springing,” meaning that your Agent has no authority unless you lose mental capacity to make decisions on your own.
General Durable Power of Attorney v. Health Care Power of Attorney:
A “General Durable Power of Attorney” typically will allow your Agent to make financial decisions on your behalf. Such decisions can include: writing checks, paying bills, opening bank accounts, closing bank accounts, re-financing real property, selling real property, buying real property, signing tax returns, dealing with retirement accounts, and getting your mail.
A “Health Care Power of Attorney” will allow your Agent to make health care decisions on your behalf. Such decisions can include: opting in or out of certain medical procedures, choosing your treatment, choosing your medication, choosing your doctor, and deciding whether or not to maintain artificial life support in certain situations.
Will v. Living Will:
A “Will,” sometimes referred to as a “Last Will and Testament,” is a document that directs the disposition of your assets upon death and also allows you to nominate an Executor who will have the authority and responsibility to carry out your wishes as expressed in your Will. For most estates, a Will-based estate plan will lead to probate which is why many people prefer to utilize a “Revocable Living Trust” instead of a “Will.”
A “Living Will” is a document that expresses your wishes as to how health care decisions should be made on your behalf if you are unable to make such decisions directly. A “Living Will” is essentially a document that gives guidelines to your Health Care Agent about how your Agent should carry out your wishes under the authority of the “Health Care Power of Attorney.”
Advance Health Care Directive:
An “Advance health Care Directive” combines a “Health Care Power of Attorney” with a “Living Will.” The first part of the “Advance Health Care Directive” will name your Health Care Agents who will have the authority to make health care decisions on your behalf if you are unable to do so yourself. The second part of the “Advance Health Care Directive” will give instructions and guidelines to your Health Care Agent about how to exercise his/her authority as your Health Care Agent.
Testamentary Trust v. Living Trust:
Historically, trusts were created through Wills. Upon the death of the testator (the “Will-maker”), after the probate settled the estate, instead of distributing the assets directly to the beneficiaries, the Will would create a “Testamentary Trust” that would govern the administration and distribution of the assets for the benefit of the beneficiary.
As the probate process became more expensive and time-consuming, Estate Planning attorneys realized that the entire probate process could be avoided by creating Trusts while the testators were still living rather than waiting until the testators died. Thus a “Living Trust” is a trust that is created during the Trust-Maker’s lifetime rather than upon death. In addition to avoiding the additional expense and delay of probate, “Living Trusts” provide more privacy.
KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California 93950 and Kyle may be reached at 831-920-0205.
Disclaimer: This article is for general information only. Reading this article does not establish an attorney-client relationship. Before acting on any of the information contained in this article, you should consult a competent attorney who is licensed to practice law in your community.