There is some basic vocabulary that almost everyone mixes up. Understanding which word to use when will help you better understand your estate planning documents.
During your lifetime, you want to have someone as “backup” to help you with your finances and personal business should you become incapacitated. (Or if you decide you’ve just had enough paperwork for one lifetime and would like to hand off financial management off to someone else.) You do this through your durable powers of attorney, and the person you name is called your agent.
You also want to name someone now to make health care decisions for you if at some point in the future you can’t make or communicate your own. You do that though a health care proxy, and the person you name is called your agent.
In the Afterlife
After you pass away, the durable powers of attorney and the health care proxy become null and void. At this point, your assets will be managed by others in one of two ways, depending on how you held title to the various assets during your lifetime: (1) nonprobate and (2) probate.
Nonprobate assets are those assets on which you have put someone else’s name along with yours, such as joint ownership on a house, listing a beneficiary on a life insurance policy, or listing a “payable on death to” on a bank account. Whomever you named will take ownership of that asset at your death, either automatically or by filing simple forms with the financial institution holding that asset.
Probate assets are those that are in just your name, for example if you are a single person and own your home, or if you have a bank account in your name alone. Those assets will be governed by your will, and the person you name is your personal representative. That’s actually a new term – the Massachusetts legislature recently overhauled the probate laws. The person you name as the “manager” under your will used to be called the executor. Your personal representative will manage the assets and distribute them to the devisees that you have named in your will.
Where Do Trusts Fit in?
Trusts serve you both during your lifetime and after you die. You will name someone in your trust to serve as the “manager” – that person is called the trustee. It is very common to name you (the “grantor” or “settlor” of the trust) as the first trustee, and to name successor trustees to take over during your lifetime should you need help, as well as after you die.
If your attorney drafts a trust for you, she will most likely tell you which of your assets to transfer to the trust. For any assets held by the trust while you are living, the trust acts like a durable powers of attorney: If you become incapacitated or if you would simply like someone else to manage the trust assets for you, then whomever you have named as your (successor) trustee can manage those assets while you are living. After you die, the trust acts like a will: The trustee will manage the assets and distribute them to the beneficiaries that you have named in the trust.
[Side Note: If you have a trust, then you may be wondering why you also need a durable powers of attorney and a will. There are two reasons: First, not every type of asset can be placed into a trust, for example, retirement benefits. Second, you want these extra documents as “back up” in case over the years you acquire new assets or open new accounts and forget to list the trust as owner.]
Understanding which word to use when will help you have a more productive conversation with your elder law attorney (and to impress your friends).