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March 10, 2017

Important Legal Terms You Should Know

Legal TermsLegal terms and concepts can be difficult to grasp and understand like any other technical jargon one doesn’t use day in and day out.   Whether that person was a lawyer, a judge, or someone else associated with the law, one  may find it difficult to keep up with the conversation simply because you were not sure what they were discussing.     Here are a few terms that can be confusing or conflated with others from time to time.   In law practice it is not unusual for a layperson to sometimes refer to a Power of Attorney or a Trust, when the instrument is sometimes a Will, or vice versa.

What is Power of Attorney?

Generally speaking, a power of attorney is a person who is given the authority to act on behalf and make decisions for another person.   This may only pertain to legal and/or financial matters and the power of attorney must be designated in writing.   A poweer of attorney could be broad enough to allow the agent or attorney in fact to take certain actions with regard to medical issues, but this should not be conflated with a Living Will or Health Care Surrogate, which are different instruments for other purporses.       A power of attorney can be broad or it can be limited to specific events such as just for a real estate closing.      The person who is giving permission to the other person to act on  their behalf for legal or financial items is usually referred to as  the principal or grantor of the power.  A power of attorney can also be limited to becoming operative only when the principal or grantor has become incapacitated or disabled.

What is a Living Trust?   

A living trust is a legal written instrument in the form of an agreement used to place assets in a trust and used for one’s benefit through his or her life. It may be revocable and can be modified as well.   It is not unusual for the items placed in the trust to pass to your designated beneficiaries (explained below) at the time of your death, or held for them in trust pursuant to the terms of the instrument.     The latter often happens when the future beneficiary is too young to be responsible for sizable assets and may not be given control until a later birthday.  A living trust is an arrangement that designates one person to hold the title of trustee.     The person placing the assets in trust is usually referred to as the grantor or settlor, and this same person may be the trustee and beneficiary during his or her life.    Or another person may be trustee or even co-trustee.     Typically, for such a trust to become operative, assets have to be titled in the name of the trust.   When so titled the trust is the owner of the assets. Do not confuse a Living Trust with a Living Will mentioned above.    They are different instruments.

What is an Estate?

An estate could be used to mean a number of things but often is the term given to refer to all the assets passing upon the death of the owner in probate court.  Assets passing by way of financial institution account agreement or by survivorship of jointly held property often will not go through probate and be part of a probatable estate.   The same is true of many assets held or owned by a trust.    This often can be because the trust is the owner of the assets held in trust and the trust doesn’t die necessarily when its grantor or settlor does.      But this does not mean such assets may not become part of a taxable estate if there is tax to be paid.     The word estate is thus tossed around in many contexts.   In probate, after debts are paid, and depending upon the terms of any Will, an estate which is not affected by a trust, may pass to the beneficiaries set forth in a Will.  Sometimes this prospective inheritance which a benefidiary might receive may be transferred in turn under the beneficiary’s Will or Trust to another person through a power of appointment.

What is a Beneficiary?

A beneficiary can be a person or other legal entity that someone identifies for transfer of a property interest to in their Will or by Trust or gift.   The beneficiary often will receive the money or the items once a person passes or some other condition precedent occurs.   The beneficiaries must be included in the Will or Trust or otherwise sufficiently identifiable.  If not in writing in one of these Instruments the beneficiary may never get what was intended for him or her.   Because of that, it is important to ensure the appropriate instrument is used and beneficiaries and gifts, bequests and/or devises are clearly stated.

If you wish to discuss these or other trust, probate or estate related issues, contact Ilam Smith today.

Filed Under: Law Terms, Uncategorized

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Ilam Smith spent the first year of his legal career serving as a law clerk to a federal judge at the United States Court of Appeals for the Sixth Circuit in Cincinnati, Ohio. Since then he has represented both defendants and plaintiffs which has given him ample perspective and experience with cases from both sides. [read more]

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Normandy Complex
101 N. 7th Street
Louisville, KY 40202
502-561-3434

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Ilam E. Smith
Smith Law Office
Normandy Complex
101 N. 7th Street
Louisville, KY 40202
502-561-3434