Estate Planning: Start With The Basics
We all know we should have at least a rudimentary plan for our families and assets in case disaster strikes, but it’s hard to get started. Here’s help in the form of a rundown of the vocabulary commonly used in estate planning, and a basic overview of a will and a trust, and the role they play in getting your affairs in order.
Preparedness for Life’s Twists and Turns
Of course it is vital to have our assets (and debts) organized so that loved ones can take over when we die, but the reality is that an estate plan can do so much more. For example, if we experience a sudden capacity decline, it’s key to have a power of attorney who can make financial decisions and handle accounts on our behalf. Additionally, earmarking funds and plans for our own care as we age can turn out to be the best gift we can leave the next generation. When minor children are in the picture, it’s also wise to name a guardian, as Shaila Buckley Law underscores.
Toward jump starting your estate planning efforts, familiarize yourself with the basic terminology involved. Cholewka Law offers this estate planning vocabulary list:
- Assets. Generally, anything a person owns, including a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, art, clothing, and collectibles.
- Beneficiary. A person or entity (such as a charity) that receives a beneficial interest in something, such as an estate, trust, account, or insurance policy.
- Distribution. A payment in cash or asset(s) to the beneficiary, individual, or entity who is entitled to receive it.
- Estate. All assets and debts left by an individual at death.
- Settle an estate. The process of winding down the final affairs (valuation of assets, payment of debts and taxes, distribution of assets to beneficiaries) after someone dies.
- Fiduciary. A person with a legal obligation (duty) to act primarily for another person’s benefit, e.g., a trustee or agent under a power of attorney. “Fiduciary” implies great confidence and trust, and a high degree of good faith.
Wills and Trusts: A Quick Overview
Typically, estate plans are anchored by wills or trusts—or sometimes a combination. It is through wills and trusts that we are able to allocate assets to others. Both wills and trusts are legally binding. A will takes effect only when we die, while a trust can be useful while we remain alive, as well as upon death. For example, funds can be designated in a trust for our own care in the event of a decline.
Unlike wills, trusts also enable us to set up distributions to others over time, or based on other criteria—as spelled out in the trust agreement, sometimes referred to as a trust document. Estate planners offer these basic definitions of wills and trusts:
- Trust: A fiduciary relationship in which one party, known as the trustmaker or settlor, gives another party, known as the trustee, the right to hold property or assets for the benefit of another party, the beneficiary. The trust should be memorialized by a written trust agreement, outlining how the trust assets will be distributed to the beneficiary.
- Will: A written document with instructions for disposing of assets after death. A will can only be enforced through a probate court. A will can also contain the nomination of guardian for minor children.
Note that when there is a will, the fiduciary appointed to administer it is typically referred to as an executor. When there is a trust, the fiduciary is a trustee. No matter what term is used, the family member, friend or professional appointed has a fiduciary obligation “to act with the utmost good faith,” putting the interests of the beneficiaries before their own, while administering the affairs of the estate.
When writing a Will or Trust, families frequently include language that waives the requirement for a fiduciary bond. Sometimes, however, bonds can be helpful–or even required by courts. For example, a probate court may require a bond if:
- There are significant debts or complex creditor claims.
- Out-of-state fiduciaries are appointed.
- Beneficiaries actively contest the arrangement or request a bond for protection.
- The deceased died intestate (without a Will).
Basically, a fiduciary bond acts as a financial guarantee, protecting the beneficiaries and creditors of an estate while debts are assessed and assets distributed. As lawyers further explain: “A fiduciary bond is a legal instrument that essentially serves as insurance to protect beneficiaries, heirs and creditors….”
Sometimes referred to as a probate or estate bond, fiduciary bonds can also specifically reference the specific role of the person required to obtain it. For example, the executor of a will may be required to obtain an executor bond, whereas a trustee may be required to obtain a trustee bond. Regardless of the nomenclature differences, all fiduciary bonds are legally binding three-party contracts involving:
- The Principal: The fiduciary who purchases the bond.
- The Obligee: The Court, acting on behalf of the estate’s heirs and creditors.
- The Surety: The surety bond/insurance company issuing the financial guarantee.
In the event the Principal fails in their legal duties and causes financial harm, the Surety pays out to cover the damages (up to the bond’s total value) and subsequently seeks reimbursement from the Principal.
Streamlining Estate Bonds
Securing a fiduciary bond doesn’t have to be a stressful or time intensive ordeal. Modern direct writers like Colonial Surety Company make obtaining court-ready fiduciary, probate, executor, trustee, and administrator bonds straightforward and digital. Fiduciaries can quickly get instant online quotes, and download official court documents to keep the estate closing process moving forward.
Colonial Surety Company makes it easy to secure fiduciary, estate and probate bonds that meet the exact, state-specific requirements of courts in every state and U.S. territory. Here’s how:
- Simply select the specific bond you need from our extensive online bond library.
- Receive an instant quote.
- Complete the brief application and payment.
- Download or print your court-ready bond.
All Types of Fiduciary, Estate and Probate Bonds Here
Fiduciary and Court Bond Services for Attorneys
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