The Fundamentals of a Legal Will and Trust that Nobody Explains

Estate Planning Fundamentals

I’m glad you’re interested in learning more about creating a Legal Will and Trust. This can be a confusing topic. Lawyers and educational websites throw around words like “estate” “probate,” “executor,” and “personal representative” without giving you a clear understanding of what these terms mean.

So before delving into why having a Will and Trust is so important, I want to discuss some basic principles that surprisingly few people truly understand. Once you understand these concepts, you see why having a Will and Trust is so crucial.

What is an “Estate” and why do they exist?

Pretty much everyone has heard the word estate and knows it’s something you need to deal with when someone dies.  But what is it? 

Think about it this way.  Assume I buy a laptop computer.  The computer now belongs to me.  But who owns the computer if I were to suddenly die?  There are ways to figure out who will ultimately get the computer, but who owns the computer in the meantime? 

The answer is (you guessed it) my “Estate.”  

Think of an Estate as something like a corporation (a fictitious “person” or entity) that springs into existence the moment the last drop of life ebbs from your body.  You see lawyers can’t have things floating around without an owner, so they invented the Estate.  And the job of the Estate is to instantly own everything that a person used to own at the moment of their death. 

Those assets then stay assets “assets of the Estate” (i.e., assets owned by the estate of the person who just died) until we can figure out which assets go to which people.  The Estate also owns something else of yours; all of your DEBT.  That means that if I owed my friend, Shylock Sam, $100 at the moment of my death, the Estate may have to sell the laptop in order to have money to pay back ol’ Sam.

What is an “Executor” or “Personal Representative?”

You just learned that an estate is similar to a corporation.  There is a whole set of laws in each state that dictate what corporations can and cannot do and what rights it has.  The same thing is true for an Estate.  And just as the president or CEO is in charge of a corporation, the Executor or Personal Representative is in charge of an estate.  It’s a position that can wield a lot of power and also carries a significant amount of responsibility. 

Executors are responsible for seeking out every asset that was owned by the deceased person at the moment of their death.  And just so you know, the words “Executor” and “Personal Representative” mean exactly the same thing.  Different states have just adopted using one or the other.

What is Probate?

Now that you understand what an estate is and why it exists, you may have figured out that the process of applying the laws to the Estate is called probate.  Let’s go back to my laptop computer example.  I just died so my Estate now owns my laptop. 

Now we need to know a whole bunch of things.  What assets other than the computer does my estate own?  Who’s going to be the Executor? Is there a Will?  What debts are owed?  And the list goes on and on.  One of the first rules that apply to Estates is that paperwork needs to be filed with the court.

With probate, an attorney needs to be hired to draw up legal papers that need to be filed with the court together with filing fees.  A judge has to approve the Executor named in the Will or, if there is no Will, determine who has that right under the law. 

Assets need to be cataloged, creditors need to get notified (alerted), and family members (whether or not named in the Will) need to be notified.  And again, the list goes on and on.  Having a Will can answer any questions the court will need to know like who you want to be in charge (the Executor), who you want to receive your assets, etc.   

This isn’t a full description, but I hope you see why most people want to avoid the probate process. Many people think that having a Will avoids the need to go through Probate, but it doesn’t.  It simply governs the assets inside your estate.  In addition, if an asset doesn’t become part of your Estate, your Will has no power to direct where that asset goes.

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