LEGAL LINGO: The right words are sometimes confusing

By: Mike Wells | Winston-Salem Journal
Published: February 28, 2010

Legalease. Everybody despises it, including lawyers. It is often necessary, unfortunately, to adequately describe complicated matters.

In more than 35 years of practicing law, I've seen that there are certain words that raise more questions than others.

Here are the main ones in the estate-planning area:

• Executor/executrix and administrator/administratrix. For years, the person named in a will to handle the administration of an estate has been called executor and executrix. If you die without a will, that person is called an administrator and administratrix. The reason for the difference in these words is they derive from the Latin counterparts, as a lot of legal words do. Executor and administrator are for male representatives, and executrix and administratrix are for women.

In recent years, the person in charge of the estate is called a personal representative. This is much more descriptive. If your present will uses executor or executrix, you do not need to redo it simply to change these words.

• Trusts. What are they, and what are they used for?

Here's a good way to think about a trust: it is a separate "box" which is set up to hold assets for a specific purpose. Or, if the assets are money and stocks, think of it as a separate account. If you keep the "box"/separate account concept in mind, it gives you something more concrete to see in your mind's eye.

• Minor Trust. This trust is used regularly for an individual who has young children. If both parents are gone, a child will get any money left to them when they turn 18. And, without a trust, the money has to be held in a guardianship account until the child turns 18. The guardianship account has significantly less flexibility, and more expenses, so a trust is much better.

Often, a parent wants the money held until the child is 25, with the ability of the person writing the checks (trustee) to pay out money for the child's ordinary expenses along the way.

• Revocable/Living Trusts. This is a trust set up to keep assets out of probate when you die, primarily. It is used in many states because probate fees -- the fees just to run assets through probate at the time of one's death -- are very high.

Probate fees are much more modest in North Carolina, and there are many assets which do not pass through probate anyway (retirement accounts and life-insurance proceeds, generally). As a consequence, the attorney's fees to set these trusts up are often more than the benefit derived. Still, they can be a very useful tool for a variety of other reasons.

The phrase "living trusts" is simply a bad phrase. It is an attempt by lawyers to find a descriptive phrase, but the attempt falls short. Revocable trust is not perfect, but it is better.

• Bypass Trusts, Credit Shelter Trusts, AB Trusts, Disclaimer Trusts. These are trusts set up to avoid estate taxes, and to provide some financial benefit for a surviving spouse, too.

There are valid technical reasons why these phrases are correct. But if I were writing the dictionary on these kinds of trusts, I would simply call them "estate tax saving trusts." That is the heart of it for clients.

A helpful tool for clients is a separate "user friendly" summary of each technical paragraph with a more conversational discussion of what the language is intended to do. Ask your lawyer to provide one to you.

Remember: An informed choice is a smart choice.

Mike Wells is an attorney with Wells Jenkins Lucas & Jenkins, PLLC, in Winston-Salem.