Glossary:
The area of law practice regarding estate planning has many words that are not used during the normal course of the day. So, to better inform the client, we have included this glossary. It does not contain every legal term, but it is an excellent starting point.
- Administrator / Administratrix: The personal representative who represents the decedent during the probate process where an executor is not named in the Will or when the decedent died without a Will or where the executor named in the Will failed to qualify. If it is a male or a corporation, the personal representative is known as an "Administrator"; if it is a female, she is referred to as "Administratrix."
- Advance Directive: An instrument authorizing another person to act as your agent to make health care decisions on your behalf if you are not able to make such decision or give informed consent.
- Affidavit of Trust: A notarized document signed by the Trustees stating that a trust is then in existence, naming the Trustees with their addresses, and summarizing the powers that a Trustee has. Also known as a Certificate of Trust Existence.
- Annuity: A right to receive fixed, periodic payments, either for life or for a term of years. A fixed sum payable to a person at specified intervals for a specific period of time or for life. Payments represent a partial return of capital and a return (interest) on the capital investment. Therefore, an exclusion ratio must generally be used to compute the amount of nontaxable income. Special rules apply to employee retirement plan annuities.
- Annual Exclusion: A federal gift tax exclusion allowing a donor usually to make gifts of $11,000 per donee. There are no limits to the number of donees. In other words, a couple with two children could give a total of $44,000 a year to their children tax free (each spouse could give each child $11,000 per year). In order to qualify for the annual exclusion, the gift must be a "present interest" which means the gift is available immediately to the donee as opposed to one not available until the future or one requiring the consent of some other person.
- Apportionment: Division of taxes in proportion to the value property received from the estate.
- Appurtenance: That which belongs to something else. Something annexed to another thing which passes as incident to it, as a right of way or other easement to land; an outhouse, barn, garden, or orchard to a house.
- Beneficiary: A a recipient of present or future benefits from a Will, trust, or estate.
- Bequest: A gift of personal property made under a Will.
- Bypass Trust: See Family Trust.
- Certificate of Trust Existence: See Affidavit of Trust.
- Charitable Lead Trust: A trust created during a Trustmaker’s lifetime or under his will which pays a certain percentage of the assets to charity every year for a period of years and then the remainder to the Trustmaker’s children or grandchildren, avoiding estate tax. If the percentage is fixed and not based on the income of the trust, it is an Annuity Trust. If the percentage is fixed but based on the value of the trust at the beginning of each calendar year, it is an Unitrust.
- Charitable Remainder Trust: A trust created to pay income from property to children (or grandchildren) for a term of years with the remainder or principal balance to charity. Usually only a percentage of this trust qualifies for a charitable deduction to the Trustmaker.
- Community Property: Property owned in common by husband and wife each having an undivided one-half interest by reason of their marital status. Nine states (Arizona, California, Idaho, Nevada, New Mexico, Texas, Washington, and Wisconsin) are considered community property states. The rest of the states are classified as common law jurisdiction.
- Conservator: A person appointed by a court to care for the property of a minor or incapacitated individual.
- Credit Shelter Amount: See Exemption Equivalency.
- Credit Shelter Trust: See Family Trust.
- Crummey Trust: A trust which is structured so that certain current gifts to the trust qualify for the annual gift tax exclusion in spite of the fact that the trust provides for deferred distributions of income and principal to the trust beneficiaries. An annual gift tax exclusion is allowed for gifts of present interests. But no exclusion is allowed for gifts of a future interest, i.e., an interest which the donee can't use, possess or enjoy until some future date. A provision in a Crummey Trust giving the beneficiaries the power to demand immediate access and use of principal or income creates a present interest, even if the trust otherwise provides for accumulation of income and deferred distribution of principal.
- Decedent: Person dying.
- Devise: A gift of land made under a Will.
- Disclaimer: An unqualified refusal by a person to accept an interest in property when another has attempted to gift or bequeath such property to them; the disclaimer must be in writing and meet certain other requirements to be effective for federal purposes.
- Durable General Power of Attorney (for assets): An instrument authorizing another person to act as your agent in handling your financial affairs should you become incapacitated.
- Durable Power of Attorney for Health Care: See Advance Directive.
- Estate Tax: A tax (federal or state) on the property owned by an individual at the date of his death when the gross estate (1) exceeds the exemption equivalency and (2) is not given to the spouse under a marital deduction or to charity.
- Executor/Executrix: The male, female or corporation named in the Will to represent the decedent and his or her estate during the probate process.
- Exemption Equivalency: A unified credit of $202,000 (increasing to $345,800 in 2006) is allowed against the federal estate tax of a decedent. The amount of federal estate tax due on an estate of $625,000 is $202,000; therefore, no estate taxes are due on estates of $625,000 or less, assuming that the exemption equivalency has not been claimed against lifetime gifts. The amount of $625,000 (increasing to $1 million in 2006) is known as the exemption equivalency or the credit shelter amount. Also see unified credit.
- Family Trust: Also called a “Credit Shelter Trust” or “Bypass Trust.” A subtrust created after the death of the Trustmaker that is usually for the benefit of the surviving spouse and the decedent’s children. The amount passing to the Family Trust should generally be the amount of the exemption equivalency with the excess property over the exemption equivalency passing to the surviving spouse under the marital deduction, so that no estate taxes are due at the death of the first spouse. A trust set up to benefit the grandchildren or great-grandchildren of the Trustmaker(s) or decedent(s).
- Generation Skipping Transfer Tax: The federal tax imposed on transfers from a donor to a transferee who is two or more generations younger than the donor.
- Generation Skipping Trust: A trust set up to benefit the grandchildren or great-grandchildren of the Trustmaker(s) or decedent(s).
- Grantor: See Trustmaker.
- Gross Estate: The gross estate refers to all of a decedent's property which is includable in his estate for federal estate tax purposes. The gross estate includes all property, real or personal, tangible or intangible, in which the decedent has an interest at the time of his or her death. This includes both probate and non-probate property.
- Guardian: For estate planning purposes, a person or persons named in the decedent's Will or Living Trust to have custody of and to care for the decedent's minor child or children. This individual cares only for the minor, not their property.
- Hypothecate: To pledge property as security or collateral for a debt. Generally, there is no physical transfer of the pledged property to the lender, nor is the lender given title to the property; though he has the right to sell the pledged property upon default.
- Inter Vivos Trust: A trust created during the life of the creator or Trustmaker, which becomes effective during the Trustmaker's life.
- Intestate: To die without a valid Will.
- Irrevocable Life Insurance Trust (ILIT) : A trust set up by a Trustmaker during his lifetime which is funded by a life insurance policy on his life, usually for the benefit of his spouse and children. The trust is exempt from estate tax under certain conditions. Payments of premium to this trust may qualify for the annual gift tax exclusion as a Crummey Trust.
- Jointly Owned Property: An asset in the names of two or more persons. For example, real property may be owned jointly under any of the following types of ownership:
- Joint tenancy. Joint tenants have one and the same interest, accruing by one and the same conveyance, commencing at one and the same time, and held by one and the same undivided possession. The primary incident of joint tenancy is survivorship, by which the entire tenancy on the death of any joint tenant remains to the survivors, and at length to the last survivor.
- Tenancy by the entirety. A tenancy which is created between a husband and wife and by which together they hold title to the whole with right of survivorship so that, upon death of either, other takes whole to exclusion of deceased heirs.
- Tenancy in common. Ownership whereby each tenant (i.e., owner) holds an undivided interest in property. Unlike a joint tenancy or a tenancy by the entirety, the interest of a tenant in common does not terminate upon his or her prior death (i.e., there is no right of survivorship). For example, B and C acquire real estate as equal tenants in common, each having furnished one-half of the purchase price. Upon B's prior death, his one-half interest in the property passes to his estate or heirs.
- Last Will and Testament: The instrument that ultimately fixes the disposition of real and personal property at the death of the testator.
- Letter of Authority: Durable Powers of Attorney may be placed in the hands of a neutral party for safekeeping, and the Letter of Authority specifies the terms and conditions under which the party holding the documents are to release the documents.
- Living Trust: Generally, it is an Inter Vivos Trust for which the Trustmaker is the sole or primary beneficiary and for which the Trustmaker retains the right, by revocation, to reacquire the trust properties.
- Living Will: A document which allows a person to specify in writing how much medical care he or she would like to receive if he or she becomes critically or terminally ill and cannot give informed consent, and there is no reasonable chance of that person being restored to a state of meaningful health.
- Maintenance: Maintaining the individual’s standard of living, including food, clothing and shelter.
- Marital Deduction: An unlimited deduction against federal estate taxes is allowed for decedent's property passing to the decedent's surviving spouse. The marital decedent's does not always save on estate taxes. It merely postpones estate taxes until the death of the decedent's surviving spouse. However, the surviving spouse can offset the marital deduction bequest to the extent of the unused portion of the surviving spouse's exemption equivalency.
- Marital Trust: A subtrust created after the death of the Trustmaker exclusively for the benefit of the surviving spouse. The amount passing to the Marital Trust will generally be the amount which exceeds the exemption equivalency which passes into the Family Trust. No estate tax is due on assets placed into the Marital Trust until the death of the surviving spouse. Generally, IRA and other retirement assets where income tax has been deferred are placed into the Marital Trust.
- Non-Probate Property: Property that passes by contract (i.e., life insurance) or passes by operation of law (i.e., property owned by joint tenants with rights of survivorship). The disposition of this type of property is not governed by a person's Will.
- Per Capita: The method of dividing a bequest where the distributees take as individuals and not taking by their right of representing their ancestor as under per stirpes (i.e., if you had two children, and one child (A) had two children and your other child (B) had four children, and both of your children predeceased you, then all of your grandchildren would share equally in your estate, each taking a one-sixth share.)
- Per Stirpes: The method of dividing a bequest where a class or group of distributees (such as grandchildren by a deceased child) takes the share which their deceased parent (a deceased child) would have been entitled to; such distributees taking by their right of representing such ancestor. For example, if you had two children, and one child (A) had two children and your other child (B) had four children, and if both of your children predeceased you, then A's children would each take one-fourth of your estate, being their share of their parent's share of your estate [? divided 2 children = ?]. B's children would each take one-eighth of your estate, being their share of their parent's share of your estate [? divided 4 children = 1/8].
- Personal Representative: See Executor/ Executrix
- Personalty: Personal property as distinguished from real estate.
- Power of Appointment: A power or authority given by one person by trust or will to another (called the "donee") to appoint, select and nominate, the person or persons who are to receive and enjoy an estate or an income from a fund, after the Trustmaker or testator's death, or the donee's death. A power of appointment may be exercised by trust or by will depending upon the terms established by the donor of the power.
- Probate: Generally, this term includes all matters and proceedings pertaining to the administration of an estate. Specifically, it is the Probate Court procedure by which a Will is proved to be valid or invalid.
- Probate Estate: Those assets which will be transferred under the terms of the owner’s Will. Only probate property is subject to the terms of the Will.
- Q-Tip Trust: Qualified terminable interest property (QTIP) is a type of interest in property passing from one spouse to the other spouse which qualifies for the marital deduction only if (1) the surviving spouse will receive all of the income from the property for the duration of his or her life, and (2) no person has the power to appoint the property to anyone other than the surviving spouse. A QTIP Trust qualifies for the marital deduction only if the Executor of the deceased spouse's estate elects to claim this deduction on the federal estate tax return.
- Residue: The amount of the estate left after paying taxes and expenses and making specific bequests.
- Revocable Living Trust: An Inter Vivos Trust for which the Trustmaker is the sole or primary beneficiary, and retains the right, by revocation, to reacquire the trust properties.
- Settlor: See Trustmaker.
- Situs: Site or location
- Sui Juris: Having the capacity to manage one’s own affairs; not under legal disability to act for one’s self.
- Support: Expenditures for hospital and nursing home care.
- Taxable Gift: Payment of gift taxes during a donor's lifetime can be caused either because (A) the gift itself is large enough to use up the donor's available unified credit, or (B) because when the gift is added to the donor's prior taxable gifts, the total is large enough to use up the donor's remaining unified credit. Upon the death of the donor, all prior taxable gifts are brought back into the estate when calculating the federal estate tax under the unified estate and gift tax law. However, the estate is given a credit for prior gift taxes actually paid. The impact of this unified estate and gift tax system is to include these gifts in the estate at a higher rate than they were originally taxed at the time of the gift (due to the progressive estate and gift tax rates).
- Tenancy: A type of ownership of real property by two more persons in which each owns an undivided interest in the whole. See Jointly Owned Property.
- Testate: To die with a valid Will.
- Testator/Testatrix: A man/woman who has made a Will.
- Trustee: A person or institution that holds the legal title to property for the benefit of someone else who is the beneficial owner.
- Trustmaker: The person who gives or "grants" the money or property to set up or create the trust.
- Unified Credit: A one-time credit in the amount of $202,000 (increasing to $345,800 in 2006) allowed against federal gift and/or estate taxes which may be used during the lifetime of the taxpayer or at death. Only one credit per person is allowed, and so no credit would be available to offset estate taxes if the credit has been fully claimed against lifetime transfers. See exemption equivalency.